The Money Wars

Corporate finance rarely becomes colorful enough to capture the popular imagination, but the 1980’s proved to be an exception. Big, flashy deals like the RJR-Nabisco buyout and the exploits of corporate raiders and financiers like Carl Icahn and Michael Milken were avidly followed by the popular press. The negative perception of Wall Street by outsiders was aptly characterized by the “Greed Is Good” speech in the film WALL STREET. Smith, who now teaches at New York University after more than twenty years as an investment banker with Goldman Sachs, is aware of this attitude. He addresses these ethical concerns throughout the book—often in the form of a conversation with his skeptical friend Ruth—changing the emphasis at various times form history to analysis to apology.

The first quarter of the text is entirely devoted to history. It describes the roots of the recent buyout activity, starting with J.P. Morgan’s railroad consolidation deals in the late nineteenth century, through the breakup of the trusts in the 1920’s, and concluding with the conglomerates of the 1960’s. This quick survey establishes that mergers and buyouts have a long and frequently controversial history.

The developments of the 1980’s are grouped into four categories, each the focus of a chapter: mergers, including corporate restructuring; hostile takeover tactics and defenses (Macmillan, Polaroid); leveraged buyouts (Beatrice, Playtex); and junk bonds (Michael Milken and the fall of Drexel Burnham). the concluding section attempts to reconcile these developments with traditional financial theory, discussing corporate debt capacity, leverage, and stock valuation. Attempts at governmental regulations and the final lessons of the decade are also considered.

Smith the investment banker has the upper hand over Smith the academic here—the treatment is aimed at the general reader, and is never really critical of the business world. Smith is surprisingly dispassionate for someone with so much experience in the trenches. More opinion and personal anecdotes would have made a better read, but THE MONEY WARS is still a solid overview of recent financial activity.