Takeover Talk on Thistleberry Road
Entry for 2017-06-10




The killjoys are ever with us. In the 1980s, Paul Volcker wanted to put the lid on junk bonds, and Senator Proxmire hated proxy fights. Until the Bush brigade installed wild-eyed avarice as a core American value, there were daily blasts by legislators and regulators against hostile takeovers, poison pills, greenmail, golden parachutes, shark repellents, and scorched-earth defenses.

On Thistleberry Road, we don't care much what they do because, by the time Congress gets serious about any of this, the war between the Coxes and the Wagstaffs will be over and they'll probably wind up owning each other's front porches.

By way of background, this is an asset-rich neighborhood with good cash flow, which is always a temptation to takeover artists. On top of that, there are a number of undervalued properties on our street, if you want to believe the people from Point Breeze who keep complaining to the Board of Assessments that their taxes are too high and ours are too low.

Still, it came as a surprise when the Coxes moved to take over the Wagstaffs; and at first nobody thought they could swing it because the Wagstaff house is at least twice the size of the Coxes. Their garage is bigger, too, and so is their dog.

That didn't faze the Coxes. They figured they could do the whole thing with high-leverage debt finacing and then pay down the loans by liquidating some of the Wagstaff assets after they gained control. They plan to sell off the piano, the oriental rugs (Sorry, Mrs. Wagstaff; business is business), and the motorboat that's been sitting in the garage ever since Mr. Wagstaff threw his back out trying to water-ski.

Earlier, there was some talk about using junk bonds to raise capital, but those rumors were unfounded. Wednesday is the regular garbage pickup day on Thistleberry Road, but last Wednesday fell on a holiday. Apparently, the accumulation of two weeks of trash bags beside the garbage cans gave rise to the speculation about junk bonds.

Junk bonds or no, in a large scale unfriendly acquisition like the Wagstaff deal, you can't just take out a seond mortgage and divert some of the grocery money. To attract the interest of big lenders, the Coxes set up a shell in the back yard as a vehicle for borrowing. It's just plywood, but they figured the lenders wouldn't care because the loans will be secured by the assets of the house to be acquired, and it's a big, solid brick house with slate shingles.

Mr. Cox was very upset, as were most Republican senators, when the Fed clamped down on the use of shell corporations to leverage debt in a takeover raid. The Fed put in a margin rule, so the Coxes would have to come up with half the money on their own.

Mr. Cox agrees with the Republicans that anti-takeover rules are bad for America -- that they handcuff the legitimate predator, which just encourages inefficient management in target households.

Naturally, the Wagstaffs aren't going to wait for politicians and lobbyists to sort things out. They're taking defensive measures and preparing to repel boarders.

For a while, Mr. Wagstaff was talking about setting up an Employee Stock Ownership Plan, or ESOP, to stop the raid. The trouble was, he couldn't find an investment banker who would lend that much money to his cleaning lady and his lawn service.

Then he tried a Pac-Man defense, where the target company takes over the would-be acquirer. He made a tender offer to Mrs. Cox, but she wasn't having any. You'd have to see the guy.

In his latest move, Wagstaff is proposing a poison pill defense to present householders, to make the acquisition less attractive. To every family member who already has his own or her own room (i.e., everybody but the baby and the cat), he's offering an additional room for a dollar, in the event of a hostile tender offer.

"We'll take them to court," says Mr. Cox. "We're not going to stand idly by and watch them encumber the assets of the household before we have a chance to take it over."

One of the neighbors thinks he knows why the Coxes are so determined. He heard that Mr. and Mrs. Cox need the Wagstaff house because their children are planning to take over the Cox house on a leveraged buyout.