“ Own Your Share of American Business ” campaign . The Proxyteers put this propaganda to the test . They bought large interests in public companies , often from vestigial holders liquidating their stakes , and they attacked management teams in the name of shareholders ’ rights . Managers were incredulous . Often the CEO ’ s first response was simply a befuddled , “ Who ? I have never heard of this guy .” But the Proxyteers were not easily dismissed . As Charlie Green said , “ If owning stock doesn ’ t make me a partner , then all that stuff they hand out about how if you own shares you ’ re a partner in American business is a lot of baloney .”
The New York Central Proxy Fight
When “ Commodore ” Cornelius Vanderbilt won control of the New York Central in 1867 , he did it via cutthroat competition and behindthe-scenes share purchases . Almost 90 years later , when Young began his own assault , he courted the common shareholder . He did so with a flair for the dramatic , turning shareholder communiqués from formal legal documents into entertaining and irreverent missives . One of his most provocative letters to New York Central shareholders read :
WARNING : If any banker , lawyer , shipper , supplier or other person solicits your proxy for the present Board , ask him what his special interests are , or what your Company is paying for his services . Like the bankers now on your Board , he , too , may be hoping to receive special favors from your railroad or from the bankers .
Young was the elder statesman of the Proxyteers , and the New York Central fight was the culmination of his decadeslong battle against the Wall Street establishment . He had already made his fortune and built his mansions in Palm Beach , Florida and Newport , Rhode Island . But the New York Central was the ultimate trophy — his chance to win the Vanderbilts ’ railroad at the expense of the Morgans and their ilk .
Warren Buffett and the Great Salad Oil Swindle
The Great Salad Oil Swindle was an audacious fraud that nearly toppled American Express in the 1960s . It is a complicated story filled with valuable lessons about the fallibility of businessmen and their capacity to ignore reality at critical junctures . While the saga exposes terrible behavior and a true villain , it features many more honest and capable people who unwittingly developed deadly blind spots . The fallout from the fraud also pitted Warren Buffett against a handful of shareholders who wanted American Express to maximize its short-term profits by ignoring salad oil claimants .
Letter from Warren Buffett to American Express President Howard Clark regarding the company ’ s involvement in the 1960s Salad Oil Swindle .
When Buffett intervened at American Express as a large shareholder , he didn ’ t demand board representation or ask probing questions about the company ’ s operating performance . He didn ’ t call for a higher dividend or question the company ’ s capital spending . Instead , he wanted American Express to use its capital liberally to recompense parties who were defrauded in the swindle . Buffett had done enough research on American Express to understand that it was a phenomenal business . He would later refer to companies like this as “ compounding machines ,” because they generate huge returns on capital that can be reinvested at the same rate of return . Buffett knew that walking away from the salad oil claims would damage American Express ’ s reputation and its substantial long-term value . He wanted to prevent short-term-oriented shareholders from jamming the compounding machine ’ s gears just to save a few dollars .
Carl Icahn ’ s Bear Hug of Phillips
On February 4 , 1985 , Carl Icahn sent a letter to William Douce , chairman and CEO of Phillips Petroleum , offering to buy the company . He wrote that if Phillips did not accept his bid , he would launch a hostile tender offer for control . Phillips was Icahn ’ s 15th target in his seven-year career as a raider , and his note to Douce was a classic corporate raider ’ s “ bear hug letter ” — an offer to purchase the company , followed by threats should he be ignored . While Icahn had used the same playbook for his earlier battles , this showdown was markedly different : Phillips was one of the largest corporations in the world , many times bigger than any company he had ever pursued .
Icahn once said of his early corporate raids that he was merely “ playing poker .” He borrowed heavily to fund his stock purchases , and his threats to tender for controlling stakes were often bluffs . He explained , “ I didn ’ t have the money to fight for the long haul — to pay the interest on the shares I held .” When Icahn threatened an $ 8.1 billion tender offer to take control of Phillips , few people took him seriously . Phillips ’ s investment banker , Joe Fogg , told him , “ That ’ s preposterous . What the hell do you know about the oil business ?” Phillips , which had just endured an intense fight with raider T . Boone Pickens , ran fullpage newspaper ads asking , “ Is Icahn for Real ?” This time , he was . “ Cash ! We have cash ,” he responded to Fogg . “ We ’ ll hire people who know about the oil business .”
The 1980s Deal Decade
America ’ s fourth great merger wave proved to be much more substantial than its conglomerator-driven predecessor . The 22,000 mergers and acquisitions of the
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