The history of a hostile takeover and the “wolves of Wall Street” who invented it

The Spanish economy is in shock after BBVA launched a hostile takeover bid for Banc Sabadell last Thursday. After the Catalan enterprise rejected several friendly offers to buy, now the board of directors, chaired by Carlos Torres, is preparing to consider this a fait accompli.

Needless to say, the maneuver is aggressive, reminiscent of the myth that the stock market is a game suitable only for sharks. It is not a question of attributing something immoral to a hostile takeover, since it is a completely legal procedure regulated by the CNMV and does not always lead to the disappearance of the victim. However, the comparison is useful because the truth is that those who invented this tool were characters who were a product of the crazy years of Wall Street, in some ways similar to that pathetic Gordon Gekko played by Michael Douglas in the film. Wall Street (1987).

Many people remember this story. The main character is Bud Fox (Charlie Sheen), a young and smart broker who arrives in the financial district of Lower Manhattan full of hope and noble ideals, but soon discovers that compassion there is very low. He falls into the hands of Gekko, who takes advantage of his good work and confidential information to buy the airline, not with the intention of making it prosper, but with the goal of tearing it apart and selling it in exchange for huge profits, even at the cost of making the employees strain on the street.

Of course, they weren’t as bad as Gekko, but Victor Posner (1918–2002), Carl Icahn (1936–), and Louis Wolfson (1912–2007) are well deserving of the “Wolves of Wall Street” label. The latter is the father of the first hostile takeover in history.

Pioneer after catalog sales

Wolfson’s biography is very American. He was born in Missouri (USA), the son of a scrap metal dealer, and in his youth he was a better athlete than student. He was a professional boxer and then an American football player and thus earned a place at the University of Georgia, although he never graduated. He didn’t need it because the initial $10,000 he invested in the construction industry was enough to make him a millionaire at age 28.

This allowed him to buy the Washington, D.C. shipping company Streetcars, which he sold for $13.5 million, and then Merritt-Chapman & Scott, a small shipping company that he built into a large conglomerate.

So we come to 1955, when this man achieved national fame by going to war with Montgomery Ward, which at the time was the second largest catalog retailer in the United States. For the first time, the financier tried to take control of the business behind the back of the board of directors. It didn’t work out very well, but it set a precedent.

Hamburgers and scrap

Then there’s Victor Posner, who, after making a fortune in real estate, bought most of the shares of Wendy’s, the famous fast-food chain, in 1966, mainly to use it as an investment vehicle. He served as chairman of many other boards of directors throughout his life, and his most famous operation was the hostile takeover he undertook in 1969.

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Posner was a pioneer of “leveraged buyouts”—the acquisition of companies using debt instruments. He was also ahead of his time in what the Anglo-Saxons call withdrawal of assets (withdrawal of assets). In its worst sense, the term refers to the practice of selling a company’s assets in order to increase returns for investors. Both surgeries are risky. In fact, Sharon Steel Corporation went bankrupt.

Barbarian of the air

And a genius in regards withdrawal of assets We’re talking about the third person on our list, Carl Icahn. The president of TWA said of him that he was “the greediest man in the world” and he had reason to hate him because in 1985 he launched the mother of hostile takeovers for that airline. After the deal, TWA happily broke into pieces to pay off the debt the Queens businessman had taken on to finance the purchase. This was just one of the many adventures of “Icahn the Barbarian,” as he was called, the “Attila of Wall Street,” who kept the grass from growing wherever he went.

By the late 1980s, the collapse of Drexel Burnham Lambert and excess leverage combined to reduce the attractiveness of this type of operation. In addition, companies have improved some protective mechanisms; for example, causing the value of the stock market to fall to discourage potential buyers. Among other things, this can be done by selling the company’s most valuable core asset (making yourself the “jewel in the crown,” in stock market jargon) or by launching a “poison pill”—that is, suddenly going into debt. Another resource is to allow yourself to be bought by a “white knight”, a friendly company.

What about Spain? Here the history of hostile takeovers is shorter and less glamorous. Most large purchases made on the Spanish stock market were agreed upon, and in cases where this was not the case, they usually failed. This is how Hesperia’s attempt against NH in 2003 or Gas Natural’s attempt against Iberdrola and Endesa in 2003 and 2005 ended.

Interestingly, the first hostile takeover in Spanish history was the takeover of Banco de Bilbao against Banesto in 1987. Things didn’t go well for them then, but we’ll see what happens this time. Banc Sabadell’s board of directors has about eight months to do like Ulysses and convince its shareholders to abandon the siren song.