NEW YORK — The boom in hostile takeovers really got up steam a few years ago when corporate raiders realized that they could raise money for their assaults by selling high-risk "junk bonds," such as those issued by Drexel Burnham Lambert. And the man who dreamed up this history-making idea was Don Carter.
So says Don Carter, at least.
As proxy solicitor Donald C. Carter tells it, the new age of hostile takeovers basically began in 1983, when Carter took corporate raider T. Boone Pickens Jr. aside to suggest that Pickens' investment group use Drexel "junk" to finance its tender offer for Gulf Oil.
"Drexel hadn't done any of its megamillion-dollar deals then, but Boone thought it was a good idea," Carter recounts with relish in his hoarse Brooklynese. "I told him who to call. And after that came all the rest of the big Drexel deals . . ."
Others who were there quarrel with Carter's account. But if the tale says little about takeover history, it says everything about Carter, who has elevated proxy solicitors from largely invisible functionaries to highly paid takeover consultants through hard work, aggressive pricing and assiduous self-promotion.
The 13-year-old Don Carter Organization now stands with Georgeson & Co. and D. F. King & Co. in the top ranks of proxy solicitors and, by some accounts, is the most profitable of the three. The solicitor of choice for many corporate raiders and dissidents, to his competitors Carter is also a publicity-seeking, credit-grabbing bane.
Proxy solicitors have traditionally handled a variety of tasks, most of them mundane. They oversee shareholder votes for the routine business carried on at corporate annual meetings. When managements war with dissident shareholders in proxy contests, the solicitors locate and try to sway shareholders by mounting telephone campaigns, mailing "fight letters" and placing advertisements.
Carter, in addition, dispenses all manner of strategic advice and describes himself as an "adviser on corporate governance." A business graduate school dropout, Carter never hesitates to offer his own opinions in high-strategy sessions, no matter how thick the surrounding crowd of investment bankers and takeover lawyers, associates say.
Indeed, when companies start thinking of board-room warfare, "the call goes first to me--not to the lawyers, the investment bankers--but to me," says Carter, 40, pecking the air with his forefinger.
Carter declaims from behind a green marble desk in a posh office identified by a single sign, "War Room," near its entrance. In ceaseless motion, Carters paces in and out through sliding steel-plate doors that whoosh open and closed like the portals of some Hollywood space ship.
Carter's ascendancy has come at a boom time for the solicitation business, for the number of proxy fights has been rising sharply. As state anti-takeover laws have clamped curbs on some tender offers, raiders and other dissidents have been forced to turn to proxy contests to win spots on company boards or otherwise influence management.
Demand on Rise
So far this year, there have been at least 36 proxy contests, up from a recent average of about 25 a year, says the nonprofit Investor Responsibility Research Center in Washington.
Increasing demand has allowed the solicitors to raise their fees steadily--with Carter leading the way. While his fees averaged about $25,000 when Carter began in 1975, they now average around $300,000 and top $1 million for work on major proxy contests.
A takeover adviser familiar with prices of the top firms says he has seen Carter's bids for a job come in 100% above the competition's.
"The other solicitors really ought to thank him," says James E. Heard, executive director of United Shareholders Assn., a lobby group founded by Pickens. "He's taken what were a bunch of sleepy guys collecting proxy cards and put them in the front ranks of the troops. They all ought to thank him for their second houses on Long Island."
They're not thanking him, though.
While Carter has enriched his competitors, he has also enraged them. Solicitors who always looked on discretion as central to their role go out of their way these days to knock Carter, focusing on his recent record of lost proxy fights and what they say is the weakness of his back-office operations.
"His fees have gone up as his record has gone down," said John J. Gavin, executive vice president of D. F. King.
Their criticism hasn't stopped Carter from scooping himself a generous helping of credit.
Carter says ITT Corp. scared off a proxy fight threatened by raider Irwin L. Jacobs in 1985 largely because ITT retained Carter as an adviser, at a fee that sources say exceeded $1 million. "Irwin had his mind 98% made up to do it before they took me," Carter says. "Call him, he'll tell you."
