Donald
Trump: Corporate Raider
By
Phil Mattera, editor of the Dirt Diggers
Digest
“We’re not interested in being taken over by Donald Trump.” That message, which sounds like a pronouncement by today’s Republican Party establishment, was expressed three decades ago by the board of directors of Bally Manufacturing as it sought to thwart an unwanted bid by the developer. Bally managed to escape the clutches of Trump but it had to pay a significant price.
During
his recent endorsement statement, Dr. Ben Carson declared that there are two
Donald Trumps running for president, one of them “cerebral.” Whether that’s
true or not, there’s evidence of two Donald Trumps in the business world.
The
first Trump is the one constantly promoted by the candidate — the owner and
operator (or at least licensor) of a string of supposedly wildly successful
business all adorned with his name. Whether Trump University or Trump Steaks,
these are also the focus of his critics.
Yet
Trump has another track record that involves not the running of companies but
rather that of profiting by launching takeover bids that do not lead to
completed transactions. During the 1980s Trump was a junior member of a
fraternity of wheeler dealers known as corporate raiders. (One of the more
notable members of that group, Carl Icahn, has endorsed Trump’s presidential campaign).
Among Trump’s main forays was the one involving Bally. In November 1986 Trump disclosed that he had acquired a nearly 10 percent stake in the company, then the world’s largest producer of electronic games and an operator of casinos and health clubs.
Right
from the beginning, analysts thought Trump was simply looking to
profit from a stock price increase resulting from the bid. They pointed to an
earlier investment in Holiday Corp., which Trump sold for a $30 million profit
after the disclosure of his 4.9 percent stake.
Bally
took poison-pill evasive action and sued Trump for what it called an “unfair
and coercive” takeover attempt that could jeopardize the company’s gaming
licenses in Nevada and New Jersey (Businesswire, December 5, 1986 and Chicago
Sun-Times, December 6, 1986).
Trump
countersued for $1 billion. The war of words and court filings ended in
February 1987, when Trump agreed to sell his shares back to Bally
at a premium and netted a profit of more than $31 million.
Both
Trump and Bally denied that the deal constituted “greenmail,” and the
company prevailed in a shareholder lawsuit
challenging the arrangement, but as Gwenda Blair wrote in her book on Trump, the stock
transaction was “extremely close to greenmail.”
The
Bally and Holiday Corp. bids were far from unique. Trump frequently bought
stakes in companies — sometimes large enough to trigger an SEC reporting requirement,
sometimes not — and ended up selling at a profit after short-lived takeover
moves.
On October 6, 1989 the Associated Press ran a story headlined TRUMP HAS A HISTORY
OF TAKEOVER FEINTS that stated: “Like a high-stakes baccarat player at one of
his Atlantic City casinos, real estate tycoon Donald Trump has made some
profitable bluffs to help bankroll his ambitious and splashy acquisitions.”
The
piece noted several examples in which he “accumulated shares in the company –
sometimes indicating he might be interested in mounting a buyout – and later
sold all or some of his shares at a profit after the price rose on the ensuing
takeover speculation or when another bidder emerged.”
In
1988 Trump had to pay a $750,000 civil penalty to settle
allegations by the Federal Trade Commission and the Justice Department that he
failed to comply with pre-merger notification requirements in some of these
situations.
Given
this track record, one has to ask which Donald Trump is mounting the current
challenge to the Republican Party — the one who takes things over and runs them
(sometimes well, sometimes not) or the one who engages in takeovers just to
make a profit.
Trump’s
behavior in the presidential race often leans toward the latter. His incessant
bragging about business acumen has become routine, but the press conference in
which he displayed an array of Trump-branded products reinforced the impression
that he may view his campaign not so much as a political revolution as an
open-ended marketing opportunity for his ventures.
One
cannot help but wonder how things would be different if the Republican elite
had responded to Trump the way Bally did — by buying him off rather than
fighting him. It’s not clear what form greenmail would take in a presidential
campaign, but Trump is always saying he is open to a good deal.