Anatomy of a Corporate Take-Over

Richard G. Rosenthal--Rosey to his longtime friends--was uncharacteristically edgy as he sat at his desk overlooking the cavernous trading floor of Salomon Brothers, the investment-banking firm, on this blustery Monday afternoon in mid-January 1978. The weekend had been a wipe-out. A blizzard, one of the heaviest in years, was blanketing the Eastern Seaboard. Rosenthal had not been able to log his customary twin-engine flying time, a pursuit that helps him achieve detachment from the pressure-cooker world he inhabits as one of Wall Street's most skilled traders. The job requires almost instant buy-or-sell decisions on deals that often involve tens of thousands of shares and millions of dollars.

Much of Rosenthal's weekend, in fact, had been chewed up by a series of seemingly endless phone calls aimed at ironing out some very heated last-minute disagreements over key strategic elements in a deal he and other merger and acquisition experts at Salomon Brothers had been hatching for the better part of five hectic weeks. The client was one of the firm's major corporate accounts. There was big money involved--perhaps as much as $350,000,000--in a carefully plotted blitz that might prove prelude to a 100 percent take-over of another company. The first step was designed to net the client at least 20 percent of the target company's stock by no later than mid-night on this snowy Monday, now less than nine hours away.

The tactical clock had been running for hours. Rosenthal was convinced the coup would work, but his timetable had been upset by the eleventh-hour wrangling over detail and a long cautionary skull session orchestrated by the dozen or so lawyers who by now were swarming all over the 41st floor of Salomon's headquarters in downtown Manhattan.

In terms of the manpower, money and strategy, it was the most unusual deal Rosenthal had seen in the 20 years since he had quit Erasmus Hall High School in Brooklyn (continued on page 174)Corporate Take-Over(continued from page 164) and landed his first job on the Street as a clerk with the now-defunct brokerage firm of Ira Haupt & Company. Incredibly fast on the uptake, Rosenthal was trading over-the-counter stocks with the best of them while still in his teens and was made a general partner at Salomon in 1969--at the unheard of age of 27.

His realm is the higher calculus of what he calls "market judgment, psychology--and how people feel about a stock." Rosenthal talks constantly with big institutional investors--insurance companies, banks, pension funds, mutual funds. Hence, part of his assignment on this deal was to pinpoint the identities of such investors with big holdings in the target company and work out a price that would make the institutions eager to sell what amounted to the single biggest block of stock in the target. The client would clearly have to pay above the market for the stock. The key question was how high it would have to go to shake the stock loose without getting caught in a bidding match. The first price had to be right, a tricky business to figure. The incentives were there from Rosenthal's point of view. As one of Salomon's senior partners, he stood to share handsomely in the $350,000 fee his firm would earn if the blitz worked.

A lot of things could go wrong, and Rosenthal carefully worked his way through the check list as the clock moved to 2:45 P.M. The institutions were going to be solicited after the four-P.M. close of the market. They had to be sworn to absolute secrecy as to the identity of the target. Any tipping of the client's hand might give the intended victim time enough to run to the courts for a stop order that could stymie the deal. The lawyers had leaned heavily on the need for secrecy in the outlines they had put together for Rosenthal and the other high-level executives who would be working the phones. Portfolio managers talk with one another all the time. Was it really possible to approach 30 or so institutions without some word of the offers getting out to the grapevine? Would the price hold?

Rosenthal had been sufficiently worried about the two-tier $40-and-$45-a-share offering price he had settled on to have tried it on for size that morning with Dan Lufkin, founder of Donaldson, Lufkin & Jenrette, once one of the hottest research "boutiques" around Wall Street, and spokesman for a group that owned about 94,000 shares of the target. Lufkin was not interested in the $40 "favored nation" offer that would guarantee his group more money if the Salomon client made a higher bid for the target company's stock over the next year and a half. The $45, on the other hand, reflected a $12-a-share premium over the then going market. It looked so good that Lufkin, without any prompting, offered to pass it on to a longtime friend who headed a major investment company. Rosenthal took that as a good but not conclusive sign that a sufficient number of institutional investors would follow suit and yield the Salomon client the minimum 20 percent ownership it was seeking. No minimum, no deal--and no fee for Salomon or for F. Eberstadt & Co., another old-line investment-banking firm that had been brought into the situation. "To cut through all the esoteric," said Rosenthal, "the fundamental question posed to me was, Could the client acquire a minority interest in the target? After examining the stockholders' list, my answer was yes."

•

Rosenthal's answer was based on research that showed that institutions held the balance of power in the target company's stock. The First National Bank of Boston alone, for example, controlled almost 780,000 shares; the I.D.S. group of mutual funds in Minneapolis held more than 450,000 shares; and the T. Rowe Price group of mutual funds had more than 1,200,000 shares. Given the fiduciary nature of their responsibility to the trusts, pension funds and other clients whose money they managed, the institutions would be hard put to turn down an offer that gave them a chance to get out of the stock at a good profit.

Although it would be several hours before the machinery really started to roll, Rosenthal had already made a couple of calls around the Street to establish the fact that people with the power to make quick decisions on the offer would be around after four P.M. Several of the other solicitors had done the same and at 2:45, Rosenthal was on the line to an old friend in San Francisco, Jack H. Leylegian II, senior trust-investment officer for the Bank of America.

"Hi, babes," said Rosenthal with the breezy air he reserves for big clients like the Bank of America. He and Leylegian had been doing business for the better part of a decade. This call was a follow-up to one Rosenthal had made to Leylegian three days earlier. At that time, he had cryptically asked if the bank would be able to respond quickly to a two-tier offer to buy one of its portfolio stocks at a premium. The name of the stock wasn't mentioned and neither was the size of the premium. Leylegian's interest was sufficiently piqued, though, for him to ask Rosenthal if there were a take-over involved. "There were a number of take-overs taking place," recalled Leylegian, "and if it was a take-over, the mood of the market was such that there were large premiums being paid." When Rosenthal told him it wasn't a take-over situation, Leylegian shrugged in sudden lack of interest. "I didn't know what the name of the stock was, if we actually held it or not or if the deal would come off," he said.

Now came this second call from Rosenthal, who was once again asking him if he would be willing to sell the still unidentified stock at a premium. Leylegian was a little miffed. It was 11:45 A.M. in San Francisco, he had a lunch date on his calendar and was pressed for time.

"We will have to stop playing games," he told Rosenthal. "I don't know if I own the stock and I have a client to meet in 15 minutes."

Rosenthal asked Leylegian if he would be back in his office around one P.M.--four P.M. and the close of the market in New York. Leylegian said that in all probability he wouldn't and put the ball right back in Rosenthal's court.

The Bank of America executive recalled telling Rosenthal that "if he wanted to let me know, based on a long, steady relationship with him, what the name of the stock was, I would be happy to tell him if we owned it; and if we did own it, whether or not we had any power to do anything with it. So just between us," says Leylegian, "he told me the name of the stock was Becton, Dickinson."

Leylegian responded with a groan. "Dick, we don't own the stock; we sold it all several months ago--but I'll check to make sure." Leylegian walked down the hall to one of his portfolio managers, asked him to find out whether or not the Bank of America had, indeed, unloaded all of its Becton, Dickinson stock, and hurried off to lunch.

Leylegian was vaguely aware that the Bank of America had sold a lot of the East Rutherford, New Jersey, medical-supply manufacturer's stock in the $28-$29-a-share range, and now here it was, suddenly being bid for at what promised to be a fat premium. Leylegian was also acutely aware that his old friend had laid a heavy burden of secrecy on him. The risk, he knew, was (continued on page 358)Corporate Take-Over(continued from page 174) that "if someone is contemplating a large transaction and it is going to be done at a premium, if a person were not particularly scrupulous, he might at 11:45 in the morning buy that stock either for himself personally or for his client."

Back in New York, a disappointed Rosenthal dropped the phone back into its cradle. He would have to do better with the next institution on his list, Bankers Trust Company.

•

Less than a dozen miles west of Rosenthal--across the frozen Hudson and the tundra of the New Jersey meadowlands--Marvin L. Krasnansky had been on the phone to California, too.

The 51-year-old Krasnansky--then head of corporate communications for Becton, Dickinson--is extremely well connected on Wall Street. Before joining Becton in 1974, he had been a copy editor on The Wall Street Journal and had done public relations for both the New York Stock Exchange and the brokerage firm of Paine, Webber, Jackson & Curtis. Krasnansky is gregarious, with an easy sense of humor, and one of the things he likes about his job is keeping in touch with securities analysts who specialize in drug-industry stocks.

Now, late in the afternoon of this Monday in mid-January, Krasnansky was troubled. He'd just finished talking with Mary Ann Beck, a bright, personable analyst employed by Norton Simon. Simon's image as one of California's most opportunistic industrialists had with age diffused into the softer personality of Norton Simon, art collector and benefactor. But there was a sizable investment portfolio to manage, including a swatch of Becton, Dickinson convertible debentures.

That was all part of Mary Ann Beck's responsibility. She checked in with Krasnansky on a fairly regular basis, mainly with questions about how B.D. was doing. But this time she had a story of her own to tell. Simon had been in New York over the weekend, she said, and had heard that someone was "almost momentarily" going to make a bid for B.D. stock at $48 to $50 a share. Was it so? What did Marvin know about it?

It was the first Krasnansky had heard of that particular rumor. There had been others like it before, but lately the rumor mills had quieted down. There was no way he could assess the validity of the rumor, he said. The two chatted for a few minutes more and then rang off. Krasnansky briefly weighed the idea of checking out what he'd just heard with other friends in the Street but decided that doing so might just add substance to the sort of gossamer that was always floating around.

Take-over rumors about B.D. had been rife about ten months or so earlier when the lid blew off a row that had been building for a long time between management and Fairleigh S. Dickinson, Jr., the company's longtime chief executive and son of a founder of B.D. The introspective, unpredictable Dickinson had stepped upstairs as chairman in 1973 after a quarter century at the helm, and had turned over the day-to-day running of the company to two highly professional managers--Wesley J. Howe and Marvin Asnes.

Dickinson, however, could never quite let go. The generous sweep of family philanthropies such as Fairleigh Dickinson University was not enough to keep him busy. He was occupied somewhat with his major stockholding in Air New England, a regional carrier with pronounced growing pains, but Fairleigh Dickinson always had time for a sympathetic chat with old-line B.D. employees. Many of them, predictably enough, had serious reservations about where the new management was headed. Dickinson himself was worried that the company, in a renewed drive for profits, was beginning to lose its touch with people. It was a classic generation gap in search of an accident.

The collision came when Dickinson--with the help of critical studies he'd asked Salomon Brothers and Eberstadt to do--torpedoed a major acquisition move that Howe and Asnes had put together in January 1977. Efforts to patch up the relationship failed, and four months later, Dickinson was deposed as chairman. Word began to drift back to Howe and Asnes that the founder's son had asked Salomon to engineer a possible third-party take-over of B.D., using the five percent of the company he and his family owned as a fulcrum.

All of that was in the background as Krasnansky chewed over the substance of his conversation with Beck. Like any good securities analyst, she was always chary of revealing her own sources of information. Over the years, though, Krasnansky had developed a "fairly good suspicion" that a lot of what Mary Ann Beck knew came from Salomon Brothers.

•

H. Robert Sharbaugh, then chairman of the Sun Company, first heard Becton, Dickinson mentioned as a possible acquisition at a meeting of the big oil producer's senior managers at remote and exclusive Hilton Head Island, South Carolina. It was top-level stuff, a four-or-five-day session designed to give the group of ten senior vice-presidents and executive vice-presidents who run Sun a chance to brain-storm such long-range topics as corporate development away from the workaday intrusions of headquarters at Radnor, Pennsylvania.

One of the major items on the agenda was Sun's need to diversify out of its petroleum base, preferably by a series of major acquisitions. The subject was high on Sharbaugh's personal agenda, too. A giant of a man built along the slablike lines of an All-Pro tackle, Sharbaugh had joined Sun in 1946 while still a student at Carnegie Tech. He'd taken over the presidency in 1970 at the age of 41, with a mandate to decentralize a company that had become increasingly muscle-bound at the top. He split Sun into 14 units and thrust as much autonomy onto the divisions as they could absorb. There had been some modest-sized acquisitions as Sharbaugh moved on to become chairman and C.E.O. in 1974--$2,000,000-to-$5,000,000 forays into such nonenergy ventures as trucking, convenience foods and hydraulic systems--but nothing really big. Sun's assets amounted to more than five billion dollars. The company was loaded with cash and the great fear was that if it did not start moving in a big way into new fields, it might be trapped in a dwindling-resource business almost certain to be reshaped by major technological changes 15 or 20 years down the road.

Thus, acquisition was very much on Sharbaugh's mind as he was having cocktails before dinner with some of his fellow executives at Hilton Head. "It was Sunday, the fourth of December, about six o'clock in the evening," he recalled with the engineer's precision that punctuates much of his speech. Ted Burtis, Sun's chief operating officer and a fellow Carnegie alumnus, drew Sharbaugh aside and told him that Horace Kephart "would like 10 or 15 minutes with us." Kephart, senior vice-president for finance and investments, had been working on a recapitalization program for Sun with two Salomon partners for the past three months or so. One of the Salomon partners had suggested that Becton, Dickinson might fit Sun's diversification blueprint. Sharbaugh later recalled Kephart as saying, "There was a possibility that at least one of the directors of the company was desirous of selling his shares. He mentioned his name--Mr. Dickinson."

There was one problem, however. The Salomon partners had warned Kephart that three other companies were also interested in making a bid for B.D. If Sun were going to move, it had better move fast. A series of crash meetings began almost immediately. How did B.D. stack up with the competition in the health-care industry? What was the company's potential impact on Sun's earnings? How much would it cost to acquire? What was the best way to go about doing so? By this blustery Monday morning--January 16, 1978--Sun's financial people, headed by Kephart, a Salomon team that included Rosenthal and an outside legal team advised by take-over specialist Martin Lipton of Wachtell Lipton Rosen & Katz, had worked out a detailed, step-by-step scenario.

Sun would try to pick up anywhere from a minimum of 25 percent to a maximum of 34 percent of B.D. through a secret approach to Fairleigh Dickinson and a few other large individual holders. That first step would be followed almost immediately by the simultaneous and equally secret sweep of no more than 30 big institutional holders. The initial objective was not a complete take-over. Sun was reaching for less than half of the stock but wanted enough leverage to gain the board representation it would take to find out from the inside how the company really worked. If B.D. looked as good close up as it did on paper, there might be a second-stage take-over for 100 percent of the company.

Sun, in any event, would accept nothing less than 20 percent. Anything below that figure would not permit it to include a pro-rata share of B.D.'s profits in its own earnings. Sharbaugh was willing to go as high as $50 a share for the stock if he had to negotiate. Sun's executive committee had approved a maximum outlay of $350,000,000, but Sharbaugh thought the optimum combination would be 34 percent of B.D. for about $297,000,000. The 34 percent would give Sun "negative control." Careful study of the bylaws had shown that B.D. would not be able to take counter-measures--merge with another big company or entertain a competing bid that might force Sun to up its ante--without a two-thirds vote of its outstanding stock. Seemingly, the strategy was to shut off those possibilities by becoming a bone in B.D.'s throat.

Sharbaugh and everyone else on the Sun side was sure that the reaction would be hostile. There had been a flat-out declaration of independence after American Home Products--with a nudge from Salomon Brothers and the by-then-deposed Fairleigh Dickinson--made a pass at B.D. The bid had been rejected out of hand by the health-care company's board, and Krasnansky had made sure a formal resolution stating that B.D. intended to remain free got wide distribution. B.D. had also taken the precaution of retaining the other big name in the take-over bar--Joseph Flom, of Skadden, Arps, Slate, Meagher & Flom.

The wily, resourceful Flom has been in the take-over game since the Fifties and practically invented it. His good friend Marty Lipton had told Sun real bullets would be flying if Flom started shooting. Kephart had made the same point. He had told both Sharbaugh and the Sun board that "the purchase would most likely result in some legal actions to thwart the acquisition and that would be bad publicity."

The certainty that Howe and Asnes would fight underscored the need for secrecy. Sun could not run the risk of getting caught in midstream--i.e., in a position where a B.D. injunctive action might prevent it from getting control of stock for which it had already laid out large sums of money.

The ingenious response to that peril was the machinery Sharbaugh hoped to set in motion after the market close. Sun would bypass any heavy open-market purchases that would have been betrayed by telltale trading volume on the New York Stock Exchange tape. And Sun would skirt the ambush of yet another way of picking up a large block of B.D.--a formal tender offer to shareholders that would require advance notice to the Securities and Exchange Commission. Sun would get where it wanted to go by using Rosenthal and the other telephone solicitors as a kind of cutout. They would take a yes or no response from the institutions after the close. As soon as it was established that 20 percent or more of B.D.'s outstanding stock was ripe for the plucking, Kephart, operating from his command post off the Salomon trading floor, would close the deal separately with each of the institutions. There was to be no commitment--and no mention of Sun's name--until the 20 percent minimum was reached.

The scheme looked airtight, but it was freighted with enough unknowns for Kephart to have christened the new Sun subsidiary that had been created to acquire B.D. stock with the cryptic initials L.H.I.W.--Let's Hope It Works.

The new creation was off to a flying start, though, as Sharbaugh learned when he arrived this Monday morning at Sun's modernistic offices in Radnor, a half hour's drive from downtown Philadelphia. Kephart was already on his way to Salomon in New York with a group of five or six other Sun people. Fairleigh Dickinson, his daughter Ann Dickinson Turner and one of his oldest business associates had all been approached over the weekend. It looked as though their combined holdings of 1,195,407 shares were already in the bag.

A good omen, but Sharbaugh, like almost everyone else on his team, was worried that word might somehow leak. The price of B.D. might run away from the market and knock the carefully plotted scenario into a cocked hat. Sharbaugh stolidly worked his way through his calendar for the day--a visitor from outside the company first thing in the morning, a luncheon meeting with a representative from a university that provided Sun with some of its best engineering talent. Sharbaugh had been scheduled to attend a meeting of the Bryn Mawr Hospital board in the late afternoon and abruptly decided not to go. Ted Burtis shared his uneasiness. He kept coming by Sharbaugh's office, chatting for a few minutes and then leaving. There was some talk about Burtis' having given Kephart approval to go along with Rosenthal's insistence on shooting for a minimum of 20 percent rather than the 25 percent that Sun had decided on over the weekend. Rosenthal insisted the "psychology" was such that the institutions would rush to fill the smaller quota. The train was leaving the station; time to get aboard. As Sharbaugh recalled, he and Burtis "went over the numbers a couple of times, calculating average cost to Sun if some shares were bought at one price or another" and trying to figure out what kind of a ceiling they would give Kephart if it turned out that he had to negotiate with the institutions. They talked about ways of trying to help B.D.'s management save face, but most of all, the two Sun executives worried about whether or not the blitz "was still to move that night." The decision was Sharbaugh's responsibility alone, and it would be hours before he'd have enough information to act on. The waiting wasn't easy, and no matter what he decided, things would never be the same.

•

The flip side to the controlled tension at Radnor was controlled mayhem in New York. That, at least, is how Kephart described the atmosphere on the 41st floor at Salomon. The final preparations for the raid took place against the customary workaday tumult of Salomon's trading floor--a babel of traders and their clerks conducting two or three phone conversations at once: "Hold him at a quarter!" "Fifty thousand at an eighth, an eighth!" "Sixty-three to sixty-five and a half!"

Even Rosenthal felt his own natural habitat had been turned into a zoo. There was a lawyer for each of the phone solicitors, and that meant 18 people right off, most of them running in and out of what seemed to be one continuous meeting--a meeting that began around noon and didn't end until almost the close of the market. "At that point, there must have been a dozen attorneys all over the place," Rosenthal recalled.

All of the lawyers were fascinated with the technical virtuosity of the plan of attack. Charles M. Nathan, for example, a partner in Cleary, Gottlieb, Steen & Hamilton, is no novice to the take-over game. Over the past seven years or so, he has worked on at least 25 mergers. Yet even he admitted to having been curious about how the approach was going to work, and was eager to get it on the rails. "I had never before seen a transaction quite like this," he said.

Part of the virtuosity lay in the single-mindedness of the approach to the institutions. Much of the early part of the day was consumed by a study of the list of institutions Rosenthal had drawn up. He and the eight other solicitors parceled out among themselves the institutions they knew best. Rosenthal drew the Bank of America, for example, because of his long acquaintance with Leylegian. Pike H. Sullivan, Jr., Eberstadt chairman, who'd been brought in to help on the telephone campaign, had a good working relationship with James F. Jollay, first vice-president in charge of investments for the First Wisconsin Trust. Morris Offit, a Salomon partner with good connections in Baltimore, was given the T. Rowe Price mutual-fund group to call. Joseph Lombard, head of Salomon's Boston office, was patched into the meetings in New York by a conference call. Lombard was told to take on the First National Bank of Boston and two major mutual-fund groups where he was a familiar figure--the Massachusetts Investors Growth Stock Fund and State Street Research & Management Corp.

That done, the lawyers picked their way through the decalog of dos and don'ts the callers were to follow. The mandatory selling points included a warning to the institutions about the need for "absolute confidentiality" and emphasis on the fact that "your principal will not finally commit to purchase until a block meeting its minimum requirements is assembled." The don'ts included a warning that the price ought not to be characterized as a "take it or leave it" proposition. "Be appropriately responsive to negotiating initiative by institution," the solicitors were told. The time constraints put on the institutions to get back with a yes or no answer should not be any shorter "than is customary for institutional block purchases."

The caveats were laid down to keep the deal from running afoul of the securities laws--a potential slip that might add weight to the reaction sure to come from B.D.'s fearsome litigators. Each of the solicitors at Salomon had a script in front of him and a lawyer alongside him as he made his pitch.

When the blitz began at four P.M., none of the institutions was given too much time for reflection. During the planning, Rosenthal had told the lawyers he thought any professional worth his salt should be able to make a decision on a block trade in five or ten minutes. "A half hour would be generous," he had said.

At 4:02 P.M., Rosenthal was on the line, outlining the proposition for William Dudley, a senior vice-president of the I.D.S. mutual-fund group in Minneapolis. He told Dudley the deal "had to be done that day." Dudley had already done some homework, thanks to a couple of guesses he'd made on the basis of the will-you-be-around-after-four-P.M. call Rosenthal had made earlier in the day. When the deal went live on the second phone call, Dudley checked out the price charts on B.D., liked what he saw, was told by Rosenthal there had been a "heavy response" and by 5:15 P.M. had agreed to sell 450,000 shares.

When Pike Sullivan called his good friend Jollay at First Wisconsin at 4:05, he went quickly through the canned spiel ("An undisclosed party has an interest in taking a substantial minority interest in B.D.") and then told him he needed an answer "in a half hour." Jollay said that would be OK. He talked the proposition over with the chairman and president of the bank, ran it by a hastily summoned meeting of his research director and portfolio managers and was back to Sullivan by five P.M., New York time. First Wisconsin would be more than happy to sell 96,625 shares held in 42 different discretionary accounts at $45 a share.

Some institutions, though, felt they were being stampeded. Both Dennis Evans of the First National Bank of Minneapolis and James Clark of the North Carolina National Bank, in fact, thought they were looking at the opening moves of a surprise tender offer being made to all B.D. shareholders. They did not bite, apparently because they thought they were being pressured into selling at a price that might sweeten later on. David H. Carnahan, Jr., head of the personal trust and investment group at the United States Trust Co. of New York, was also wary. Robert Zeller, then chairman of the executive committee at Eberstadt and a longtime friend of Fairleigh Dickinson, had come on strong with the U. S. Trust executive. Zeller had opened the conversation by telling Carnahan the bank was a "long and valued customer of Eberstadt" and introduced himself as a "personal friend" of U. S. Trust's chairman. At the same time, he held the banker's feet to the fire. Zeller, according to Carnahan, said he would "appreciate hearing from us within 30 minutes." The offer was filling up fast, Zeller continued, and there was no assurance that it would still be open by the time Carnahan got back to him.

John R. Crowl, a senior portfolio manager at Bankers Trust Company, also felt very much under the gun. It was a "novel situation," he said. Rosenthal had called Crowl at 4:10 P.M., explained the package and told him he had "until mid-night" to respond. In the end, both banks backed away from the deal, mainly on the ground that they didn't have enough time or information to weigh its full implications. Rosenthal announced that he was particularly "vexed" at Bankers Trust. He felt his call earlier in the day had given Crowl more than ample notice that the bank's portfolio managers had to be in a position to move swiftly.

All of Rosenthal's missionary work was rewarded, however, when he finally got a return call from a jubilant Leylegian. The computers showed that the Bank of America had not sold out all of its B.D. stock, after all. Leylegian again quizzed Rosenthal closely on whether or not the deal was a take-over. Assured that it wasn't--a sign he was getting all the premium there was in the stock--Leylegian committed the bank to a delivery of 143,400 shares the next day.

•

The band wagon was really rolling--rolling so fast that Kephart was hard put to keep up with the totals pouring in on him at his Salomon command post. By 4:45 P.M., he had enough information to call Burtis at Radnor with the good news that Sun had commitments on 3,100,000 shares. By 5:35, the tally was 4,226,000 shares--a magic mark, some 22 percent of B.D.'s outstanding stock. A time for the big decision. This was a conference call between Burtis and Kephart in New York, flanked by Rosenthal and James H. Fogelson, the deputy for Sun's lawyer, Martin Lipton. Sharbaugh modestly recalled getting in on the middle of the call and hearing a rundown on the institutions that had already agreed to deliver. He was told there was a good chance that most of those not yet heard from would be in the affirmative, too.

Sharbaugh gave Kephart the word everyone had been hoping to hear all day. Go! Relieved, the methodical Sharbaugh made the ten-minute drive to home and dinner, while Kephart started bringing in the sheaves. "Hello" was his introduction. "I'm Horace Kephart, president of L.H.I.W., a subsidiary of the Sun Company, and I understand you're interested in selling...." Leylegian remembered the call sounding as "if this guy was reading from something," and, indeed, he was.

Kephart was reading from what was, in effect, an official victory script. Sun had contracted to buy 34 percent of B.D. in its brilliantly planned $291,847,185 blitz of six individuals and 33 institutions. The sweep of the institutions took no more than an hour from start to finish and appeared to have been accomplished in total secrecy.

What's more, only one of the institutions had attempted to bargain the $45 price higher, and Kephart had simply refused to do business with it. There were a lot of details still hanging fire: Couriers had to be dispatched all over the country to pick up the stock, preferably before Wesley Howe and the rest of B.D.'s management realized what was happening. And the New York Stock Exchange had to be told just enough to persuade it to keep B.D. stock from trading the following day, but not enough to unmask Sun's identity.

Tuesday, however, was another day. An expansive Richard Rosenthal got a group of eight or so of his colleagues together and took everybody uptown for dinner at "21."

Epilog

B.D. literally did not know what hit it. The first report came in the form of a rather cryptic phone call from the New York Stock Exchange. A major law firm, acting on behalf of a client it would not name, had asked that trading in B.D. common be temporarily suspended, pending detailed notice of a large outside purchase. What, the big board wondered, did B.D. know?

The answer was, Nothing. B.D. immediately put out the alarm to its lawyers and began milking Street contacts for information. Word had got around that Sun was the buyer. B.D.'s strategy quickly fell into place: Hit Sun in the courts and in the press with charges of a masked and illegal tender offer that enabled a few big institutions to make big money while small stockholders were left in the lurch. Sun also seemed vulnerable to a counterattack on Capitol Hill. The B.D. purchase had come at a time when the oil industry generally was petitioning Congress for higher prices. Shouldn't the hundreds of millions Sun was spending be plowed back into producing more oil instead of snuffing out the independence of a progressive, well-managed medical-supply company?

B.D.'s immediate objective was to pressure Congress and the SEC into an investigation. Its long-range goal was to exceed the threshold of pain for the publicity-shy Pew family, which controlled Sun. Real damage to Sun's jealously guarded image might convince the Pews that B.D. was a very poor investment, indeed.

Thanks to a shrewdly executed lobbying and PR campaign, major committee chairmen on the Hill were soon denouncing. Sun's "sudden and surreptitious" purchase. Sun was on the defensive, hard put to catch up with the simply mind-riveting concepts--mysterious halt, illegal purchase--that made headlines. The less strident environment of Federal court seemed to offer Sun a little more hope. Judge Robert L. Carter opened the trial on B.D.'s complaint of an illegal purchase reportedly "75 percent convinced" that Sun was in the right. Persuaded in part by B.D.'s slashing attack on the credibility of several major defense witnesses, Carter apparently finished the case almost 100 percent convinced Sun was in the wrong.

The issues Carter was trying had real-life consequences. Tremendous internal pressures had been building at Sun. The Pew family added two more representatives to the board and the ax soon fell. Sharbaugh, grand artificer of the move on B.D., was out as C.E.O. Sun insisted he hadn't been fired, and so did he. In any event, there was irony in his departure: Like Howe at Becton, he had run afoul of a founding corporate family that had commissioned him to modernize its company--but not too fast. The big difference was that Howe won and Sharbaugh lost.

Sun's new management was ready to cut its losses. The settlement with B.D. carried a whiff of irony, too. Among other things, it called for Sun to get rid of its stock under an arrangement that left B.D. virtually take-over-proof. Not that Sun came out all that badly. It had gone back to doing what it seems to know best--plowing heavy capital back into energy sources rather than into the trickier terrain of textbook diversification.

And what of Fairleigh Dickinson? He has invested in a small company working on the frontiers of biogenetics. "There aren't many people there," he says, "and I can put a face and a name on every one of them."

The ultimate irony lay with Salomon Brothers. Its $550,000,000 merger into Phibro Corporation, a big international commodities trader, ensured that Salomon would continue to be able to compete on even footing in a Wall Street environment that had been changed radically by such consolidations as Shearson Loeb Rhoades into American Express and the Bache Group into Prudential Insurance. The sale came only after months of sharp debate on the direction the firm should take. The Salomon name will continue, but as employees of a publicly owned company, the erstwhile Salomon partners are no longer absolute masters of a house that had been one of the most venturesome on Wall Street for more than seven decades.

"Any tipping of the client's hand might give the intended victim time enough to run to the courts."

"Like any good securities analyst, she was always chary of revealing her own sources of information."