Paper (I) Animal Spirits: “Historias” de ayer… y de hoy. ¿Aprendemos algo de las crisis? ¿Estamos mal, pero vamos mejor? La farsa continúa Algunos “desastres” (económicos, ecológicos y políticos) comparados



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Paper (I) - Animal Spirits: “Historias” de ayer… y de hoy. ¿Aprendemos algo de las crisis? ¿Estamos mal, pero vamos mejor? La farsa continúa

Algunos “desastres” (económicos, ecológicos y políticos) comparados

Comienzo a escribir este Paper el miércoles 11 de agosto de 2010; por el volumen acumulado de antecedentes, documentación y hemeroteca (924 páginas, hasta el 31/7/10) es muy probable que termine transformándose en un Ensayo (todo se verá…). Por lo uno o por lo otro, como siempre, perdón, pacientes lectores.

Mientras tanto (con la intención de aliviar su lectura -o descarga-), dividiré la presentación de la siguiente manera:

I-De Milken a Madoff (ladrones sin fronteras) (En Paper I)

II-De Greenspan a Bernanke (la “regadera” y el “helicóptero”) (En Paper I)

III-De Exxon a British Petroleum (un capitalismo de “manos libres”) (En Paper II)

IV-De Bush a Obama (la trampa de la seguridad: un estado de “saturaciones generales”) (En Paper II)

En principio estuve tentado en titular el trabajo como: “La danza de los enanos”, pero finalmente me decidí por: “Espíritus animales” (en su versión en lengua inglesa, que cuadra mejor con los protagonistas).

Algunos de los temas y personajes ya fueron citados en anteriores Papers o Ensayos (más adelante encontrarán las transcripciones); todos estos “artistas” forman parte del elenco estable de la crisis (no sólo económica) que padecemos. Vicios malditos… Socios del silencio… Sospechosos habituales…

Durante el período histórico que abarca el estudio (desde 1980 a 2010), puede constatarse que poco ha cambiado el panorama de crisis, siniestros y mentiras (viejas o nuevas). Espero demostrarlo. Los desastres se postergan con extrema rapidez.

¿Se podría decir, sin cinismo, que alguno de los hechos o intérpretes reseñados han sucedido o actuado pensando en la “herencia” que dejaban a las siguientes generaciones? ¿Han servido de guía a la economía para que produzca felicidad sustentable -combinando bienestar material con salud humana, conservación ambiental y resistencia psicológica y cultural-?

Mi padre (que vivió los primeros años de su vida en el campo) decía que “por la cagada se conoce al pájaro”… pues eso.

¿Aprendimos algo de los desastres y las crisis? ¿Algo ha mejorado? ¿Estábamos mejor, cuando estábamos mal? ¿Qué enseñanzas puede dejarnos la historia sobre nuestra difícil situación económica actual?

En un estado de “saturaciones generales” (por exceso de especulación, incompetencia y corrupción), este humilde “memorialista” de las miserias económicas y políticas, desea dejar constancia del fracaso de los “sabios”.

(Historias de ayer…) Un “vis a vis” con la realidad histórica. Apuntes, para que no se olvide lo inolvidable. Algunos casos en los que el “apetito por el riesgo” se transformó en… ¿adicción al juego? ¿obesidad mórbida? ¿niveles de exigencia y de seguridad ultra laxos? Mirando hacia atrás para ver para adelante.

(… y de hoy) Difícil escribir sobre la “historia en acción” (en su eterno y eternamente operante “caos de ser”). La línea de los acontecimientos se bifurca. Como analista intento situarme en un punto del pasado en el que los factores conocidos parezcan permitir resultados esperables de los acontecimientos presentes.

Puede que tenga “casi todas” las preguntas difíciles, pero -lamentablemente-, no pueda darles “unas cuantas” respuestas probables; sólo percepciones y algunas especulaciones.

Dado que las decisiones sobre el futuro están -por lo general- basadas en una ponderación de las consecuencias de diversos cursos de acción, es sensato comparar los resultados de lo que en efecto se hizo en el pasado con los resultados concebibles de lo que se podría haber hecho.

Para algunos lectores “apurados” o para aquellos que ya están tentados de “degollarme” con un click misericordioso, les adelanto unas “conclusiones mínimas” (preliminares). La repetición de experiencias, me lleva a pensar que:



  • La farsa continúa.

  • La seguridad de los ahorristas, no hay quien la proteja.

  • La seguridad del medio ambiente, no le interesa a nadie.

  • La autoridad de control, no controla nada. Incumple reiteradamente sus compromisos.

  • Los (supuestos) líderes políticos, resultan incapaces de prevenir y gestionar.

  • La única seguridad efectiva, es la seguridad del fracaso (y la mediocridad).

  • Los desastres se postergan con extrema rapidez.

  • Habrá más penas y olvidos.

Algunos “desastres” (económicos, ecológicos y políticos) comparados. Pícaros y truhanes (Milken y Madoff), artífices y cómplices (Greenspan y Bernanke), perversos y especuladores (Exxon y British Petroleum), megalómanos e irresponsables (Bush y Obama)… Los “pájaros” y sus “cagadas”. ¿Algo, o alguien, ha cambiado el rumbo del Titanic?

Mientras tanto, la orquesta sigue tocando… La farsa continúa…

Nota metodológica: En la citas de Hemeroteca (lectura recomendada) se han subrayado los párrafos más importantes, destacando en rojo aquellos más reveladores.



Parte I - De Milken a Madoff (ladrones sin fronteras)

- Michael Milken (The Junk Bond King)

Bonos basura (breve historia)

Este término nació en Estados Unidos, en los años ochenta, cuando grupos de aventureros constituían compañías que se dedicaban a comprar empresas que enfrentaban dificultades financieras pero que poseían patrimonios que superaban ampliamente el endeudamiento.

Para acceder a la dirección de esas empresas, los aventureros emitían los llamados bonos basura, que ofrecían rendimientos elevados para compensar sus altísimos riesgos. Con ese dinero, tomaban el control de la empresa, que se endeudaba con la compañía de aventureros, quienes, aprovechando la desgravación impositiva por el endeudamiento de la empresa capturada, pagaban los intereses de los bonos basuras en el primer año. A continuación, asumida autocráticamente la dirección de la empresa conquistada, vendían a precio vil su patrimonio, la quebraban y dejaban en la calle a miles de trabajadores.

Eran operaciones ilegales, pero amparadas por la permisividad de la política económica de la administración gubernamental estadounidense, en aquel entonces.

En la época de la gran euforia de los bonos basura, aventureros como Dennis Levine, Ivan Boesky y Michael Milken, famosos por la creación de este tipo de bonos en los años ochenta, eran adorados y reverenciados como los nuevos héroes del capitalismo, llegando a ganar más de US$ 700 millones al año. Sin embargo, cuando se hundió el mercado de los bonos basura, algunos de estos héroes terminaron en la cárcel por utilizar información privilegiada para enriquecerse.

La progresiva desaparición de las políticas keynesianas, caracterizadas por su justificada desconfianza hacia los mercados financieros, trajo durante los años ochenta y noventa una edad de oro del delirio financiero institucionalizado. Con los gobiernos de Reagan y Thatcher, lo que habían sido explosiones más o menos espontáneas permitidas por el laissez faire liberal pasaron a ser activamente promovidas por la política macroeconómica de los gobiernos. Ya se sabe, los mercados siempre tienen razón. Todo esto vino acompañado de una revolución cultural. Por primera vez, los especuladores, vestidos con sus camisas de rayas y su pelo engominado, pasaban a ser el arquetipo social indiscutido del triunfador. Según la nueva ideología neoliberal, los golden boys y los yuppies eran tipos saludablemente ambiciosos, competitivos e individualistas cuyo éxito en los mercados desregulados despertaba la envidia de una sociedad aborregada por años de Estado de Bienestar.

Uno de los yuppies más famosos fue Michael Milken, el inventor de los “bonos basura”. Estos bonos eran títulos de deuda que emitían las empresas con dificultades financieras para conseguir fondos, y tenían una rentabilidad más alta que los bonos de empresas con las cuentas en mejor estado. Las emisiones de bonos basura se utilizaron mucho en la oleada de operaciones de adquisición y fusión de esta época. Las empresas que lograban financiarse por esta vía absorbían a otras empresas en dificultades. Así, conseguir financiación antes que los competidores, permitía a las empresas ser compradoras en vez de compradas. Michael Milken endosó sus bonos basura a las llamadas “thrifts”, cuya traducción literal sería “ahorros”, unos bancos locales semipúblicos repartidos por toda América, que se encargaban de financiar la adquisición de viviendas para las clases medias.

Las “thrifts” eran unas instituciones bastante aburridas que llevaban medio siglo financiándose sin mayor problema mediante la venta de títulos de deuda respaldados por el Estado hasta que la radical subida de tipos de interés de 1979 las puso en serios aprietos económicos. Gracias a una serie de medidas desreguladoras del congreso de Estados Unidos, Milken desembarcaba con sus bonos basura en las “thrifts” y éstas se lanzaban a una guerra para atraer ahorros mediante altísimos tipos de interés. Las empresas que emitían los bonos basura comenzaron a no tener fondos para pagar los intereses, pero no hubo problema: se emitió más deuda para tapar la deuda y las “thrifts”, ahora controladas por “amigos” de Milken, siguieron comprando los bonos. A finales de los ochenta, cuando el agujero ya era mayúsculo, las autoridades financieras prohibieron la compra de bonos basura a las “thrifts” y éstas entraron en bancarrota fulminantemente, provocando el desplome del mercado de bonos basura. Pero Milken y sus colegas disparaban con la pólvora del rey: el gobierno estaba obligado a respaldar los fondos de las “thrifts”. El rescate costó 150.000 millones de dólares, el más alto de la historia de Estados Unidos hasta 2008. Milken fue condenado a pasar treinta meses en lo que el economista Charles Kindleberger calificó como “un club de campo federal”. Hoy Milken se pasea tranquilamente por las listas de las personas más ricas del mundo.



Compras apalancadas (breve historia)

Fuente: Dillon Read & Co. Inc y la Aristocracia de la industria carcelaria - Por Catherine Austin Fitts - 2006-2007

“Las compras apalancadas se constituyen como un fenómeno que se empezó a presentar en los años 80. Una compra apalancada (leveraged buyout, o “LBO”) es una transacción en la que un patrocinador financiero compra una compañía, ante todo, con deuda. De hecho, se compra la compañía objetivo con el dinero de la misma y con su propia habilidad financiera para repagar la deuda. Como se describe en “Barbarians at the Gate: The Fall of RJR Nabisco” (Págs. 140-141):

En 1982 un grupo de inversión -liderado por William Simon, un ex secretario de Hacienda-, adquirió una compañía de Cincinnati llamada Gibson Greetings, e hizo que dejara de cotizar en bolsa. La compra ascendió a 80 millones de dólares, de los cuales solamente un millón provenía de su propio dinero. Cuando Simon hizo que Gibson cotizara en bolsa nuevamente, esta compañía se vendió en 290 millones de dólares. La inversión de 330.000 dólares realizada por Simon fue avalada en 66 millones de dólares por conceptos de dinero y títulos de valor. Para 1985, a sólo dos años después de lo sucedido con Gibson Greetings, había 18 compras apalancadas independientes valoradas en mil millones de dólares. En los cinco años preliminares a la compra que llevó a cabo Ross Johnson (Presidente y Gerente General de RJR Nabisco), la actividad de compras apalancadas totalizaba $ 181,9 miles de millones de dólares, comparada con apenas $ 11 mil millones generados en los seis años anteriores a eso.

Un número de factores se combinaron para avivar la histeria. El código de rentabilidad interna -para generar intereses pero no dividendos deducibles de los ingresos gravables- subsidió la tendencia. Esto provocó que las compras apalancadas despegaran. Aunque lo que las hizo dispararse fueron los bonos “basura”.

Del dinero generado por cualquier compra apalancada aproximadamente el 60 por ciento, de la deuda asegurada, proviene de préstamos de bancos comerciales. Sólo más ó menos un 10 por ciento viene del comprador mismo. Durante varios años, el 30 por ciento que quedaba -la carne en medio del sándwich- venía de un puñado de grandes aseguradoras, cuyos compromisos a veces tardaron meses en cumplirse. Luego, a mediados de los 80, Drexel Burnham empezó a usar bonos “basura” de alto riesgo, para reemplazar los fondos de las aseguradoras. El “zar” de bonos de dicha firma, Michael Milken, había comprobado su capacidad para reunir enormes cantidades de estos valores con poca antelación, con el fin de realizar compras hostiles. Los bonos basura de Milken, bombeados en el negocio de las compras apalancadas, se convirtieron en un combustible de alto octanaje que pasó a transformarlo de un Volkswagen Escarabajo a un monstruoso automóvil Drag Racer que despedía humo y fuego.

Gracias a los bonos basura, compradores de las compras apalancadas, alguna vez considerados muy lentos como para competir en la batalla que tiene como objetivo tomar una empresa, pudieron hacer muy rápido sus propias ofertas, por primera vez.

En una empresa muy apalancada, el dueño de las acciones no es quien realmente tiene el control. Es el tenedor de los bonos o el acreedor, quien puede poner la empresa en mora. Con todas las malas jugadas que se encontraban disponibles para los equipos de “asesinato económico”, combinadas con la habilidad de un acreedor para dejar una empresa en mora, ¿quién necesita un dueño visible? Lo que quedó sin mencionarse fue la facilidad y elegancia con que los bonos “basura” hicieron posible tomar compañías con narcodólares y otras formas de dinero caliente, financiadas por poderosos socios que se encontraban escondidos tras montones de deudas.

Emergió una creciente cantidad de firmas de inversiones atractivas y astutas en los negocios, que competían por convertirse en propietarias registradas de un amplio número de compañías que salieron de la bolsa, al someterse a compras apalancadas. Entre estos casos se encontraba el de Kohlberg Kravis Roberts & Co. (KKR), la firma de LBO que se apoderó de RJR Nabisco en 1989, durante una de las tomas más visibles de la década que fue documentada en Barbarians at the Gate. Dillon Read representó la junta directiva de RJR Nabisco durante la transacción. Mientras la puja entre KKR y el grupo de gestión dirigido por Ross Johnson -junto con Sheason Lehman- se intensificaba, recuerdo quedar estupefacta sobre la inquietud de por qué pensaría alguien que RJR Nabisco podía pagar la cantidad propuesta de la deuda. Después de todo esto, mientras leía informes en donde se aseguraba que sí se estaba pagando la deuda y los intereses, me pregunté cual era el truco de magia que poseía KKR y que nos hace falta a los simples mortales. Según Barbarians at the Gate, resulta que KKR logró ganar sin tener la oferta más alta de la puja. Es posible preguntarse hasta que punto fue arreglado el proceso de licitación para asegurar que ganara esta firma, o si fue manipulado por los medios de comunicación para hacer parecer que la junta directiva tenía motivos para favorecer a KKR, en lugar del grupo de gestión, aunque las verdaderas razones fueran otras.

Años después, leyendo entre líneas la demanda de la Unión Europea, se me ocurrió que tal vez KKR simplemente había protegido una de las principales redes de lavado de dinero del mundo, y que, tras el velo de una empresa privada, había llevado esta red a un nuevo nivel. Durante el mismo periodo, reclutaron a Lou Gerstner de American Express para dirigir un RJR ya más dinámico y apalancado. Las demandas presentadas por la Unión Europea contra RJR alegan que la cúpula de la dirección -incluso durante la época en que Gerstner encabezaba la compañía como jefe ejecutivo- dirigía las actividades ilegales de RJR directamente. Cuando la Unión Europea se refirió a “los más altos niveles corporativos”, así como a los “ejecutivos y directores”, en realidad estaba hablando de Lou Gerstner, y -por medio de Gerstner y la junta directiva- el accionista controlante, KKR.

Ya exitoso dentro de RJR, Gerstner dejó la empresa para ir a revitalizar a IBM y luego fue nombrado caballero por la Reina Elizabeth. Después de renunciar a IBM, fue escogido para dirigir el Carlyle Group en Washington a finales de 2002. La demanda de la Unión Europea destaca los más ocultos talentos de Gerstner que le ayudaron a revitalizar a IBM, uno de los contratistas militares y de inteligencia más poderosos de todos, y a dirigir una firma de compras apalancadas como Carlyle, que había construido su negocio con contratistas militares y de inteligencia, así como con la inteligencia a la que tienen acceso tales contratistas.

Henry Kravis y George Roberts fueron dos de los fundadores de KKR. El padre de Kravis -quién era exitoso en las industrias del petróleo y gas- supuestamente fue un amigo de la familia Bush y tenía muchos enlaces estrechos con Wall Street. Se decía que Henry Kravis y George Roberts, su primo y socio en San Francisco, apoyaban generosamente a la campaña de Bush.

Para mí era inconcebible que KKR hubiera ganado la puja sobre RJR Nabisco pese a sus ofertas bajas sin que el vicepresidente George H. W. Bush en la Casa Blanca (quien acababa de triunfar en las elecciones) y/o Nick Brady en la Tesorería hubieran intervenido con su mano invisible. El asesor legal de la Casa Blanca en la administración Bush, el egresado de Harvard C. Boydeb Gray (ahora socio en Wilmer Culter) fue heredero de una de las varias fortunas de RJR en North Carolina. Cuando el equipo de puja -dirigido por Ross Jonson, entonces presidente de RJR Nabisco- perdió frente a KKR, me pregunté: ¿será que Nick finalmente se vengó de Ross Johnson por haber debilitado a la principal empresa aseguradora después de la fusión con Nabisco en 1985?

Cuando Nick Brady llegó por primera vez a la Tesorería, parece que tardó mucho en contratar personal y organizar su oficina de relaciones públicas. Antes de salir de Wall Street en abril de 1989 para unirse al gobierno de Bush, los periodistas solían llamarme buscando información general sobre él y sobre su vida. Un reportero me preguntó si pensaba que Brady era lo suficientemente duro como para sobrevivir en las aguas peligrosas de Washington. Respondí que sí, que efectivamente Brady tenía una fina manera de comportarse. Aunque, no obstante, el mundo estaba lleno de hombres y mujeres que nunca se imaginaron hasta donde podría llegar”...



What Does Michael Milken Mean? (En inglés, según el documento original)

Fuente: Forbes - Investopedia

As an executive at investment bank Drexel Burnham Lambert Inc. during the 1980s who used high-yield junk bonds for corporate financing and mergers and acquisitions. Michael Milken amassed an enormous personal fortune, but in 1989 he was indicted by a federal grand jury and eventually spent nearly two years in prison after pleading guilty to charges of securities fraud. While he is credited with founding the high-yield debt market, he was banned for life from the securities industry.

Investopedia explains Michael Milken (A Forbes Digital Company)

Nicknamed “The Junk Bond King” in the 1980s, Milken earned between $ 200 million and $ 550 million a year at the height of his success. Following his release from prison, he worked as a strategic consultant. This was in violation of his probation, and he was subsequently fined $ 42 million for these actions. In 1993, Milken was diagnosed with prostate cancer; since then, he has devoted much of his time and resources to the pursuit of a cure for the disease.

Levine, Siegel, Boesky and Milken: The Precognition Rat Pack

One of the most famous cases of insider trading made household names of Michael Milken, Dennis Levine, Martin Siegel and Ivan Boesky. Milken received the most attention because he was the biggest target for the Securities and Exchange Commission (SEC), but it was actually Boesky who was the spider in the center of the web.

Boesky was an arbitrageur in the mid-1980s with an uncanny ability to pick out potential takeover targets and invest before an offer was made. When the fated offer came, the target firm's stock would shoot up and Boesky would sell his shares for a profit. Sometimes, Boesky would buy mere days before an unsolicited bid was made public - a feat of precognition rivaling the mental powers of spoon bender Uri Geller. (Learn more in Tales From Wall Street's Crypt.)

Like Geller, Boesky's precognition turned out to be a fraud. Rather than keeping a running tabulation of all the publicly traded firms trading at enough of a discount to their true values to attract offers and investing in the most likely of the group, Boesky went straight to the source - the mergers and acquisitions arms of the major investment banks. Boesky paid Levine and Siegel for pre-takeover information that guided his prescient buys. When Boesky hit home runs on nearly every major deal in the 1980s -Getty Oil, Nabisco, Gulf Oil, Chevron (NYSE:CVX), Texaco- the people at the SEC became suspicious.

The Market Manipulator: Ivan Boesky

Ivan Boesky's career on Wall Street began in 1966 as a stock analyst. In 1975, he started his own arbitrage firm, and by the 1980s, his net worth was estimated to be in the hundreds of millions. Boesky looked for companies that were takeover targets. He would then buy a stake in those companies on speculation that news of a takeover was going to be announced, then sell the shares after the announcement for a profit.

Throughout the 1980s, corporate mergers and takeovers were enormously popular. According to a December 1, 1986, article in Time Magazine, there were almost 3,000 mergers worth $ 130 billion in that year alone. However, Boesky's alarming success in this strategy was not all instinct: Before the deals were announced, the prices of the stocks would rise as a result of someone acting on inside information that a takeover or leveraged buyout (LBO) was going to be announced. This is a sign of illegal insider trading, and Boesky's involvement in this illegal activity was discovered in 1986 when Maxxam Group offered to purchase Pacific Lumber: three days before the deal was announced, Boesky had purchased 10,000 shares.

As result of these and other insider-trading activities, Boesky was charged with stock manipulation from inside information on November 14, 1986. He agreed to pay a $100 million fine and serve time in prison. He was also banned from trading stock professionally for life. He cooperated with the SEC, taping his conversations with junk-bond firms and takeover artists. This led to both investment bank Drexel Burnham Lambert and its highest-profile executive, Michael Milken, being charged with securities fraud.

As result of the actions of Boesky, Congress passed the Insider Trading Act of 1988. The act increases penalties for insider trading, provides cash rewards to whistle-blowers and allows individuals to sue for damages caused by insider trading violations. (For background reading, see Defining Illegal Insider Trading and Uncovering Insider Trading.)

The Junk Bond King: Michael Milken

In the 1980s, Michael Milken was known as the junk bond king. A junk bond (also called a high-yield bond) is nothing more than a debt investment in a corporation that has a high probability of default, but provides a high rate of return if it does pay the money back. If you wanted to raise money through these bonds, Milken was the person to call. He used them to finance mergers and acquisitions (M&As) as well as leveraged buyouts (LBOs) for corporate raiders. (Despite their reputation, the debt securities known as “junk bonds” may actually reduce risk in your portfolio. Learn more in High Yield, Or Just High Risk?)

But what he was doing was nothing more than creating a complex pyramid scheme. When one company would default, he would then refinance some more debt. Both Milken and Drexel Burnham Lambert would continue to make their fees as a result of this behavior. The company made at least half of its profits from the work of Milken. (Considering joining an “investment club” that promises phenomenal returns on your sign-up fee? Read What Is A Pyramid Scheme?)

Later on, Milken also started purchasing stock in companies that he knew would become potential takeover targets. Boesky, when charged with insider trading in 1986, helped implicate both the firm and Milken in several insider trading scandals. This led to criminal charges against the firm and more than 70 charges against Milken, who pleaded guilty, was sentenced to 10 years in prison and paid $ 1 billion in fines.

It is argued that the savings and loan crisis (S&L) in the late 1980s and early 1990s occurred because so many institutions held large of amounts of Milken junk bonds. After he was released from prison, he focused his attention on his foundation, which supports cancer research, an economic think tank and education.

The SEC's break came when Merrill Lynch was tipped off that someone in the firm was leaking info and, as a result, Levine's Swiss bank account was uncovered. The SEC rolled Levine and he gave up Boesky's name. By watching Boesky -particularly during the Getty Oil fiasco- the SEC caught Siegel. With three in the bag, they went after Michael Milken. Surveillance of Boesky and Milken helped the SEC draw up a list of 98 charges worth 520 years in prison against the junk bond king. The SEC charges didn't all stick, but Boesky and Milken took the brunt with record fines and prison sentences. (For more on Milken, see 4 History-Making Wall Street Crooks.)

Ivan Boesky - Michael Milken, The Junk Bond King

For generations the American bond market has been dominated by two large bond rating agencies, Moody's and Standard & Poor's. The agencies rate a corporation's risk factors in order to help guide investors on Wall Street. Companies trying to attract investors are given a rating and are divided into two categories - either investment grade or below-investment grade bonds.

A “AAA” rating is risk-free and given to top, blue-chip corporations. Risk-free bonds usually yield very low interest rates to investors. BBB is the lowest credit rating considered to be a worthy investment grade. Below BBB are the speculative or high-yield bonds Wall Street called “fallen angels”, because their companies had fallen on hard economic times. These bonds pay high interest and are sold at a discount because of their high risk factor. The fallen angel name stood until the 1970s when Michael Milken arrived on Wall Street.

Milken became known as the “Junk Bond King” because he made his fortune trading in the high-yield, low-grade bonds, which he nicknamed “junk bonds” In 1973 Milken started with two million dollars in capital at his company, Drexel Burnham Lambert, in New York City. He had found buyers for his own company's bonds by sharing his vision of the untapped market. Milken soon generated a 100-percent return of the money invested in his company.

The next year Milken received double the amount of capital from his growing roster of clients, since they had made handsome returns on their investment. While other Wall Street traders tried to copy Milken, few could match his success. Impressed with Milken's achievements, additional investors contacted him and he soon accounted for most of Drexel's profits. In 1978 Milken moved his branch of Drexel from New York to Beverly Hills, California.

In the late 1970s corporate raiders were buying struggling companies and selling off pieces of those businesses and their assets at a huge gain. Milken transformed the art of speculating on these corporate takeovers with his ability to raise large amounts of capital using high-yield junk bonds. He knew the market and could raise capital for investors on short notice, but his methods were not always legal. Milken himself received huge bonuses from his company. One year he earned a total of $ 550 million.

Milken's involvement with insider trading practices became a focus of the SEC investigation in 1986 when Ivan Boesky agreed to be a government informer as part of his plea bargain. In September 1988, the SEC filed charges against Drexel and Michael Milken under the 1970 RICO (Racketeer Influenced and Corrupt Organizations) statute. The SEC accused the defendants of trading on inside information as well as filing false disclosure forms with the SEC to disguise stock ownership.

Drexel and Milken were accused of manipulating stock prices, of keeping false records, and of defrauding their own clients. Drexel plead guilty to six felony counts of securities fraud on December 21 and paid a $ 650 million settlement fee. The company also agreed to assist in the indictment against Milken. Two months later, Milken was indicted on ninety-eight counts, including insider trading and racketeering.

In a plea bargain, Milken agreed to plead guilty to six charges of securities fraud and related charges while the government agreed to drop the more serious charges of insider trading and racketeering. On April 14, 1990, Milken was sentenced to ten years in prison and fined $ 600 million. He entered the minimum-security prison at Pleasanton, California, in 1991, but was released two years later when he was diagnosed with prostate cancer.

Michael Milken was seen as a financial visionary who could have influenced corporate restructuring in America without breaking the law. Instead, his manipulation of stocks and company buyouts resulted in a large number of bankruptcies, especially for small- and medium-sized companies. The corporate consolidations and layoffs resulting from the Drexel's high volume of takeovers left few defenders once the investigation caught up with the firm.

The resulting investigations and indictments also resulted in a loss of investor confidence in the nation's financial markets for years. Investors returned to traditional blue chip stocks and mutual funds until enough time had passed and confidence returned to the riskier junk bonds. Following the insider trading scandal, Congress increased criminal penalties for securities violations.

Biography of Michael Milken (En inglés, según el documento original)

Fuente: Your Dictionary.com

Michael Milken (born 1946) was nicknamed the “junk bond king” after he pled guilty to charges that he amassed hundreds of millions of dollars through questionable financial dealings involving high-yield bonds. Milken served prison time then embarked on a life of legitimate business and philanthropic activity.

Michael Milken acquired a dubious reputation during the 1980s, when he pled guilty to illegal financial dealings that reaped millions of dollars in profits. He emerged from prison as a legitimate entrepreneur. His probation officer, Michalah Bracken, praised Milken and wrote in a probation report that “(Milken) has contributed a significant portion of his earnings to charitable concerns, while retaining a modest lifestyle without obvious trappings of wealth. … Among Milken's strengths are his inability to accept defeat, his total commitment, … and his vision concerning business and society … despite his fall, Milken is an individual still able to contribute to society and to create positive changes in the future”.

Ideal Beginnings

Michael Robert Milken was born in Los Angeles on July 4, 1946 and grew up in Encino, California. Milken's paternal grandparents were Jewish immigrants from Poland. His mother, Ferne Milken, was energetic and ambitious. His father, Bernard Milken, worked for an accounting firm. At tax time, the entire Milken family helped Bernard Milken with his work. Michael Milken, an excellent math student, helped with the tax returns by the age of ten. School held little challenge for young Milken, who was extremely bright as a child. His teenage ambition was to become a millionaire by the age of 30. Sports came easily to Milken as well, and he excelled at baseball.

Milken attended the University of California at Berkeley during the height of the Free Speech Movement. Initially he majored in mathematics, but changed to business in hopes of finding a challenge. Milken graduated from the University of California with highest honors.

Milken began his financial career at the university, informally as a fraternity member, when he invested money for his fraternity brothers in return for 50 percent of the profits. With no returns on losses to his clients, Milken had virtual assurance of profitability. He was also a student at Berkeley when he developed a theory about low-grade “junk” bonds-He believed that under a revised rating system junk bonds might pose a worthwhile risk. Conventional bond ratings ranked bonds on the basis of past performance-a company's respective ratio of debt to equity was used to determine whether its securities qualified as investment grade. Milken questioned this limited method of rating bonds. He believed that it was inaccurate and that other issues factored heavily into the potential for return on investments: cash flow, business plans, personnel, and corporate vision among others.

In August 1968, Milken married his high school sweetheart, Lori Hackel. The couple moved to Philadelphia, where Milken attended the Wharton School at the University of Pennsylvania. In 1970, he went to work for Drexel Corporation as assistant to the chairman and later became head of bond research. When Drexel merged with Burnham and Company in 1973, Milken headed the non-investment-grade bond-trading department, an operation that earned a remarkable 100 percent return on investment. By 1976, Milken's income was estimated at $ 5 million a year.

In 1977, Milken returned to his home state of California. He moved his High-Yield Bond Department to Los Angeles and purchased a house in Encino formerly owned by the movie star, Clark Gable. Milken's younger brother, Lowell, also worked at the Los Angeles office. In the early 1980s, Drexel-Burnham sponsored junk-bond-financed leveraged buyouts and hostile takeovers. Milken eventually made over $ 500 million by manipulating the junk bond and high-yield bond markets. In the mid-1980s, Drexel-Burnham began using a new technique, called the “highly confident” letter, a correspondence designed to convince commercial banks to finance corporate takeovers. The letters of confidence stated that Drexel was “highly confident” that the funds could be raised to finance the deal. During the company's first attempt at this scheme, Milken raised $ 1.5 billion in 48 hours.

Shady Dealings with Boesky

In 1982, Drexel-Burnham took on a new client, financier Ivan Boesky. Milken's dealings with Boesky violated the securities laws, and Boesky later accused Milken of insider trading. In 1985, when the Securities and Exchange Commission (SEC) investigated hostile takeovers and "insider" trading (stock trading based on illegally obtained confidential information), the investigation focused on 12 transactions, eight of which involved Drexel-Burnham.

In June 1989, Milken resigned from Drexel to form his own company, International Capital Access Group. This new venture was supposed to help workers and companies in building businesses, but Milken's legal problems with the SEC prevented him from achieving his goal at that time. Milken initially decided to fight the SEC case but eventually pled guilty to six counts of violating federal securities and tax laws in the 98-count indictment. Milken was convicted and sentenced in 1990. At his trial he relied on a defense strategy that stressed his generous and philanthropic interests. He showed “deep remorse” for his crimes, and requested to perform community service rather than to serve prison time. He issued an apology and admitted that he cheated clients and plotted with Boesky to accomplish a corporate raid. Judge Kimba Wood sentenced Milken to probation on one count and two years of prison time for each of the five other counts (ten years total). Milken received a further sentence to perform 1800 hours of community service each year, for three consecutive years following his release from prison.

By March 1991, Milken was in prison at a minimum security work camp in Pleasanton, California. He served 22 months for securities fraud and other crimes and paid $ 600 million in fines to the government. The Federal Deposit Insurance Corporation (FDIC) sued Milken for $ 10 billion for crimes against the savings and loan industry. In a prison interview with Jesse Kornbluth, author of Highly Confident: The Crime and Punishment of Michael Milken, Milken justified his mistakes on a philosophical level. He explained that, “I believed in giving anonymously, praising others, and only speaking well of others. You can't live in this country today with those beliefs … When people find out, your philanthropy becomes tainted, you did it “for some other purpose” … All those years, I thought the marketplace or the customer was the final judge. I was wrong. In the short run, it's the media”.

Back to Business

Milken completed his prison time in 1993 and resumed business dealings. He co-founded a company called Education Entertainment Network, that produces business videos and CD/ROMs. In 1996, he and Larry Ellison founded Knowledge Universe, a company dealing in a diverse variety of goods and services, including day care, executive education, corporate training, and toys. By March 1998, the SEC investigated Milken once again. He admitted to no wrongdoing and, instead, agreed to pay a fine of $ 47 million in response to SEC accusations that he served as a broker in violation of an SEC order that banned him from such activity. The SEC cited deals involving MCI, Rupert Murdoch's News Corp., and Ron Perelman's New World Entertainment.

Cancer Threat

At the age of 46 Milken was diagnosed with advanced prostate cancer. He discussed his illness with Time journalist Leon Jaroff, “To say that the biopsy results were devastating would be an understatement. I remember lying in bed with my wife and talking about the “Book of Job”, wondering how many more challenges were coming my way. I was in a state of depression”. Milken took drugs to inhibit his body from producing testosterone and underwent supplementary radiation therapy that put the cancer into remission. The potentially fatal experience inspired Milken to focus on healthy living, and to alter his eating habits. He eliminated meat from his diet and, in 1998 along with co-author Beth Ginsberg, published a cancer-fighting cookbook that stressed low-fat, low-calorie recipes.

Public recollection of Milken's dubious business dealings often overshadowed the potential impact of his generous spirit. Although he tried to improve society through fund-raising and philanthropy, public suspicion lingered and hampered his efforts. In 1995, he donated $ 5 million to a large Jewish secondary school in Los Angeles. In gratitude the school was to be renamed Milken Community High School of Stephen Wise Temple until parents and students at the institution raised concerns about the name change. They questioned the sound judgment of naming a high school for Michael R. Milken, a federal felon of dubious character. Detractors of Milken speculated that his unethical business practices contributed to rampant corporate takeovers and may have slowed U.S. economic growth and contributed to recession. As Milken himself noted, far less media coverage focused on his legitimate activity, as in 1995 when he established a foundation to encourage the search for a cure for cancer. He pledged $ 25 million in support to the organization over a five-year period. The program, designated to increase public awareness of cancer and to support research on the disease, provides funds for basic and clinical research, recruits scientists, sponsors scientific meetings, and strives to increase public awareness of cancer.

Private equity in the 1980s (En inglés, según el documento original)

Fuente: Wikipedia

Private equity in the 1980s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks.

The development of the private equity and venture capital asset classes has occurred through a series of boom and bust cycles since the middle of the 20th century. The 1980s saw the first major boom and bust cycle in private equity. The cycle which is typically marked by the 1982 acquisition of Gibson Greetings and ending just over a decade later was characterized by a dramatic surge in leveraged buyout (LBO) activity financed by junk bonds. The period culminated in the massive buyout of RJR Nabisco before the near collapse of the leveraged buyout industry in the late 1980s and early 1990s marked by the collapse of Drexel Burnham Lambert and the high-yield debt market.

Beginning of the LBO boom

Michael Milken, the man credited with creating the market for high yield “junk” bonds and spurring the LBO boom of the 1980sThe beginning of the first boom period in private equity would be marked by the well-publicized success of the Gibson Greetings acquisition in 1982 and would roar ahead through 1983 and 1984 with the soaring stock market driving profitable exits for private equity investors.

In January 1982, former US Secretary of the Treasury William E. Simon, Ray Chambers and a group of investors, which would later come to be known as Wesray Capital Corporation, acquired Gibson Greetings, a producer of greeting cards. The purchase price for Gibson was $ 80 million, of which only $ 1 million was rumored to have been contributed by the investors. By mid-1983, just sixteen months after the original deal, Gibson completed a $ 290 million IPO and Simon made approximately $66 million. Simon and Wesray would later complete the $ 71.6 million acquisition of Atlas Van Lines. The success of the Gibson Greetings investment attracted the attention of the wider media to the nascent boom in leveraged buyouts.

Between 1979 and 1989, it was estimated that there were over 2.000 leveraged buyouts valued in excess of $ 250 million Notable buyouts of this period (not described elsewhere in this article) include:

Malone & Hyde, 1984

KKR completed the first buyout of a public company by tender offer, by acquiring the food distributor and supermarket operator together with the company's chairman Joseph R. Hyde III.

Wometco Enterprises, 1984

KKR completed the first billion-dollar buyout transaction to acquire the leisure-time company with interests in television, movie theaters and tourist attractions. The buyout comprised the acquisition of 100% of the outstanding shares for $ 842 million and the assumption of $ 170 million of the company's outstanding debt.

Beatrice Companies, 1985

KKR sponsored the $ 6,1 billion management buyout of Beatrice, which owned Samsonite and Tropicana among other consumer brands. At the time of its closing in 1985, Beatrice was the largest buyout completed.

Sterling Jewelers, 1985

One of Thomas H. Lee's early successes was the acquisition of Akron, Ohio-based Sterling Jewelers for $ 28 million. Lee reported put in less than $ 3 million and when the company was sold two years later for $ 210 million walked away with over $ 180 million in profits. The combined company was an early predecessor to what is now Signet Group, one of Europe's largest jewelry retail chains.

Revco Drug Stores, 1986

The drug store chain was taken private in a management buyout transaction. However, within two years the company was unable to support its debt load and filed for bankruptcy protection. Bondholders in the Revco buyout ultimately contended that the buyout was so poorly constructed that the transaction should have been unwound.

Safeway, 1986

KKR completed a friendly $ 5.5 billion buyout of supermarket operator, Safeway, to help management avoid hostile overtures from Herbert and Robert Haft of Dart Drug. Safeway was taken public again in 1990.

Southland Corporation, 1987

John Thompson, the founder of convenience store operator 7-Eleven, completed a $ 5.2 billion management buyout of the company he founded. The buyout suffered from the 1987 stock market crash and after failing initially raise high yield debt financing, the company was required to offer a portion of the company's stock as an inducement to invest in the company's bonds.

Jim Walter Corp (later Walter Industries, Inc.), 1987

KKR acquired the company for $ 3.3 billion in early 1988 but faced issues with the buyout almost immediately. Most notably, a subsidiary of Jim Walter Corp (Celotex) faced a large asbestos lawsuit and incurred liabilities that the courts ruled would need to be satisfied by the parent company. In 1989, the holding company that KKR used for the Jim Walter buyout filed for Chapter 11 bankruptcy protection.

Blackrock, 1988

Blackstone Group began the leveraged buildup of BlackRock, which is an asset manager. Blackstone sold its interest in 1994 and today Blackrock is listed on the New York Stock Exchange.

Federated Department Stores, 1988

Robert Campeau's Campeau Corporation completed a $ 6.6 billion merger with Federated, owner of the Bloomingdale's, Filene's and Abraham & Straus department stores.

Marvel Entertainment, 1988

Ronald Perelman acquired the company and oversaw a major expansion of its titles in the early 1990s before taking the company public on the New York Stock Exchange in 1991. The company would later suffer as a result of its massive debt load and ultimately the bondholders, led by Carl Icahn would take control of the company.

Uniroyal Goodrich Tire Company, 1988

Clayton & Dubilier acquired Uniroyal Goodrich Tire Company from B.F. Goodrich and other investors for $ 225 million. Two years later, in October 1990, Uniroyal Goodrich Tire Company was sold to Michelin for $ 1.5 billion.

Hospital Corporation of America, 1989

The hospital operator was acquired for $ 5.3 billion in a management buyout led by Chairman Thomas J. Frist and completed a successful initial public offering in the 1990s. The company would be taken private again 17 years later in 2006 by KKR, Bain Capital and Merrill Lynch.

Because of the high leverage on many of the transactions of the 1980s, failed deals occurred regularly, however the promise of attractive returns on successful investments attracted more capital. With the increased leveraged buyout activity and investor interest, the mid-1980s saw a major proliferation of private equity firms. Among the major firms founded in this period were:

Bain Capital founded in 1984 by Mitt Romney, T. Coleman Andrews III and Eric Kriss out of the management consulting firm Bain & Company;

Chemical Venture Partners, later Chase Capital Partners and JPMorgan Partners, and today CCMP Capital, founded in 1984, as a captive investment group within Chemical Bank;

Hellman & Friedman founded in 1984;

Hicks & Haas, later Hicks Muse Tate & Furst, and today HM Capital (and its European spinoff Lion Capital), as well as the predecessor of Haas, Wheat & Partners, founded in 1984;

Blackstone Group, one of the largest private equity firms, founded in 1985 by Peter G. Peterson and Stephen A. Schwarzman;

Doughty Hanson, a European focused firm, founded in 1985;

BC Partners, a European focused firm, founded in 1986; and

Carlyle Group founded in 1987 by Stephen L. Norris and David M. Rubenstein.

Additionally, as the market developed, new niches within the private equity industry began to emerge. In 1982, Venture Capital Fund of America, the first private equity firm focused on acquiring secondary market interests in existing private equity funds was founded and then, two years later in 1984, First Reserve Corporation, the first private equity firm focused on the energy sector, was founded.

Venture capital in the 1980s

The public successes of the venture capital industry in the 1970s and early 1980s (e.g., DEC, Apple, Genentech) gave rise to a major proliferation of venture capital investment firms. From just a few dozen firms at the start of the decade, there were over 650 firms by the end of the 1980s, each searching for the next major “home run”. While the number of firms multiplied, the capital managed by these firms increased only 11% from $ 28 billion to $ 31 billion over the course of the decade.

The growth the industry was hampered by sharply declining returns and certain venture firms began posting losses for the first time. In addition to the increased competition among firms, several other factors impacted returns. The market for initial public offerings cooled in the mid-1980s before collapsing after the stock market crash in 1987 and foreign corporations, particularly from Japan and Korea, flooded early stage companies with capital.

In response to the changing conditions, corporations that had sponsored in-house venture investment arms, including General Electric and Paine Webber either sold off or closed these venture capital units. Additionally, venture capital units within Chemical Bank (today CCMP Capital), Citicorp (today Court Square Capital Partners and CVC Capital Partners, First Chicago Bank (the predecessor of GTCR and Madison Dearborn Partners) and Continental Illinois National Bank (today CIVC Partners), among others, began shifting their focus from funding early stage companies toward investments in more mature companies. Even industry founders J.H. Whitney & Company and Warburg Pincus began to transition toward leveraged buyouts and growth capital investments. Many of these venture capital firms attempted to stay close to their areas of expertise in the technology industry by acquiring companies in the industry that had reached certain levels of maturity. In 1989, Prime Computer was acquired in a $ 1.3 billion leveraged buyout by J.H. Whitney & Company in what would prove to be a disastrous transaction. Whitney's investment in Prime proved to be nearly a total loss with the bulk of the proceeds from the company's liquidation paid to the company's creditors.

Although lower profile than their buyout counterparts, new leading venture capital firms were also formed including Institutional Venture Partners (IVP) in 1980, Draper Fisher Jurvetson (originally Draper Associates) in 1985 and Canaan Partners in 1987 among others.

Corporate raiders, hostile takeovers and greenmail

Although the “corporate raider” moniker is rarely applied to contemporary private equity investors, there is no formal distinction between a “corporate raid” and other private equity investments acquisitions of existing businesses. The label was typically ascribed by constituencies within the acquired company or the media. However, a corporate raid would typically feature a leveraged buyout that would involve a hostile takeover of the company, perceived asset stripping, major layoffs or other significant corporate restructuring activities. Management of many large publicly traded corporations reacted negatively to the threat of potential hostile takeover or corporate raid and pursued drastic defensive measures including poison pills, golden parachutes and increasing debt levels on the company's balance sheet. Additionally, the threat of the corporate raid would lead to the practice of “greenmail”, where a corporate raider or other party would acquire a significant stake in the stock of a company and receive an incentive payment (effectively a bribe) from the company in order to avoid pursuing a hostile takeover of the company. Greenmail represented a transfer payment from a company's existing shareholders to a third party investor and provided no value to existing shareholders but did benefit existing managers. The practice of “greenmail” is not typically considered a tactic of private equity investors and is not condoned by market participants.

Among the most notable corporate raiders of the 1980s included Carl Icahn, Victor Posner, Nelson Peltz, Robert M. Bass, T. Boone Pickens, Harold Clark Simmons, Kirk Kerkorian, Sir James Goldsmith, Saul Steinberg and Asher Edelman. Carl Icahn developed a reputation as a ruthless corporate raider after his hostile takeover of TWA in 1985. The result of that takeover was Icahn systematically selling TWA's assets to repay the debt he used to purchase the company, which was described as asset stripping. In later years, many of the corporate raiders would be re-characterized as “Activist shareholders”.

Many of the corporate raiders were onetime clients of Michael Milken, whose investment banking firm, Drexel Burnham Lambert helped raise blind pools of capital with which corporate raiders could make a legitimate attempt to takeover a company and provided high-yield debt financing of the buyouts.

Drexel Burnham raised a $ 100 million blind pool in 1984 for Nelson Peltz and his holding company Triangle Industries (later Triarc) to give credibility for takeovers, representing the first major blind pool raised for this purpose. Two years later, in 1986, Wickes Companies, a holding company run by Sanford Sigoloff would raise a $ 1.2 billion blind pool.

In 1985, Milken raised a $ 750 million for a similar blind pool for Ronald Perelman which would ultimate prove instrumental in acquiring his biggest target: The Revlon Corporation. In 1980, Ronald Perelman, the son of a wealthy Philadelphia businessman, and future “corporate raider” having made several small but successful buyouts, acquired MacAndrews & Forbes, a distributor of licorice extract and chocolate, that Perelman's father had tried and failed to acquire it 10 years earlier. Perelman would ultimately divest the company's core business and use MacAndrews & Forbes as a holding company investment vehicle for subsequent leveraged buyouts including Technicolor, Inc., Pantry Pride and Revlon. Using the Pantry Pride subsidiary of his holding company, MacAndrews & Forbes Holdings, Perelman's overtures were rebuffed. Repeatedly rejected by the company's board and management, Perelman continued press forward with a hostile takeover raising his offer from an initial bid of $ 47,50 per share until it reached $ 53,00 per share. After receiving a higher offer from a white knight, private equity firm Forstmann Little & Company, Perelman's Pantry Pride finally was able to make a successful bid for Revlon, valuing the company at $ 2,7 billion. The buyout would prove troubling, burdened by a heavy debt load. Under Perelman's control, Revlon sold 4 divisions: two of which were sold for $ 1 billion, its vision care division was sold for $ 574 million and its National Health Laboratories division was spun out to the public market in 1988. Revlon also made acquisitions including Max Factor in 1987 and Betrix in 1989 later selling them to Procter & Gamble in 1991. Perelman exited the bulk of his holdings in Revlon through an IPO in 1996 and subsequent sales of stock. As of December 31, 2007, Perelman still retains a minority ownership interest in Revlon. The Revlon takeover, because of its well-known brand was profiled widely by the media and brought new attention to the emerging boom in leveraged buyout activity.

In later years, Milken and Drexel would shy away from certain of the more “notorious” corporate raiders as Drexel and the private equity industry attempted to move upscale.

RJR Nabisco and the Barbarians at the Gate

Leveraged buyouts in the 1980s including Perelman's takeover of Revlon came to epitomize the “ruthless capitalism” and “greed” popularly seen to be pervading Wall Street at the time. One of the final major buyouts of the 1980s proved to be its most ambitious and marked both a high water mark and a sign of the beginning of the end of the boom that had begun nearly a decade earlier. In 1989, KKR closed on a $ 31.1 billion dollar takeover of RJR Nabisco. It was, at that time and for over 17 years, the largest leverage buyout in history. The event was chronicled in the book, Barbarians at the Gate: The Fall of RJR Nabisco, and later made into a television movie starring James Garner.

F. Ross Johnson was the President and CEO of RJR Nabisco at the time of the leveraged buyout and Henry Kravis was a general partner at Kohlberg Kravis Roberts. The leveraged buyout was in the amount of $ 25 billion (plus assumed debt), and the battle for control took place between October and November 1988. KKR would eventually prevail in acquiring RJR Nabisco at $ 109 per share marking a dramatic increase from the original announcement that Shearson Lehman Hutton would take RJR Nabisco private at $ 75 per share. A fierce series of negotiations and horse-trading ensued which pitted KKR against Shearson Lehman Hutton and later Forstmann Little & Co. Many of the major banking players of the day, including Morgan Stanley, Goldman Sachs, Salomon Brothers, and Merrill Lynch were actively involved in advising and financing the parties.

After Shearson Lehman's original bid, KKR quickly introduced a tender offer to obtain RJR Nabisco for $ 90 per share - a price that enabled it to proceed without the approval of RJR Nabisco's management. RJR's management team, working with Shearson Lehman and Salomon Brothers, submitted a bid of $ 112, a figure they felt certain would enable them to outflank any response by Kravis's team. KKR's final bid of $ 109, while a lower dollar figure, was ultimately accepted by the board of directors of RJR Nabisco. KKR's offer was guaranteed, whereas the management offer (backed by Shearson Lehman and Salomon) lacked a “reset”, meaning that the final share price might have been lower than their stated $ 112 per share. Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson' unprecedented golden parachute deal. TIME magazine featured Ross Johnson on the cover of their December 1988 issue along with the headline, “A Game of Greed: This man could pocket $ 100 million from the largest corporate takeover in history. Has the buyout craze gone too far?” KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Ross Johnson's higher payout of $ 112 per share. F. Ross Johnson received $ 53 million from the buyout.

At $ 31,1 billion of transaction value, RJR Nabisco was by far the largest leveraged buyouts in history. In 2006 and 2007, a number of leveraged buyout transactions were completed that for the first time surpassed the RJR Nabisco leveraged buyout in terms of nominal purchase price. However, adjusted for inflation, none of the leveraged buyouts of the 2006 - 2007 period would surpass RJR Nabisco. Unfortunately for KKR, size would not equate with success as the high purchase price and debt load would burden the performance of the investment.

Interestingly, two years earlier, in 1987, Jerome Kohlberg, Jr. resigned from Kohlberg Kravis Roberts & Co. over differences in strategy. Kohlberg did not favor the larger buyouts (including Beatrice Companies (1985) and Safeway (1986) and would later likely have included the 1989 takeover of RJR Nabisco), highly leveraged transactions or hostile takeovers being pursued increasingly by KKR. The split would ultimately prove acrimonious as Kohlberg sued Kravis and Roberts for what he alleged were improper business tactics. The case was later settled out of court. Instead, Kohlberg chose to return to his roots, acquiring smaller, middle-market companies and in 1987, he would found a new private equity firm Kohlberg & Company along with his son James A. Kohlberg, at the time a KKR executive. Jerome Kohlberg would continue investing successfully for another seven years before retiring from Kohlberg & Company in 1994 and turning his firm over to his son.

As the market reached its peak in 1988 and 1989, new private equity firms were founded which would emerge as major investors in the years to follow, including:

ABRY Partners, a media-focused firm, founded in 1989;

Code Hennessy & Simmons, a middle market private equity firm, founded in 1988;

Coller Capital, the first European secondaries firm specializing in the purchase of existing private equity interests, founded in 1989;

Landmark Partners, an early secondaries firm specializing in the purchase of existing private equity interests, founded in 1989;

Leonard Green & Partners founded in 1989 a successor to Gibbons, Green van Amerongen (founded 1969), a merchant banking firm that completed several early management buyout transactions; and Providence Equity Partners, a media-focused firm, founded in 1989.

LBO bust (1990 to 1992)

By the end of the 1980s the excesses of the buyout market were beginning to show, with the bankruptcy of several large buyouts including Robert Campeau's 1988 buyout of Federated Department Stores, the 1986 buyout of the Revco drug stores, Walter Industries, FEB Trucking and Eaton Leonard. Additionally, the RJR Nabisco deal was showing signs of strain, leading to a recapitalization in 1990 that involved the contribution of $ 1,7 billion of new equity from KKR. Additionally, in response to the threat of unwelcome LBOs, certain companies adopted a number of techniques, such as the poison pill, to protect them against hostile takeovers by effectively self-destructing the company if it were to be taken over (these practices are increasingly discredited).

Contemporary reflections of private equity

1980s reflections of private equity

Although private equity rarely received a thorough treatment in popular culture, several films did feature stereotypical “corporate raiders” prominently. Among the most notable examples of private equity featured in motion pictures included:

Wall Street (1987) - The notorious “corporate raider” and “greenmailer” Gordon Gekko represents a synthesis of the worst features of various famous private equity figures intends to manipulate an ambitious young stockbroker to takeover failing but decent airline. Although Gekko makes a pretense of caring about the airline, his intentions prove to be to destroy the airline, strip its assets and lay off its employees before raiding the corporate pension fund. Gekko would become a symbol in popular culture for unrestrained greed (with the signature line, “Greed, for lack of a better word, is good”) that would be attached to the private equity industry.

Other People's Money (1991) - A self-absorbed corporate raider “Larry the Liquidator” (Danny DeVito), sets his sights on New England Wire and Cable, a small-town business run by family patriarch Gregory Peck who is principally interested in protecting his employees and the town.

Pretty Woman (1990) - Although Richard Gere's profession is incidental to the plot, the selection of the corporate raider who intends to destroy the hard work of a family-run business by acquiring the company in a hostile takeover and then sell off the company's parts for a profit (compared in the movie to an illegal chop shop). Ultimately, the corporate raider is won over and chooses not to pursue his original plans for the company.



Según pasan los años (revival)

- Los bonos basura un “viejo” instrumento financiero que goza de buena salud (Expansión - 7/4/98)

En los últimos días una serie de noticias financieras han vuelto a sacar a la luz, en la prensa española, a los polémicos bonos basura. Así, por ejemplo, el anuncio de la empresa española JazzTel de lanzar una emisión de 12.000 millones de pesetas de bonos de alto rendimiento o la nueva penalización que la SEC norteamericana ha impuesto al “padre” de dicho tipo de bonos Michael R. Milken, parece que han vuelto a poner de moda hablar de un tipo de activo financiero que siempre ha estado ahí (incluso aquí, en España) y cuyo mercado en los años 90 es mucho mayor que el de la década que los vio nacer (los años 80). Pero vayamos por partes, ¿un bono basura de verdad es una basura?

Se considera bono basura (coloquialmente hablando, claro, porque su nombre oficial es el de bono de alto rendimiento) a todo bono calificado como “no inversión” por, al menos, una de las principales agencias de calificación de riesgos. Es decir, una calificación inferior a Baa para Moody’s o inferior a BBB para Standard & Poor’s, por ejemplo. Con arreglo a esta definición es fácil darse cuenta de que los bonos de este tipo son tan antiguos como las propias calificaciones de riesgo. ¿Dónde está, pues, la novedad?

Sus inicios

Hasta finales de los años 70, las empresas norteamericanas emitían bonos u obligaciones cuando éstos iban a ser calificados como “inversión”, en caso contrario no lo hacían porque suponían que dicha emisión estaría condenada al fracaso. El devenir de los acontecimientos económicos hacía que algunas de dichas empresas emisoras vieran descender su calificación hasta entrar en la zona de “no inversión” (también conocida como “especulación”) en la que los propietarios de dichos bonos sabían que la posibilidad de cobrar los cupones y de recuperar el principal estaba en entredicho. A dicho tipo de bonos inicialmente bien calificados pero que, posteriormente, pasan a la zona de baja calificación se les conoce como “ángeles caídos”. Concretando, a ninguna empresa se le ocurría emitir directamente bonos u obligaciones de baja calificación. En esto aparece en escena Michael Milken (a la sazón ejecutivo de un pequeño banco de inversión denominado Drexel, Burnham, Lambert), cuya gran aportación consistió en convencer a las empresas, que estaban inmersas en procesos de adquisición o de reestructuración, de que la emisión de bonos calificados como “no inversión” era algo interesante, que les iba a permitir una mayor flexibilidad en la captación de los recursos financieros necesarios. Evidentemente, también convenció (esa era la otra parte de su trabajo como intermediario) a los inversores (fondos de inversión, fondos de pensiones, fondos de capital riesgo, etc.) de que este tipo de instrumentos financieros no eran tan arriesgados como aparentaban.

¿En qué consisten este tipo de bonos?

Los bonos basura (traducción libre de “junk bond”, que fueron bautizados así por el propio Milken con lo que cometió un imperdonable error de marketing financiero) pueden ser de varios tipos, siendo el más común el consistente en un bono subordinado convertible en acciones ordinarias de la empresa emisora y con posibilidad de ser amortizado anticipadamente por ésta (con lo que se anima a los inversores a ejercer su derecho de conversión). Otras versiones consisten, por ejemplo: en un bono subordinado ordinario (amortizable anticipadamente por el emisor) que va acompañado de un warrant, que permite la adquisición de un número determinado de acciones ordinarias de la empresa emisora a un precio y plazo prefijados; o pagarés de empresas también subordinados a la deuda principal de la compañía; o bonos cupón cero; o la emisión de bonos subordinados con unos cinco años de carencia de amortización (el denominado “tramo B”, de moda en los años 90). A la vista de lo anterior está claro que los denostados “bonos basura” son realmente instrumentos financieros bastante conocidos desde hace décadas. La novedad, además de su curioso nombre, estriba en su utilización. Veamos cómo.

Su utilidad

En los años 80 su uso se centró, principalmente, en las compras de empresas a través del endeudamiento financiero (los famosos leveraged buyouts o LBO), donde venían a representar el 30% de la financiación en este tipo de operaciones siendo el grueso de la denominada “financiación de entresuelo” (financiación que se encuentra entre los fondos propios y los fondos ajenos tradicionales). Lo que proporcionaba una gran flexibilidad al emisor porque con este tipo de activo financiero sólo se obligaba a pagar los intereses cuando había dinero para ello después de realizar el servicio de la deuda principal (los cupones devengados y no satisfechos se acumulaban en espera de tiempos mejores en los que hubiera la liquidez suficiente para hacerles frente). Es decir, el parecido entre los bonos basura y las acciones preferentes es muy grande, siendo su diferencia más importante la posibilidad de desgravar fiscalmente los intereses de aquéllos. Su principal garantía, de cara a los inversores, descansa en los flujos de caja que promete generar la empresa emisora (es difícil que los activos fijos de la empresa actúen como garantía porque ya lo hacen con respecto a la deuda principal). El mayor riesgo de este tipo de bonos se refleja en que el tipo de interés de sus cupones suele ser, en promedio, unos 250 puntos básicos superior al pagado por la deuda principal. Eso sí, la mayor rentabilidad esperada por los inversores no descansa en los cupones de los bonos sino en su conversión en acciones ordinarias (o en el ejercicio de sus warrants) y en la posterior venta de éstas a través del mercado bursátil.

Su mercado

El actual mercado de bonos de alto rendimiento en su vertiente americana tiene un volumen mayor que el de los famosos años 80. Ello se debe a que, desde el punto de vista financiero, realmente son una buena idea que ha permitido utilizarlos en las reestructuraciones empresariales de los años 90, en los LBO de ésta década y en las acumulaciones apalancadas (leveraged build ups o LBU) que han surgido recientemente. Estas últimas (alguna de las cuales ya se ha realizado en España) consisten en la creación de una gran empresa a base de la compra de un sinfín de pequeñas compañías, financiando una gran parte de la operación a través de la emisión de deuda. Sirva como ejemplo WorldCom el famoso comprador de MCI, que se ha formado a base de adquirir 40 compañías durante los últimos cinco años (¡un verdadero experto en adquisiciones!).



Años

Volumen (mill. $)




Años

Volumen (mill. $)

1986

30.000




1992

38.000

1987

28.000




1993

56.000

1988

27.000




1994

32.000

1989

23.000




1995

30.000

1990

2.000




1996

65.000

1991

10.000




1997

116.000
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