by Connie Bruck
Icahn was not in the Polo Lounge. He had arrived at the conference earlier in the day, and then came a news broadcast that a terrorist bomb had exploded aboard a TWA flight from Rome to Athens. Icahn turned and headed back to New York. He may well have been remembering his visit to the Predators’ Ball one year before. Then, he had had no major company to run. Then, he had had his money in no situation that he could not control. Then, he had been fresh from his Phillips grand slam, where he had played his game and made $52.5 million in ten weeks. And then, he had stopped in at Peiser’s presentation.
BY OCTOBER 1986, six months after Icahn had departed hastily from the Predators’ Ball, he had subdued—at least for the short term—his demons at TWA. The staggering losses of the first half of the year—$275.6 million—had been stanched. TWA reported third-quarter earnings of $65.2 million, which looked remarkable not only in comparison to the first two quarters, but to the same period one year earlier, when the airline suffered a loss of $13.5 million. (And TWA’s operating earnings for 1987, $240 million, would be the best in the airline’s history; the second best was $95 million, in 1965.)
There were several factors in the turnaround, and a couple of them—as had been true from the start—were beyond Icahn’s control. But now they were going with him instead of against him. Terrorism had subsided; therefore, by the late summer of ’86 trans atlantic travel was just beginning to return to normal levels. And the price of oil went down, enabling TWA to cut its annual fuel bill by $100 million.
Other factors, however, were Icahn-wrought:
He had taken on the flight attendants, replacing them with newly trained hires, so that while the strike was disruptive the airline was not brought to a halt. The new hires who replaced the veteran workers started at $12,000 a year and abided by tough new work rules. If the flight attendants’ union succeeds in its ongoing court battle with Icahn, the airline could be liable for over $400 million in back pay, and it could also be forced to reinstate the former flight attendants. But, for the moment, Icahn was the victor in that contest—and he claimed savings of $120 million a year.
He had negotiated the sale of a half interest in TWA’s PARS reservation system to Northwest Airlines, giving the airline an infusion of about $200 million.
And he had negotiated the $242 million acquisition by TWA of Ozark Airlines—an acquisition that the previous management of TWA had been trying, unsuccessfully, to effect for some time. Ozark had been TWA’s principal domestic competitor in vying for traffic to and from St. Louis. Now TWA would control over 80 percent of that traffic, giving a large boost to its domestic profitability.
The acquisition of Ozark was an important move to expand and strengthen TWA, but by far the most dramatic results Icahn achieved sprang from his cost-cutting. He had won the early concessions from the pilots and the machinists. He had eliminated layers of bureaucracy at TWA. He had taken on the flight attendants’ strike. He had decided not to renew leases for some planes. Thanks to the drop in oil prices and Icahn’s talent for chiseling, TWA would see a savings of $600 million for the year.
The praise on Wall Street was not universal. In the view of some analysts, Icahn was running TWA like a classic short-term play—making moves that would translate into quick profits with no long-range perspective. He was not investing in new aircraft, and TWA’s fleet was aged. Morale at the company was terrible, with some employees leaving because they were convinced Icahn was only waiting for the opportunity to sell it. Still, TWA was now profitable, making in operating profits about $250,000 a day. It was hard to argue with success.
And with the corner turned at TWA, Icahn emerged in early October with his most audacious bid since the one he had made for Phillips Petroleum: an $8 billion tender offer for all shares of the mammoth USX, the nation’s largest steel producer and a force in the energy business, with about $21 billion in assets. With about $650 million from his usual investor partnerships and TWA (which contributed about one third), Icahn had begun buying USX stock in June and now owned 11.4 percent of the company. And Drexel said it was “highly confident” that it could raise $7 billion.
Icahn’s absorption in TWA had not been complete. He had found time and energy in the spring of 1986 to amass a large stake in Viacom International, the broadcasting, cable television and entertainment concern, and to negotiate with that company’s management a thinly disguised greenmail package which afforded him and his major investor, Jeffrey Steiner, a profit of about $100 million. But that had been the old greenmailer Icahn, just keeping his hand in, turning a profit.
As a major Drexel player, one of those few with appetites and ambition gigantic enough to be, as Meshulam Riklis had put it, Milken’s “monsters,” Icahn had been sidelined ever since he took over TWA. For a time, it had seemed that he might be the first of Drexel’s kingpins to topple. But he had prevailed, and now he was back with an appetite as insatiable as ever.
Icahn’s triumph, of course, was also Drexel’s. It meant that they had chosen wisely when they decided to give him a war chest, back in 1984. Nothing Icahn had done, up until that point, proved that Icahn would be able to run a large company. He was running ACF successfully, but that was different.
As Black pointed out, “Carl saw the value in ACF. There were a few things that obfuscated its value to the rest of the public. It had a few nonperforming dogs, which it turned out you could sell for real money. And then there was the railcar-leasing company, which was a gem, a cash cow. So Carl sold off the dogs, and was left with a stable cash cow.” Indeed, the takeover of ACF cost Icahn $410 million, but he then raised $400 million by selling off pieces.
“But ACF is not a complicated business,” Black said. “Frankly, it was not until TWA that we saw Carl’s managerial talents.”
With TWA, Icahn became living proof of the raider’s catechism that he—and Milken too—had been reciting for years. The fall of ’86 was the season of Drexel’s triumph, when the business press crowned Milken as the financier of the age, and his raiders as industrialists. Icahn was one of the new celebrities. In October, Business Week published his (“I Told You So”) essay entitled “What Ails America—And What Should Be Done.”
There Icahn delivered a homily. America has lost its edge to foreign competition, in some large measure, because of bad management, he wrote. When America established its economic leadership in the world, its industrial powerhouses had been owned by the Carnegies, the Mellons and the Morgans, to whom managements answered. With the passing of these owners and the dispersion of stock ownership among the public, management answered to no one. It became autocratic and mediocre. It encouraged bureaucracy. But now, declared Icahn—pointing with a flourish to what he had done at ACF and TWA—the manager-owner was back.
In press interviews in which Icahn recently had been challenged about whether he really wanted USX or whether the savvy fast-buck artist was just up to his old tricks, he had pointed to TWA. Skeptics had said the same thing then, he countered, but he did buy TWA, he had spent time running it, and the company now was profitable. Now, he told Business Week, “I really want USX. Putting it together with TWA—now that is really going to be something. . . . Now if we can turn around a couple of these companies and make them more productive, that will make a statement about what I’ve been saying. Economic historians will see that I was proven correct.”
Among the Drexel-made titans in the fall of 1986, Icahn was the one who most craved stature, the only one who made statements about public policy. Nelson Peltz was interested in expanding his empire and enjoying a life of rarefied luxury. Ronald Perelman was interested in expanding his empire and climbing the social ladder. Icahn, clearly, was bent on empire expansion—but he also seemed to be ruminating about posterity. He spoke of writing his autobiography.
He did in fact have more intellectual depth, and a greater range of business talents, than his Drexel-crowned peers. That was why he did not have to genuflect before Milken. The more respect he earned, and the more he publicl
y articulated the Drexel credo (which was also his own), the more valuable an adjunct (free though he was) he became. Jeffrey Steiner said, “Carl and Mike have a very good relationship. Mike feels, I think, that Carl is different from most Drexel clients—and he is. I don’t think that Carl has ever felt as dependent upon Drexel as . . . so many others have.”
IN THE OFFICES of Icahn and Company in midtown Manhattan, M. Elliot Schnall was marveling at the fact that after the marathon of TWA his nephew had not even paused for a breather before plunging headlong into USX. Schnall says that he had counseled Icahn, during the TWA takeover battle, to sell out to Lorenzo and take his profits. Sometime during Icahn’s travails of the past eight months, he had told Schnall that he wished he had taken that advice. So he had weathered that crisis, only to go into the steel industry! Schnall has invested in nearly every one of Icahn’s deals, but when Icahn asked him whether he wanted to join the investment partnership for USX, he declined.
Schnall has done well with Icahn. In 1985, he made over $1 million. But he laments still that he accepted Icahn’s suggestion that Icahn buy out his 20 percent interest in the company, back in 1974. He calculates and then recalculates what would have been his. In October 1986, Schnall figured Icahn’s net profits at about $300 million and so concluded that $60 million, pretax, would have been his. He and Icahn are close; when Schnall is in Manhattan, mainly in the spring and fall, he comes to Icahn and Company nearly every day. He and Icahn banter about Schnall’s fateful error. Schnall laughs, but he has never stopped wondering whether Icahn back in ’74 had some sense of the bonanza that was coming—and wanted it all.
Kingsley, whose small warren of an office is shouting distance from Icahn’s, has no such lost partnership interests to regret. He has remained an employee all these years, which sometimes bothers him and sometimes does not. He says he has moderate needs, which his salary and occasional bonuses satisfy—like college tuition for his children, a car for his son. He still lives in Forest Hills, Queens, as he did when he first started working for Icahn—though he has moved from an apartment to a comfortable home—and that suits him (“What do I want, to join the jet-setters?” asks Kingsley), although he wouldn’t mind having a summer house.
Kingsley’s office is a reminder that while he might have made more of a name for himself and more money on Wall Street if he had left Icahn’s shadow, at Icahn and Company he has been free to be—himself. Stacks of the Financial Times, waiting to be clipped, climb halfway to the ceiling on one side of the room; the window behind Kingsley’s desk is nearly obscured by mountains of 10Ks, annual reports, prospectuses; and Kingsley himself is barely discernible behind the cascading piles of papers that rise from his desk. “Mount Everest,” remarked a secretary as she tossed a letter onto the top. From beneath his desk, on his visitor’s side, papers spill. And there, too, rest unpacked cartons from the peregrinations of Icahn and Company over the past two decades—one from 42 Broadway, one from 25 Broadway.
Out of this strange, unsightly chaos has come what Kingsley says with some pride is the “overwhelming majority” of Icahn’s targets. He selects, then he proposes, debates, sometimes is rejected by Icahn. But they have been together for twenty years, and he has a good sense of what will persuade. When Kingsley was arguing for USX, where chairman David Roderick and the steelworkers’ union had been at each others’ throats, he said, “You know, Carl, you could do again with the unions what you did in TWA.” And he is more than Icahn’s analyst. Once Icahn is in the midst of a deal, Kingsley is his constant sounding board, really his co-strategist, and they often attend negotiating sessions together.
They are an odd couple, segueing into well-worn routines on cue the way people who have been together for a long time often do. Icahn, who refers to himself as “the Lone Ranger,” calls Kingsley “Tonto,” and Kingsley obligingly plays the role. A cough from someone in an elevator sends them into a routine of eye-rolling, hypochondriac panic. One longtime friend of the two said, “Carl and Al operate in a kind of mutual hysteria.”
Kingsley fans—and there are quite a few in the circle of Icahn investors—suggested that Kingsley is the “phantom” of the operation, the moving finger that picks the right targets, while Icahn is the “front man,” with the force of personality and presence to play the game. “Al has always been the perfect foil for Carl,” said one. “Carl gets all the money and all the publicity—and Al gets to work at what he loves.”
Whatever are the dynamics of the relationship, it has endured. Among those employees who have aspired over the years to play significant roles at Icahn and Company, Kingsley is the sole survivor. One former employee asserts that Icahn has been as ruthless with employees as with the companies he targeted, guided by nothing but his economic benefit. Some employees, therefore, were useful for a time—until they demanded promotions or raises and thus outlived their usefulness. “He is a keen valuer of assets, and that’s how he judges people too—how profitable you are to him,” said this former staffer. “It’s somewhat cold.
“He gets the maximum use out of people, and gives the minimum in return.”
Interviewed at his seigneurial estate (purchased from the actress Jennifer O’Neill and named Foxfield, after the Marshall Field raid) in Bedford, New York, Icahn seemed finally to have made the adjustment to wealth. For years after he made millions, he had continued to live as he always had—taking the subway on occasion, eating lunch with Kingsley at a dive called the Dungeon, keeping a spare one-bedroom apartment in Manhattan. But he has finally forsaken the subway and abandoned the dives, and he has purchased a penthouse apartment in the posh Museum Tower, next to the Museum of Modern Art. He has also become philanthropic. He has donated $500,000 to the renovation of Carnegie Hall and funded a center for abused children and the construction of housing for homeless families. In at least one instance, however, an Icahn gift came with strings attached. In 1986 or so, Icahn was discussing making a large donation to his alma mater, Princeton University, but he wanted to become a member of its board of trustees. When his request was rejected, the gift failed to materialize. (By 1988, however, Icahn discussions with Princeton about a possible donation were said by one close to Icahn to be in progress, again.)
Icahn’s indulgence in luxury and his forays into philanthropy suggest that his longtime tight-fistedness may be loosening. Certain habits, however, never die. When Icahn, carrying a briefcase, and his uncle, Schnall, carrying an umbrella, go to a restaurant together, Schnall takes Icahn’s briefcase so that they don’t have to leave more than one tip for the checkroom attendant.
Now he shows a visitor the gardens he has been designing, explaining that it has recently become a hobby. He owns horses with Peter Brant, the polo impresario, in nearby Greenwich, and he has attended the polo matches there. He tells a funny story about having seen Nelson Peltz, his Bedford neighbor, at a polo match. What with Icahn, Peltz and Ivan Boesky, whose mansion is down the road from Icahn’s, Bedford (a longtime WASP enclave) is not what it used to be. “I told Nelson,” Icahn says of Peltz, “he’s Bedford Hills’ answer to Beverly Hills.”
While Icahn now seems to be enjoying the pleasures and pastimes of the extraordinarily rich, he has no pretensions. He allows, with some self-amusement, that designing elegant gardens is a recent, not a longtime, hobby; and having found himself at those polo matches seems to amuse him, too. His closest friend is Stanley Nortman, who used to have a metals business in Great Neck, Long Island, and now is exploring some way for Icahn and him to get into the movie business. Nortman is a singularly down-to-earth, unaffected individual, who seems closer in style to Bayswater than to Foxfield. And when Icahn’s wife, Liba, decided to give a black-tie party at Foxfield for his fiftieth birthday, with a guest list that read like the Forbes “Rich List,” Icahn insisted that all the employees from Icahn and Company be invited, too—and changed it to optional black tie.
Icahn sets off on his canned diatribe about incompetent management in America. It is for him an oft-
repeated spiel about how most of the people running corporate America are former fraternity presidents who got where they are because everybody liked them; about how mediocrity rises naturally to the top because the number-one guy, none too swift, wants someone unthreatening as number two; about how most of these CEOs are aristocrats who live for nothing but the perks of the office.
One of Icahn’s favorite lines, now years old, is that whenever he tried to get one of these chief executive officers on the phone, the CEO’s secretary would say he was “out of pocket.” He always wondered, where do they go when they’re “out of pocket”? The only way he could get these guys off the golf course, Icahn would conclude, was by filing a 13D.
Another story, also well worn, concerns his taking over ACF, which had operations in the Midwest and a headquarters staff of 173 in New York. He couldn’t figure out what they were doing in New York, so he went to the guys in the Midwest and asked them, How many of these guys in New York do you need to support you? And they said, None—we’d do better without them. But, not to be too hasty, Icahn called in a consultant to analyze the New York operation. Six weeks later the consultant returned with a big black book filled with charts. Icahn said, Don’t give me that, just tell me, what do these guys do? And the guy looked at him and he looked at the guy. And then Icahn took out a check and said, Here—I’m paying you no matter what you tell me. Now tell me, what the hell do they do? At which point the consultant said, Mr. Icahn, you’ve been straight with me, so I’m going to be straight with you. We can’t figure out what they do, either. So Icahn closed the New York office.
