Boesky tailwinds

BOESKY TAILWINDS

TO THE ill-concealed delight of House Judiciary Committee Chairman Peter Rodino (D., N.J.), the Ivan Boesky insider-trading scandal has given impetus to an anti-takeover bill now stalled in the Judiciary Committee. Rodino and Senate Democrats Howard Metzenbaum (Ohio) and William Proxmire (Wis.) hope that the growing public revulsion with the Boesky unpleasantness will propel anti-takeover legislation through the 100th Congress starting in January.

Yet, even with a Boesky tailwind, the legislation faces bumpy weather. Opponents of reformist takeover regulations are influential, highly visible, and well funded. Federal Reserve Chairman Paul Volcker and Deputy Treasury Secretary Richard Darman have joined with corporate raiders like T. Boone Pickens and Carl Icahn in asserting that the American "corpocracy" (vile semantic, for which former Nader Raider and recently defeated New York senatorial candidate Mark Green takes credit) stands in need of hostile takeovers in order to keep management responsive and in line.

Both sides have strong arguments. Darman & Co. say that without takeover pressure, management becomes rigid and complacent. Rodino & Co. say that when managers are obsessed with simply maintaining corporate control, "looking over their shoulders," they cannot focus on long-term productive business goals. Pickens argues that takeovers protect the individual shareholder's right to influence corporate affairs by selling stock. But those favoring more regulation see such arguments as venal rationalizations for raider avarice.

Another Wall Street happening, the Goodyear takeover bid by Sir James Goldsmith, has already helped tip the balance toward Rodino. Rodino held hearings November 18 wherein prominent businessmen and congressmen spoke out for and against corporate raidership, with the ratio of testimony heavily against, of course. Attorney A. A. Sommer testified for the Business Roundtable, denouncing corporate raiders as "a handful of opportunists" forcing a massive restructuring on American business, "with consequences that may be disastrous." Joining in this high dudgeon were Maryland Democratic Senator-elect Barbara Mikulski, Goodyear chairman Robert Mercer, and Akron, Ohio, Mayor Thomas C. Sawyer. Speaking for the corporate raiders was Sir James himself, who quoted copiously from his U.S. Government ally, Deputy Secretary Darman. Policy analyst Murray Weidenbaum also fired big guns in defense of the raiders.

Rodino staffers were thrilled by Sommer's endorsement of their efforts and by his repeated attacks on the Goldsmith/Darman notion that mis-management needs takeover therapy. Goodyear's subsequent buyout of Goldsmith for $619 million, giving him a profit of about $90 million, was, Rodino staffers felt, another obvious argument in their case for legislation. Wasn't the only person who came out ahead in that game the wealthy Sir James?

But Rodino's position is not strong. In neither the 98th nor the 99th Congress did any of his anti-takeover measures go above the subcommittee level. The one bill that made it to markup (House Monopolies Subcommittee) was passed by a straight partisan Democratic vote. So Rodino wisely performed euthanasia on the measure himself rather than leave the job to the Senate GOP. The chairman is determined, nevertheless, to start again in January, and, with the zealous Metzenbaum as his new Senate counterpart, he is more confident that his legislation may see full House and Senate markups.

Nonetheless, even the most optimistic reformers agree that there is precious little chance for any significant anti-takeover legislation in the 100th Congress. What legislation there is will probably target on loophole-closing and fine-tuning. Rodino will probably push measures to 1) cut the time in which a potential raider must inform the SEC of a purchase surpassing 5 per cent of a company's stock from ten days to two; 2) extend to thirty days the delay time for a corporate takeover; 3) implement a waiting period between the buying and selling of a raided company; 4) require that the would-be raider fashion specific plans for the company's new, presumably more efficient management. Metzenbaum's agenda may include forbidding a company to buy back stock from a major shareholder at a higher price than it offers other shareholders (i.e., legislation against "greenmail").

CHANCES ARE fifty-fifty that these comparatively minor changes will survive the 100th Congress. Nothing would stop the Judiciary duo, however, from hatching more sweeping proposals at a future date. Congress would be well advised to throw its net wider during the various 1987 hearings and examine the point made by Henry Manne, director of the law and economics center at George Mason University in Fairfax, Virginia, who recently blasted the SEC's "maniacal crusade." Manne says, interestingly, that the real problem is poorly designed regs, not insider trading.