Donald Trump Corporate Raider

March 17th, 2016 by Phil Mattera

“We’re not interested in being taken over by Donald Trump.” That message, which sounds like a pronouncement by today’s Republican Party establishment, was expressed three decades ago by the board of directors of Bally Manufacturing as it sought to thwart an unwanted bid by the developer. Bally managed to escape the clutches of Trump but it had to pay a significant price.

During his recent endorsement statement, Dr. Ben Carson declared that there are two Donald Trumps running for president, one of them “cerebral.” Whether that’s true or not, there’s evidence of two Donald Trumps in the business world.

The first Trump is the one constantly promoted by the candidate — the owner and operator (or at least licensor) of a string of supposedly wildly successful business all adorned with his name. Whether Trump University or Trump Steaks, these are also the focus of his critics.

Yet Trump has another track record that involves not the running of companies but rather that of profiting by launching takeover bids that do not lead to completed transactions. During the 1980s Trump was a junior member of a fraternity of wheeler dealers known as corporate raiders. (One of the more notable members of that group, Carl Icahn, has endorsed Trump’s presidential campaign).

Among Trump’s main forays was the one involving Bally. In November 1986 Trump disclosed that he had acquired a nearly 10 percent stake in the company, then the world’s largest producer of electronic games and an operator of casinos and health clubs. Right from the beginning, analysts thought Trump was simply looking to profit from a stock price increase resulting from the bid. They pointed to an earlier investment in Holiday Corp., which Trump sold for a $30 million profit after the disclosure of his 4.9 percent stake.

Bally took poison-pill evasive action and sued Trump for what it called an “unfair and coercive” takeover attempt that could jeopardize the company’s gaming licenses in Nevada and New Jersey (Businesswire, December 5, 1986 and Chicago Sun-Times, December 6, 1986). ┬áTrump countersued for $1 billion. The war of words and court filings ended in February 1987, when Trump agreed to sell his shares back to Bally at a premium and netted a profit of more than $31 million.

Both Trump and Bally denied that the deal constituted “greenmail,” and the company prevailed in a shareholder lawsuit challenging the arrangement, but as Gwenda Blair wrote in her book on Trump, the stock transaction was “extremely close to greenmail.”

The Bally and Holiday Corp. bids were far from unique. Trump frequently bought stakes in companies — sometimes large enough to trigger an SEC reporting requirement, sometimes not — and ended up selling at a profit after short-lived takeover moves. On October 6, 1989 the Associated Press ran a story headlined TRUMP HAS A HISTORY OF TAKEOVER FEINTS that stated: “Like a high-stakes baccarat player at one of his Atlantic City casinos, real estate tycoon Donald Trump has made some profitable bluffs to help bankroll his ambitious and splashy acquisitions.” The piece noted several examples in which he “accumulated shares in the company – sometimes indicating he might be interested in mounting a buyout – and later sold all or some of his shares at a profit after the price rose on the ensuing takeover speculation or when another bidder emerged.”

In 1988 Trump had to pay a $750,000 civil penalty to settle allegations by the Federal Trade Commission and the Justice Department that he failed to comply with pre-merger notification requirements in some of these situations.

Given this track record, one has to ask which Donald Trump is mounting the current challenge to the Republican Party — the one who takes things over and runs them (sometimes well, sometimes not) or the one who engages in takeovers just to make a profit.

Trump’s behavior in the presidential race often leans toward the latter. His incessant bragging about business acumen has become routine, but the press conference in which he displayed an array of Trump-branded products reinforced the impression that he may view his campaign not so much as a political revolution as an open-ended marketing opportunity for his ventures.

One cannot help but wonder how things would be different if the Republican elite had responded to Trump the way Bally did — by buying him off rather than fighting him. It’s not clear what form greenmail would take in a presidential campaign, but Trump is always saying he is open to a good deal.

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