Smooth Operator

Interview with a successful corporate raider.

Irwin Jacobs, out gunning for small public companies earlier this year, vows he's sworn off raiding for the '90s

A visitor to the dark-paneled, art-hung suites spread across the top floor of one of Minneapolis's tallest buildings would little suspect that their occupant, Irwin L. Jacobs, chief executive officer of Minstar Inc., possessed the capacity to unsettle the innards of public corporations big and small. Indeed, INC. had paid scant heed when the renowned practitioner of the hostile takeover mixed it up with giants like Borg Warner, Tidewater, and Pabst Brewing (each unsuccessfully), and AMF (successfully). But last year, when Jacobs picked on CML Group, a frequent entry in INC.'s pages, the editors sat up and took notice. Doesn't a founder/owner deserve some consideration? Is every small public company up for hostile grabs? Is nothing sacred?

Facing a long, cash-squeezed winter, the $235-million (in '89 sales) Massachusetts holding company -- CML Group owns such consumer-products subsidiaries as NordicTrack, Britches of Georgetowne, and The Nature Co. -- sold off its prominent Boston Whaler boat subsidiary to Reebok for some $30 million after Jacobs's plot was revealed. Seemingly stymied, this April Jacobs backed away from a threatened proxy fight, and CML stock sunk like a rock. Did Irwin Jacobs care that stakeholders lost millions? Hardly. "It only shows what Wall Street really thinks of the company without me in there," he told INC. senior writer Robert A. Mamis. Lest one judge him unfeeling, the point is, as possessor of 14.8%, Irwin Jacobs is one of CML's largest stakeholders, and a few million dollars up or down in his checking account doesn't dictate what model Rolls-Royce he drives.

Jacobs began dabbling in takeovers in 1975 with the purchase of a Minneapolis brewery. His latest foray was a $2.9-billion bid for Avon Products. Through a private holding company, he owns and actively operates over 30 businesses.

Reaching his 49th birthday in July, a mellowing Jacobs is laying aside a career of trespass, leaving the next decade's takeover pickings to institutional financiers. This May he announced the formation of World Fund LP, a proposed billion-dollar capital pool backed by domestic and international investors. The partnership intends to minister to needy extant companies, among others, with working capital and know-how -- for, of course, a substantial equity stake. But he won't be a threat to management, Jacobs vows; the fund will deal only in "friendly" situations. We'll see.

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INC.: Raiders have been branded scourges of capitalism -- and worse. Doesn't that bother you?

JACOBS: Do I approve of those descriptions? I didn't, at first. The original name they hung on me was Irv the Liquidator. I was troubled when I heard it. It came after a transaction I was involved with in the '70s with W. T. Grant, when I was liquidating their receivables.

INC.: So it was accurate.

JACOBS: Well, it was nasty. The Wall Street Journal wrote, "Irv the Liquidator bought the receivables . . ." and the press picked up on it. But by the time the '80s came around and I was doing takeovers, I had learned you can't beat the media, so I stopped worrying about the raider image. The fact is, I'm proud of what I do and how I do it. You're assuming every business that's bad or undervalued, I'm out there raiding it. I don't bother every company. Indeed, I think I've been quite complementary to business in the '80s, creating an awareness that made bad situations better. The fact remains that even people who were not vulnerable believed they were vulnerable and reexamined their businesses.

INC.: With what effect?

JACOBS: For one, directors understood they had a fiduciary responsibility -- that they're there at the behest of the shareholders, not of management. That's why it's so hard to get D&O coverage today. Insurance companies finally figured out directors and officers didn't give a damn about the shareholders; they were dealing out of self-interest and not taking care of the shop.

INC.: That's the conventional rationale -- with, one admits, some merit. Still, they pass legislation against what you do. Massachusetts, for example, this year enacted a statute that explicitly thwarts takeover attempts by requiring that board votes be staggered over three years.

JACOBS: There's worse legislation than that. In Pennsylvania you can't even stage a proxy contest.

INC.: Are you thwarted?

JACOBS: I'd hestitate to conduct a business in such states, due simply to their hostility toward shareholders. The government conceives of itself as a knight in shining armor, but those companies didn't go bad because theydidn't have laws to protect them; they went bad because of poor management. The laws will not stand up, believe me.