When Carl Icahn and Gerald Greenwald found themselves at the same dinner party the other night, they didn't spend much time reminiscing about their common link - both graduated from Princeton in 1957 - or singing old college songs.
The topic of discussion was leveraged buyouts, which Icahn pursues with the ardor lesser men devote to lust and liquor, and with which the Wall Street rumor mill is constantly involving Greenwald, who as the heir to Lee Iacocca is now the No. 2 man at Chrysler Corp.For months now, financial analysts have been floating plans for the ultimate rescue of Chrysler, not by taxpayers this time but by pawning the company's assets in a giant LBO - friendly or otherwise. By one calculation, Chrysler, whose stock recently has languished around $24, could have a real asset value of $82-86 a share.
Go away and forget it, Greenwald told his classmate. There is no possibility whatsoever that Chrysler will consider an LBO. The first reason is humane and theoretical, the second intensely practical.
Greenwald, who went to college on an Eagle Scout scholarship and majored in labor economics ("I really hadn't decided whether to work for a corporation or a union," he told me), observed that every successful LBO had resulted in the company's being reduced in size - which, in terms of America's overall future employment and manufacturing capacity, seemed to him less than ideal.
In addition, he noted, those LBOs that had worked had been done to companies that could count on steady cash flows. (In an LBO, those taking over a company do so by incurring huge debt, which in turn must be repaid either by selling off assets or milking the company's earnings.) While this might be fine for, say, consumer products firms, it would hardly apply to a Big Three automaker, which has continual needs for new borrowings.
On any given day, Greenwald said, Chrysler has between $22 billion and $27 billion outstanding in short- and medium-term debt alone, and it is planning to spend close to $3 billion more just to stay competitive. Add the gigantic borrowing required for an LBO, and Chrysler's credit rating would be immediately downgraded, creating serious problems for the company and its dealers.
It's always possible, in the current rapacious climate of American industry, that some outsider might disregard such arguments and make a hostile bid for Chrysler. But as long as Chrysler stays healthy, it seems unlikely that the same government that guaranteed loans for the company on the ground that it was nationally vital would now permit it to be tossed about in the takeover winds.
So Greenwald's words to Icahn not only cast doubt on the periodic market speculation about "major restructuring" at Chrysler but give fascinating insights into the man who is line for one of the most challenging jobs in American industry: succeeding the legend of Iacocca and proving that Chrysler can survive long after the government - and the non-stop economic boom - have departed.
Greenwald, who has been Iacocca's second since 1981, provides a striking personality contrast (Jerry is as thoughtful, self-effacing and attentive to detail as Lee is brash, cocksure and impulsive), and he is aware that those who believe Iacocca will retire at the end of his present contract in 1991 could be fooled. "How many people do you know who gave up power voluntarily?" he asked me.
Meanwhile, Greenwald is using his self-described management technique ("Guide, don't smother") to help make Chrysler "step by step less dependent on compact smaller cars," whose faltering sales have contributed to Chrysler's slipping share of the U.S. car market. Its Jeeps and minivans continue to be major winners, and the company will assault the upscale car market this fall with a Chrysler Fifth Avenue and the first Imperial in nine years.
The company is plainly relying on a wider array of vehicles and better control of costs (a $1 billion reduction program has just been announced) to weather what some already regard as an industry recession. Greenwald knows the vultures will be circling if Chrysler can't make it on its own in the next downturn. In his quiet but impressive way, he's determined to prove that what Lee and we (the taxpayers) have built is now truly and permanently on a roll.