The Go-Go Years (24 page)

In 1968 Ling embarked on his most ambitious venture and the one that, along with other factors, would eventually bring about his downfall. It was nothing less than the acquisition of
Jones and Laughlin Steel, an old and solid member of American big business' traditional pantheon, for a cash tender offer of $425 million, the largest ever made by one company for another. But in 1967 the high school dropout and onetime dustbowl roustabout was a Caesar not only in his own eyes but in those of a majority of his corporate peers as well.

Meshulam Riklis, born in Odessa the same year Ling was born in Hugo, Oklahoma, grew up in pre-Israel Tel Aviv in comfortable circumstances, making such frequent and intricate deals with his playmates that they took to calling him derisively the Minister of Finance. He was no ordinary Jewish boy, but, it was sometimes maintained, an eighth-generation descendant of Baal-Shem-Tov, founder in eighteenth-century Poland of the celebrated ultra-orthodox Jewish sect called Hasidism. Nonreligious like his father—a Palestine businessman who had once been an officer in the Turkish army—Meshulam Riklis showed an early bent toward scholarship, leading his mother to hope fervently that he would get a Ph.D. and become a teacher. He did, for a time, become a teacher. Having served in the British army in wartime and later having lived for a while with his bride in a kibbutz, he came to the United States in 1947, graduated from Ohio State University in 1950, and then moved to Minneapolis, where he taught Hebrew at night and spent his days as a novice stock salesman for a local brokerage firm.

At the daytime occupation he made a quick success. Soon the rich Jews of Minneapolis were willing to finance him in independent ventures, and he began buying and combining small companies on a shoestring. He would line up backers to help him get control of Company A; then he would use the assets of Company A to take over Company B; and so on. In 1955 he took over a firm called Rapid Electrotype; in 1957 he merged it into another called American Colortype; and the combination, which was to be Riklis' key corporate vehicle thereafter, he named Rapid-American Corporation—a title so inspiriting, so beautifully characteristic of the air of guileless enthusiasm seasoned with amiable larceny of the conglomerate era, that it must endear him to any student of corporate nomenclature.

Naturalized in 1955 and a millionaire before the end of that decade, Riklis
was
Rapid-American in the flesh. In 1970 he told a reporter, “I am a conglomerate. Me, personally.” He had built one and seen it nearly fall before the term “conglomerate” had come into use. By 1962 his Rapid-American controlled McCrory Corporation, a combine of retail stores, and Glen Alden, a consumer-products company. After the market crash that year the empire found itself in a bad bind, and creditor banks demanded Riklis' resignation; he refused, the market recovered, the banks relented, and the crisis was weathered. And Rapid-American went on to new heights, adding companies to its holdings at a fast pace through the following years. Eventually Riklis came to control a complex with sales of $1.7 billion, including such well-known companies as International Playtex, B.V.D., Schenley Industries, Lerner Shops, and RKO-Stanley Warner Theatres. In 1966, at the height of this headlong expansion, Riklis did a characteristically unexpected thing—he went back to Ohio State for the summer and took a master's degree in Business Administration, writing his thesis on his own business career and methods. His mother in Israel, who still regretted that he had become a businessman rather than a professor, must have been somewhat comforted.

Perhaps the most striking thing about Riklis as a conglomerator is the way he exploited his Jewishness rather than suppressing or ignoring it as so many Jewish businessmen in an alien culture had done before him. Once he began a pitch to a prospective lender with the taunt, “I understand you guys are anti-Semitic”—and got the loan. He was always ready with a dialect story, and his most famous saying—that Rapid-American owed its success to “the effective non-use of cash”—is perfectly in the tradition of rueful and realistic Jewish wit. Once, after a luncheon at the Bankers Club in Wall Street with an ex-partner of White, Weld, he described the occasion to a friend by saying, “I've never seen so many
goyim
in my life,” and then went on to tell with what distaste he had eaten his first raw oyster. In making corporate acquisitions, he went almost exclusively for firms that were Jewish-controlled. Other Jews he felt he could deal with; what he prudently avoided was any confrontation
with the Protestants. A man making his way, Riklis believed, had enough trouble without
that
complication. Yet the Jewish-American business world had by Riklis' time become a commodious one, and his self-imposed limitation scarcely cramped his style. “I will not go into the steel business,” he once pronounced. “Jimmy Ling, he's entitled. He's got the right religion.”

Of course, a heavy layer of usefully insulting implication underlay such statements. Meshulam Riklis was hardly one to be popular with the stereotyped old-shoe American executive or underwriter. But, tough and appealing, with a sure instinct for timing and survival, he was the first Borscht-circuit entertainer
manqué
to rule an American business empire, and as such he has his deserved and reserved place in our current business history.

Charles Bluhdorn, also foreign-born, lacked Riklis' subtlety, wit, and streak of intellectuality; he was more nearly the traditional brash gambler who will bet with anybody on anything, and yet—like so many brash gamblers—he was a secret conservative, more cautious and calculating than he wanted to seem. Several years younger than Ling and Riklis, he was born in Vienna, the son of a Czech-born importer, and came to the United States at sixteen, a refugee from Nazi anti-Semitism, in 1942. In his middle twenties he made his first million with a series of breathtaking deals in the commodities market. Of this period in his business life he would say twenty years later, when he was the head of a vast empire, “Today I wouldn't have the nerve.” But he retained plenty of nerve in the sense of
chutzpah.
In 1957, just past thirty, he bought control of an automobile parts manufacturing company called Michigan Bumper. Bumpers moved slowly, and Bluhdorn's firm attracted no special attention; it entered the nineteen sixties with sales of $8.4 million and a small annual deficit. Eight years and more than eighty corporate deals later, his enterprise—by then famous to everyone who follows the stock market as Gulf and Western Industries—would have sales of $1.3 billion and net annual income of $70 million; over the same period its stock price multiplied
twenty times, and Bluhdorn became known as the
enfant terrible
of the conglomerate scene—a distinction, from the business-establishment point of view, somewhat comparable to being called the wickedest man in Hell.

Bluhdorn and Gulf and Western came late to conglomeration. In the first part of 1965 his was still essentially a small car-parts firm; but that year he managed to borrow $84 million from the Chase Manhattan Bank with which to buy control of New Jersey Zinc Company, largest zinc producer in the country. After that, acquisitions followed at a dizzying rate: E. W. Bliss, Desilu Productions, South Puerto Rican Sugar, Consolidated Cigar, a mixed bag of others. Bluhdorn's rationale for diversifying so widely and so wildly was simple; he wanted, he explained, to be in a lot of different lines of business so that when hard times fell on one of them the others would serve as a counterbalance and pull the entire enterprise through. He was at less pains to point out that nearly all of Gulf and Western's acquisitions were made with debt and convertibles, meaning that this year's net profit was being inflated at the possible cost of next year's; or that Gulf and Western, until belatedly prodded by the S.E.C., neglected to point out to its stockholders and the public the potential dilution of their holdings that was inherent in the issuance of all that paper.

Undoubtedly Bluhdorn's acquisition masterpiece was Paramount Pictures in 1966. The company was in trouble, losing money on feature films, wary of plunging too deeply into large-scale television production, propping up its earnings by selling off its assets. With no prior experience in motion-picture production, Bluhdorn personally took over as president and appointed a new management team charged with instituting new, bolder policies. For the short term, it was a case study of the conglomerate theory triumphant. In less than three years, Paramount became the hottest studio in Hollywood.

Bluhdorn at his most flamboyant was almost a parody of the hyperthyroid business genius—fast-talking, with just enough Viennese accent to make him type-cast for his role: emotional, visionary, impatient, an artist at the work of business. He liked
to speak of Gulf and Western as “a sort of youthful disease.” He ran his empire with a tiny, easily manageable headquarters staff of less than one hundred, secretaries included. He hated vacations and he disdained the word “conglomerate.” Doing business on the telephone or face to face, he alternated intimidating roars with conspiratorial whispers, and could modulate at will from either into eloquent or flowery speech suffused with sincerity. He was conscious of his status as an outsider, and not without rancor on the subject—“I'll show those goddam blue-bloods,” he once exclaimed on encountering the cool hostility of the Establishment—but unlike Riklis, he was not totally shy of direct confrontations with the Protestants. He even made takeover overtures to Armour and to Pan American Airways—only, however, to withdraw prudently in each case when the going showed signs of getting too rough.

Essentially a haggler on a grand scale, Bluhdorn gloried in his reputation as such. He was surely aware that in conservative circles such a reputation was deemed a business liability; indeed, a sympathetic investment banker once told him that his chief weakness was his inability to conduct himself according to accepted canons—his tendency to sputter, fume, and shout when only dispassionate facts were required. Another banker has since made the curious and suggestive criticism that in his corporate acquisitions for Gulf and Western, Bluhdorn frequently showed a lack of taste—not in the way he corralled them, but in his choice of companies to acquire. The concept of taste, as applied to a chief executive's choice of corporate acquisitions, may well merit some study by business students of the future.

In one important respect, Bluhdorn was constantly maligned. Almost universally considered to be among the wildest and most suspect of the conglomerators, and certainly in truth among the least restrained users of debt and convertible securities, he was guiltless of the principal offense usually alleged against his sand-castle breed, that of “buying” spurious earnings by taking over companies with price-to-earnings ratios lower than his own. The record shows that, on the contrary, Gulf and Western usually bought companies with ratios higher than its
own, and thereby temporarily
reduced
its own earnings through its acquisitions. Even in the Paramount deal, Bluhdorn paid seventy times the movie company's current earnings; the multiple of Gulf and Western at the time was less than eight. As Arthur M. Louis pointed out in
Fortune,
during the decade of the sixties Gulf and Western bought high-multiple companies so often that the transactions, in themselves, actually reduced net earnings by almost $1.50 a share. Bluhdorn floated far too much corporate underwear, he often let his accountants play fast and loose, and probably he shouted too much on the telephone; but he bought companies because he believed in them, and through most of the decade Gulf and Western's “internal” growth—the old kind of growth based on doing more business—averaged almost 20 percent a year.

7

Whether immigrants like Riklis and Bluhdorn, self-made natives like Ling and Eugene Klein, or Harvard Business School products like Roy Ash and Charles (Tex) Thornton, the conglomerators were all uninhibited free enterprisers, anti-organization men, throwbacks to the nineteenth-century age of individualism in American business. The great paradox of the conglomerate era is that it brought back such rampant individualism at the very moment when the received wisdom held that government regulation, suburban living, and the rise of the computer had bred the pawky eccentricity out of American business and turned it into a vast impersonal machine to which a man learned to abase himself, or else failed. Like the old trusts that Theodore Roosevelt set out to bust, the conglomerates were essentially one-man or two-man companies. Like the robber barons, the conglomerators tended to collect art and otherwise flaunt their wealth (in contrast to the organization men of the previous decade, whose goal was not to excel or exceed but to
fit in). James Ling's Dallas palazzo was far from the only conglomerator's marble showplace. Klein, a onetime used-car salesman who built the great West Coast conglomerate, National General Corporation, bought an old Beverly Hills mansion, spent a million and a half decking it out with Picassos, Modiglianis, and choice European antiques (a Marie Antoinette foot bath, two Lord Nelson mirrors, a desk set once owned by a czarina of Russia), and rode around in a $3-million corporate jet and a Rolls-Royce formerly owned by Queen Elizabeth II. Some were not afraid of appearing to be comically self-serving; the
Wall Street Journal
reported that at the height of the era the head of a middle-sized firm with conglomerate aspirations called a broker and asked him to find for acquisition “some kind of company that would be located in Florida,” since he liked the climate and wanted an excuse to spend time there. In naming their enterprises, as in decorating their houses, the conglomerators showed a penchant for instant grandeur usually at the risk of bombast (Rapid-American, National General), but sometimes the names went in another direction, and suggested down-home folksiness, which investors also seemed to love. There was Minnie Pearl's Chicken System, Inc., later more austerely called Performance Systems; its stock rose wildly under the first name and dropped disastrously under the second. Sometimes it seemed as if the company namers deliberately injected just a hint of comic larceny, calculating, perhaps correctly, that the investing public and the money managers had a taste for such things. There was, for example, the Slick Corporation—named for its founder, it is true, but straight out of a W.C. Fields movie all the same. And there was “Automatic” Sprinkler Corporation. Its officers explained that the quotation marks were intended to distinguish its particular automatic sprinklers from everyone else's; but to the layman the name seemed to imply, in an almost masochistically self-deprecating way, that the company's sprinklers were not really automatic but were only alleged to be. Whatever is in a name, the suggestion did not deter the stock market from bidding the company's stock in 1967 up to more than fifty times earnings.