In this book, Connie Bruck describes the rise and fall of Michael Milken, a man who singlehandedly built the junk bond empire of the 80's. Junk bonds are bonds with a low credit rating (below investment grade), issued by firms at very high interest rates to compensate the investor for the higher chance of default. In mid and late 80's, these bonds were used heavily to finance large corporate takeovers, completely changing the landscape on Wall Street.
The book is split into three major parts: Spreading the Gospel, Pawns Capture Kings, and The Zenith and the Fall. The first part describes Milken's background and how he became involved in the junk bond business. While at UC Berkeley, Milken came across a study by W. Braddock Hickman, which found that a low-grade bond portfolio, if very large, well diversified, and held over a long period of time, was a higher-yielding investment than a high-grade portfolio. Milken became fascinated by this idea and started his career as a bond trader at Drexel in the early 70's, while finishing his business degree at Wharton. The rest is history: throughout the next twenty years, Milken essentially took over Drexel and had unlimited reign over not only the firm, but essentially all of Wall Street (ironically, from his Beverly Hills office in California).
In the second portion of the book, Bruck describes how Milken created and supported the corporate raider culture. Bruck presents three case studies. The first is about Nelson Peltz and Peter May, who took over National Can. Peltz is arguably Milken's most amazing transformation - he created a corporate raider out of nobody. The second case, the most interesting one, is about Carl Icahn and his acquisition of TWA. Icahn went from quick profits through greenmail (threatening to buy a company - and then being bought out at a premium) to actually buying companies. With TWA, he used incredible negotiating tactits and made deals with unions behind management's back, which ultimately let him take over the firm. Icahn was very independent from Milken, unlike most of Milken's corporate raider ¨pawns.¨ The third case is about Ron Perelman and his epic battle for the prestigious Revlon.
The last part of the book dwells on just how powerful Milken and Drexel had become. The junk bond market had grown over one decade from $15B to $125B at the end of 1986. Since the 80's saw very low default rates and a tremendous bull market, Milken's empire worked very well - there was nothing to challenge it. Milken perpetuated his machine by overfunding each deal, giving raiders extra cash that they would then have to invest back into junk bonds (so as to cover the carrying cost of the debt) - in this way, Milken made sure there was always a growing market for his junk bonds.
If you were not one of Milken's clients (and sometimes, even if you were), you trembled in fear, waiting for a corporate raider to emerge with a 13D filing, stating that he owns more than 5% of your company's stock. In some cases, Milken directly threatened companies, forcing them to do business with Drexel (as in the case of Wickes). Even legislation failed to stop corporate raiders. While the Fed created some rules restricting the use of debt in hostile takeovers, they were easily bypassed through shell companies and preferred stock (which generally acts as debt).
Bruck did an excellent job with this book. It is very thorough and interesting to read. It is amazing to see all the details of these various deals and take-overs. While it is clear that Bruck looks down on Milken's actions, she tries to stay objective - and makes comments like ¨this reporter views this practice as extortion.¨ In the Afterword, she furthermore makes a case for some of the positive things that Milken has achieved, such as providing funding to companies that couldn't get it elsewhere, and creating stronger leaner firms.
My biggest gripe with the book is that it feels very unfinished. Bruck barely mentions the RJR Nabisco deal, in which Drexel was a big player. She also doesn't describe what happened to Milken after charges were brought against him by the SEC (including his jail time, etc.). She doesn't talk about Drexel's collapse, and she claims that the effects of Milken's machine will only be seen many years from now, when some of the long-term junk-fueled debt comes due. I understand that the book was written and published immediately after Milken's fall. However, it has been almost twenty years since that, and a new edition would surely add a lot to the story.
In conclusion, I really enjoyed the book. It is a great read for anyone interested in Wall Street history of the 80's. While it may feel unfinished, it provides amazing detail on the rise of Michael Milken and his corporate raiders.
Pros:
+ tremendous amount of detail, from characters to numbers
+ great use and definition of finance terminology
+ exciting story, filled with funny anecdotes and breathtaking accounts of corporate battles
+ covers not only Milken, but several other characters, including the major corporate raiders
Cons:
- feels unfinished: could really use another edition with further history on Milken and Drexel
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un classico del mondo della finanza, ma sempre attuale
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