Mr Pink:
FYI
Neal St. Anthony
Tuesday, August 1, 2000
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Who's afraid of Irwin Jacobs?
So far, not the market players betting against debt-strapped, beleaguered Conseco Inc.
They're giving Jacobs -- the brash, onetime corporate raider who made a name for himself in the 1980s -- a taste of his own hardball medicine.
Jacobs, who says he's purchased 10 million to 15 million shares of Conseco, has done his best to publicize his stake and optimism now that Conseco has new management. But Conseco has slid from $9.50 to $7.88 a share since Jacobs bought ads in the Wall Street Journal Friday and Monday and in the Sunday New York Times announcing a war against short sellers of the company's stock.
This is only Round 1 of a high-stakes market battle, which should prove as entertaining as any of this summer's Hollywood blockbusters.
Conseco's own horror show has been running since 1998.
The debt-fueled consolidator was once loved by Wall Street's fee-happy bankers, but Conseco went into the tank 18 months ago thanks to its mistaken foray into St. Paul. Its stock price fell from $50 to $5 after it bought St. Paul-based Green Tree Financial. Competitors were starting to pick off the go-go Green Tree's business and a series of accounting-related charge-offs was underway when CEO Larry Coss sold out to Conseco two years ago for a staggering $6.5 billion. Conseco has since written off hundreds of millions of dollars in Green Tree business, thanks to the bad accounting and customer flight.
(Coss' sale of Green Tree to Conseco's since-departed CEO Stephen Hilbert also vindicated the "greater fool" theory of capitalism. Hilbert was paid handsomely for his foolishness -- he left with a dumbfounding $70 million severance package this year.)
Jacobs, 59, as cagey as he can be verbose, has said he bought most of his Conseco stock in the $5 to $7 range. He could not be reached for comment Monday.
Jacobs' average per-share cost and investment partners aren't known because his Conseco holdings are less than the 5 percent that would require an SEC filing. Also, if Jacobs has borrowed to finance his stake, this play could get expensive for him quickly.
Jacobs owned an unspecified stake in Conseco going back to its heyday. He added to his position last spring after national turnaround firm Thomas Lee Partners of Boston bought a controlling stake. Lee soon hired Gary Wendt, the onetime head of huge GE Capital, who in addition to his $45 million signing bonus stands to be rewarded handsomely if he can resurrect Conseco. The stock bobbed above $11 early this month on the news of Wendt's hiring.
Jacobs, also a buyer on the Wendt hire, looked good for awhile.
Then the short sellers hit in spades.
Jacobs blames these short-term players for Conseco's stock problems. Short sellers, who sell borrowed shares, replace them later and profit if the stock goes down in the meantime, control a whopping 19 percent of Conseco shares.
Now Jacobs, the '80s predator, is crying foul. He's asking other shareholders to tell their brokerages, banks and other institutions to not loan their shares to the shorts.
No cigar, so far.
"The 'Street' doesn't look at Irwin Jacobs as a long-term player," said Paul Foster, a veteran options trader with Mercury Trading in Chicago. "If you're a money guy, a portfolio manager, and you own some of Conseco's high-yield bonds, and you see Conseco collapsing, you offset some of that risk by shorting the stock. Some of that stock has come from Conseco executives, who have had to sell to cover their margin-trading positions. ...
"Irwin knows how to play the game. You get nothing specific from him. He's been long [on] the stock since the price was $45, I believe. He sounds desperate to move the stock."
A problem for Wendt and Jacobs is that Conseco's base business is sliding, as evidenced by weak second-quarter earnings. It must sell assets to pay down debt. The debt gets pricier as ratings companies have downgraded billions in Conseco debt. And customers are not rushing to buy life and annuity policies from a company in such weeds.
The problem is greater than the short sellers.
Some analysts still are down on the stock. One called it "bloated, indebted and badly distracted by peripheral businesses" last week despite the efforts of Wendt and Jacobs to paint a turnaround strategy.
Some investors and corporate finance types consider Jacobs to be fairly highly leveraged, with a disproportionate amount of his wealth invested in his privately held boat company, Genmar. He has invested millions in a promising new manufacturing technology that may revolutionize the industry.
Some of Jacobs' biggest stock-market scores date to the late 1970s and 1980s. Often backed by big-money, silent-partner banker Carl Pohlad, Jacobs bought and liquidated breweries and retailers, then terrorized the executive offices of Disney, ITT Corp. and other corporations.
They often bought him out for huge short-term gains to end his takeover bids and demands.
Jacobs and Pohlad are reportedly estranged at this point over business and other differences.
After being criticized in 1989 on the grounds that he didn't run his own public company well, Jacobs took Genmar private in a leveraged buyout that grossed about $80 million for him. He's since been expanding Genmar, the No. 2 boat company in the United States, which employs several hundred Minnesotans.
Irwin Jacobs, the Conseco years, could have a ways to run. |
