Lord only knows how many different businesses Irwin Jacobs touched during his career, but it was his high-profile public role as a takeover artist that turned him into a celebrity.
Now such people might be called activist investors, but takeover artist or corporate raider is what they were known as in the 1980s. That’s when Jacobs routinely made financial news, by jostling for control of the Pabst Brewing Co., the Walt Disney Co., Kaiser Steel and other companies.
A Jacobs investor group hardly ever got control. Yet when Jacobs sold his stake and moved on, as he reportedly did at a big profit with Disney, he still claimed a big win.
“I think Disney is better off than it’s been in years,” he told the Washington Post in 1984, after Disney had restructured itself. “I have served a purpose in that company.”
At the time that kind of statement probably led to nothing but eye-rolling among corporate managers, yet the argument still holds up.
Jacobs, 77, died last week in a personal tragedy, shooting his wife and then himself.
Though still well-known in local business circles, his celebrity peaked back in the 1980s. And it’s important to understand that era, of how there came to be an opportunity for guys like Jacobs and how having them in the market forced companies to clean up their operations.
Shareholders back then had been through a rough patch, as only the lucky or the masterful could have made much money in stocks in the 1970s. The price-to-earnings ratio of the S&P 500 into the early 1980s didn’t get out of the high single digits, maybe half of what it is now.
There also had been plenty of pain in the broader economy, with an unhappy combination of stagnant economic growth and price inflation. Americans had started feeling increasingly anxious about global competition, particularly as more Americans turned to Toyota and other imported brands for reliable and economical cars.
It was also just after the golden era of American conglomerates, big holding companies like Teledyne that bought company after company in all sorts of different industries. It wasn’t just dealmaker CEOs who assembled unrelated businesses. Our local food giant General Mills once owned both the maker of Play-Doh and the retailer Talbots.
To the takeover investors, American companies looked unfocused and unresponsive to shareholders and were presided over by executives who appeared a little too satisfied just to be part of an exclusive club.
For those who sought to take on these companies, a hardscrabble background was an advantage. Victor Posner, whose shamelessly self-serving ways eventually got him banned from any involvement with a public company, is often credited as the pioneer of hostile takeovers. He reportedly gave up formal schooling to go to work at age 13.
The real skill here wasn’t knowing how to add a lot of value to the products or services. It was understanding how much more some asset would be worth if it could somehow get carved out and sold to the right buyer. And the takeover investor had to have thick skin, as a lot of feathers get ruffled in a takeover fight.
Irwin Jacobs was already in the family business by the time he finished high school and gave college just a couple of days before quitting. His early years in business don’t sound like they could have been easy, moving from buying and selling burlap bags to lots of other products.
A turning point in his career was buying the Grain Belt brewery, a deal that both netted a return as well as introduced him to a future partner, the banker and investor Carl Pohlad.
There’s not nearly enough space to fully cover the busy period that followed. In a more or less typical project, he invested a couple of years into trying to take over Pabst, through tender offers, lawsuits and proxy campaigns. This and other forays turned him into a media star. “I like to buy dollars for 50 cents,” the Wall Street Journal reported him explaining to a rapt audience of securities analysts in 1985.
Corporate CEOs along with boards of directors found ways to fight back, including measures like granting special rights to existing shareholders in a takeover, thus throwing sand in the gearbox of a takeover attempt. Companies also would buy back the corporate raider’s stock, a practice called paying greenmail that let the raider pocket quick trading profits without completing a deal.
Jacobs said he was serious about wanting to be in charge, not simply being a corporate raider. He proved it when his group in 1985 did seize control of a big American corporation, AMF Inc.
In a conversation with the New York Times once the deal closed, Jacobs didn’t bother masking his contempt for the AMF brass and their fondness for limos, private jets and executive dining rooms.
It wasn’t long before market conditions changed enough for takeover activity to wind down. In looking back, American companies had become leaner and better focused, but not without costs. An example we are still living with is called Revlon duties for board members, named from a lawsuit brought in the battle for the beauty-products company.
The suit established a legal obligation for corporate boards in takeover situations to simply pick the highest price for shareholders. That seems to be one reason shareholder value now completely swamps any other consideration in overseeing public companies.
Jacobs didn’t completely leave the public eye as takeover activity subsided. For years he remained a favorite source for journalists, if for no other reason than his willingness to get on the phone and respond to questions.
And that’s maybe one of the reasons to look back wistfully at the takeover era. Jacobs sure made it sound like he was having an awful lot of fun.