“ 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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