Behind the art of M&A with Bruce Wasserstein.

• Author: Kaback, Hoffer
• Position: Mergers and acquisitions - Interview - Cover Story

One of the country's most accomplished dealmakers offers some tactical advice on acquisitions, on governance, and on team building.

INTERVIEW BY HOFFER KABACK

Bruce wasserstein, co-founder and CEO of investment banking firm Wasserstein Perella & Co. Inc. and a principal player in the mergers and acquisitions business for 20 years, studied under the late Lon L. Fuller, Carter Professor of General Jurisprudence at Harvard Law School. Fuller was one of the great legal minds of the 20th century - a giant in jurisprudence and in the law of contracts. He had a high forehead and a high, thin voice. It sometimes seemed, in class, as though he was rethinking his ideas.

In running Wasserstein Perella and handling its professional staff, Bruce Wasserstein remains influenced by Fuller to this day - especially by Fuller's admonition to take "that little extra time to think about something"

While at Harvard Law School (which he entered at age 19), Bruce Wasserstein worked for Ralph Nader. After graduating from the Law School with a joint degree from Harvard Business School, Wasserstein studied at Cambridge as a Knox Travelling Fellow and wrote a paper on antitrust subsequently published in the Yale Law Journal.

In 1972, he started work at Cravath, Swaine & Moore, one of New York's top law firms. As a junior associate working on a deal for First Boston, he met Joseph Perella, the head of First Boston's fledgling M&A group. Perella quickly decided that he wanted Wasserstein on all First Boston's M&A legal matters. That desire bumped up against Cravath's rigid organizational chart. Perella concluded that the only practical way to accomplish his goal was for First Boston to hire Wasserstein directly. Within a few years, the Wasserstein/Perella combination made First Boston, previously a minnow in the takeover world, into a leviathan.

"From the date I arrived at First Boston in the summer of 1977 through the following Thanksgiving, we had no business" Wasserstein once told Institutional Investor. "We didn't have one deal. But we did do a lot of work on long-term strategies to differentiate First Boston in mergers from other firms. We realized that we would not be competitive at arranging deals on the golf course. Therefore, we tried to figure out whether we could be effective through the elbow-grease route, and what we saw was an opportunity to professionalize the M&A business. We said we will be more knowledgeable as to the conceptualization of transactions, the analysis of transactions and the implementation of transactions."

In 1988, Wasserstein and Perella left First Boston to start their own firm, which quickly earned the Street epithet "Wasserella." In 1993, Perella himself left. He heads investment banking at Morgan Stanley Dean Witter even as his own name continues in that of a direct competitor.

Samuel Hayes III, Jacob H. Schiff Professor of Investment Banking at Harvard Business School, calls Bruce Wasserstein "one of the country's most accomplished dealmakers." Wasserstein believes that "the one common characteristic [for success in M&A] is... the combination of tenacity and some modicum of common sense - which is surprisingly lacking and surprisingly important." He also believes, as stated in an interview with Institutional Investor in 1987, that "to succeed, you also must be persuasive, have something to say of some value - otherwise, in the end people will see through you."

Wasserstein's 1998 two-inch thick book, Big Deal (subtitled The Battle for Control of America's Leading Corporations), discusses many aspects of acquisitions and provides brief biographical sketches of present and past takeover players. It is valuable as a basic or intermediate introduction to the world of M&A.

In the book, Wasserstein is willing in certain of his analyses to criticize the actions of bidders and targets. He characterizes specific actions by Bennett LeBow (regarding RJR) as a "huge tactical blunder"; describes Conoco CEO Ralph Bailey's response to Dome Petroleum's takeover overtures as "waffling" and "a classic error"; and calls AT&T's purchase of NCR "poorly executed." However, in the January 1999 Q&A that follows, Wasserstein was somewhat more circumspect, and emphasized how the outside observer-critic is hampered by not fully knowing the tactical constraints upon the players.

Although Wasserstein claims not to be even "a decent chess player, he has compared the M&A world to chess, and part of our Q&A explored that theme. Like good chessplayers, successful takeover participants benefit from the ability to "see ahead" in making their moves and in anticipating the range of responses. Bruce Wasserstein himself has always been interested in pondering "the second and third order of things" - a mode of thinking that implicates the chess-like analysis of "variations."

Wasserstein tries to employ Lon Fuller's advice in approaching problems. He endeavors to get young bankers at his firm to do likewise. As Wasserstein stated in the Harvard Law Bulletin, Fuller advised those looking at possible solutions to problems to step back and, instead of merely finding "assumed truths," to ask: "Is that really right? Is that necessarily so?"

- Hoffer Kaback

Not seeing the inside cards

I assume you followed the AlliedSignal hostile tender for AMP last summer and fall.

Sure.

In my view, Allied didn't win because it blundered in three key areas: it went with an insider board slate; it mishandled the litigation; and its low-ball bid - arguably okay to start out with - should have been raised at the right moment. What was your take on this deal?

I think they're both lovely people - Mr. Ripp [then-CEO of AMP] and Mr. Bossidy [CEO of Allied]. I think there's always the question in a deal: At what point do you think about price? It was true of the [Hilton hostile tender for] ITT. It's true of the AMP deal. And you make a calculation. There is a question about timing and there is a question about level. Allied is the only person who knows what their levels of appropriateness would be.

Yet Bossidy said publicly on day one, I'm willing to negotiate, I'm willing to go higher, I'm willing to do stock, I'm willing to do stock and cash - just sit down with me. His initial bid of $44.50 clearly was low. He wasn't willing to pay $51 at the end of the day, as Tyco did.

That raises a different question - when you're a cash bidder, competing with the stock bidder when its stock is high. Let's try to deal with this stuff more generically, because I'm certainly not in the company-criticism business. In a lot of these deals, you can raise reasonable questions as to the tactics used. That's fair. I think in some deals, on the outside, one has reasonable concerns as to the efficacy of the tactics used. But again, it's like criticizing a poker game where you've never seen the inside cards. You don't know why they did what they did. I'm not defending anybody.

As a very experienced guy in these deals, wouldn't you agree that, in the Allied-AMP deal, most of the cards were out on the table? The arrows were pointing in one direction. Yet Allied didn't get the company.

It could be the circumstances; it could be the advice. It's a tough world out there. If you win, everyone says you overpaid. If you lose, you blundered, right?

Sometimes both of those are true.

That's true.

In your book, you analyzed the tactics in the Hilton-ITT deal. Many observers thought at the time that the deal had been mishandled tactically by Stephen Bollenbach [CEO of Hilton], specifically because he stayed too long at his initial low-ball bid before raising.

Again, you don't know his objectives. He's a very smart man. And you just don't know what was in his head or his constraints. You don't know whether he had a fixed dollar amount constraint; you don't know what his understanding was with his board.

He raised at the end. He raised twice.

But he may not have been able to get the authorization earlier. There are a lot of people who have this "Don't bid against yourself" shibboleth. But what do you prefer: Bidding against yourself, or allowing someone else...