The Popular Game Of Going Private

In the world of high finance, where billion-dollar deals can be struck between cocktails and dessert, the hottest play these days is a once obscure transaction known as the leveraged buyout. In such operations, corporate officers are turning publicly held firms into private businesses that are free from the demands of short-term investors and the unwanted attention of corporate raiders. In the process many of them are making vast profits for shareholders and themselves.

All that is needed to play this lucrative game is mountains of borrowed money--or leverage, in financial jargon--which lenders seem eager to provide. A record $10.8 billion was spent to take companies private in 1984, vs. just $636 million in 1979. This year's pace is even more furious.

One of the largest and most ambitious buyouts yet was proposed last week by executives of R.H. Macy & Co. (fiscal 1985 sales: $4.4 billion), the eleventh-biggest U.S. retailer. Led by Chairman Edward Finkelstein, a group of top officers offered $70 a share, or $3.58 billion, for Macy's stock that had been selling for about $50 a share. The Macy's executives were working last week with the Wall Street firm of Goldman Sachs to line up virtually all that money. The high buyout price, apparently designed to repel rival offers and avoid a bidding war for the company, drove up the value of other retailing issues as investors speculated that a wave of buyouts was about to break over the department-store industry.

Indeed, merchandising firms are much in vogue with acquisition-minded managers. One day after the Macy's announcement, officers of Household International agreed to pay $700 million for the Chicago-based conglomerate's retailing units, which include Coast-to-Coast hardware and the Ben Franklin variety chain. Even small Wieboldt Stores, a 102-year-old Chicago concern, last week announced a $37.4 million deal that turned the firm into a private company.

Consumer-product companies have been going private as well. Mary Kay Ash, chairman of Mary Kay Cosmetics, last May began a $300 million buyout of her company. In August, San Francisco-based Levi Strauss, the largest brand-name clothing maker in the U.S., was acquired for $1.48 billion by a group headed by corporate executives and descendants of the company's founder.

Some skittish firms turn to buyouts to escape unwelcome suitors. "Management has often used them as a weapon to defend against hostile takeovers," says Burton Malkiel, dean of the Yale School of Organization and Management. Directors of Storer Communications, a major cable-TV operator, voted last summer to take the company private for $93.50 a share, rather than accept a $95-to-$96 bid from Comcast, a smaller cable company. Revlon pursued a similar path last month when it arranged a complex $1.8 billion transaction that would break up the cosmetics firm but keep it out of the hands of Pantry Pride, a Florida retailer. Revlon suffered a setback last week when a court struck down its plan to sell two divisions for a bargain price of $525 million as part of the proposed deal. The ruling allowed Pantry Pride to continue its take-over effort.