Asher B. Edelman : Portrait of the Art Lover as a Skilled Corporate Raider
As letters between his office and the management of Lucky Stores, his latest acquisition target, were passing by ZapMail through the cross-continental ether on Thursday, Asher B. Edelman’s car was threading through the congested Manhattan traffic on a different mission.
“I’m just returning from one of the greatest events in the history of American art,” Edelman said. “It’s the viewing of Jasper Johns’ ‘Four Seasons,’ which he just completed. It’s a great achievement for him.”
Edelman, 46, speaks as if his multimillion-dollar collection of contemporary American art, which includes works by Johns as well as many other leading artists, is his most important interest. Certainly he pursues it with the same determination he has shown as one of Wall Street’s more visible corporate acquirers in the last three years.
“Asher’s irrepressible,” says Burton Lehman, his lawyer for 17 years. “He does all things in life with the same sort of gusto and competitiveness.” The trim, compact Edelman’s most striking features are his intent dark eyes, which give the impression of an icy glare that emerges even in photographs.
Edelman’s latest campaign for Lucky Stores is characteristic of his most profitable ventures: After acquiring a sizable stake in the supermarket and merchandising chain, he approached the board with suggestions that he could help it restructure the company by paring away underperforming assets and units.
Focus on Gemco
Edelman has focused particularly on Lucky’s Gemco discount department store division, which has been losing money and accounted for most of the company’s nearly $10-million earnings decline for the second quarter of this year. Gemco is an asset “that simply isn’t performing,” he said. Edelman also argued that the company should realize more from its extensive real estate holdings where its stores are located.
So far, Lucky’s management has held off Edelman by saying it will discuss his proposal for a $1.79-billion takeover at its Oct. 2 meeting.
Although not quite in the same financial league as such celebrated corporate raiders as Carl C. Icahn, Edelman says he and his investment group have about $600 million in cash and cash equivalents available for acquisitions. By borrowing on that sum or leveraging, he says, “we could do a $4-billion deal pretty easily. But I don’t like to leverage that much, so we would probably do less.”
If his conservative approach to financial risk sets him apart from some of the bigger plungers in the takeover community, so does his sworn aversion to “greenmail,” the source of considerable profits for other takeover targeters. (Greenmail is a company’s repurchase of its own stock from a menacing raider at a sharp premium.)
“I tell my partners when they (invest) with me that they’re at a disadvantage, because I won’t take it,” he says.
Edelman also says he prefers friendly takeovers to hostile ones, not an unlikely position since hostile takeovers are costly, time-consuming and energy-sapping. Still, most of his takeovers have involved angry proxy fights. “Managements are so adamant about maintaining their own control that it gets more and more difficult to do a friendly deal,” he says.
Like Icahn, Edelman first came to Wall Street’s notice as a risk arbitrageur, a professional investor taking positions in stocks affected by takeover bids. (His securities firms still do risk arbitrage as well as hedge trading in stocks, currency and commodities.)
He had started work as a back-office worker for a brokerage firm at the age of 21, opened a branch for the firm three years later and began trading in options. He learned the business of currency hedging as head of European operations for Carter, Berlind & Weill, a predecessor of what is now Shearson Lehman Bros., before setting up his own arbitrage shop.
By 1982, “I began to see the risk-arbitrage business developing so much following that the risk-reward ratios were changing,” he recalled in a 1984 interview with The Times. “There was no reason to just track other peoples’ deals, and I decided to get involved for myself.”
His first target was Canal-Randolph Corp., a real estate holding company that he saw as the victim of a complacent, entrenched management and of Wall Street’s chronic undervaluation of real estate assets. After a bitter proxy campaign, in which he accused Canal’s British management of lying to shareholders, Edelman finally unseated the management in 1983. He moved quickly to spin off a stockyard subsidiary and real estate holdings; he estimates that he turned a roughly $40-million profit on his $23-million investment.
Moved Into Computer Field
With this success in appraising and realizing the values in tangible assets, Edelman turned to an industry where intangible assets ruled. This was the computer industry, where he also experienced notable success--at first. His first acquisition was Management Assistance Inc., a firm that combined a hardware business (the minicomputer maker Basic Four) with a service company.
“The service business probably had more value in the marketplace than the service and hardware businesses combined,” he said. The obvious solution: spin off the units. Basic Four went to a private investor and the Sorbus service division to Bell Atlantic. Edelman’s estimated profit was $10.5 million.
But his insight into the value of computer service companies subsequently failed him. His next two deals all but ruined his reputation for having a golden touch. In 1984 he acquired Mohawk Data Sciences, another combined hardware-and-service company.
“Basically, that’s been a disaster,” says George Elling, high-tech analyst for Oppenheimer & Co. Industry observers say Edelman overestimated Mohawk’s potential and perhaps its ability to keep up with the swift pace of innovation in the industry. A deal to sell off Mohawk’s service unit fell through, as did a second proposal to sell it to Datapoint, a computer company by then owned by Edelman himself. Mohawk, which Edelman bought for more than $10 a share, according to Wall Street estimates, is now bumping along the market’s bottom at between $1 and $2. “I think I’ve lost $4 million to $6 million there,” he says.
Some say Edelman may have been blind-sided by hidden problems at Mohawk. “That company wasn’t what it seemed,” says Lehman, who served on Mohawk’s board with Edelman, “and that became clear very quickly when its financial condition worsened dramatically.” Mohawk’s 1984 loss widened to $80.1 million from $19.1 million in 1983. Edelman says it has emerged in court proceedings that the company’s inventories and receivables were misstated by some $150 million before he bought Mohawk, which he still serves as chairman.
Dog With a Similar Bark
Datapoint also looked like a dog with a similar bark when Edelman won control after a complicated takeover fight last year. Again, a deal to spin off the San Antonio company’s service subsidiary fell through. But industry professionals say Edelman made the shrewd move of spinning it off, as Intelogic Trace, to the public.
Today, the market value of Intelogic and Datapoint together is “about 25% more than I paid,” he says, producing a profit for him of about $10 million. “I’m not saying that’s a great return, but I see such a fabulous future (in Datapoint) that I’m really glad to be there.”
“Edelman just didn’t understand the rapid change in the business,” says Philip Cavalier, a computer industry analyst for Moody’s Investors Service. “His concept of the value of service subsidiaries was an interesting one, but it wasn’t a viable one.” Among other factors, says Cavalier, the latest generations of computer hardware are so sophisticated that they do not require as much service as might have been anticipated even two years ago.
In any event, after Mohawk and Datapoint, Edelman returned to businesses with more easily appraisable tangible assets. Before focusing on Lucky Stores this year, he waged a months-long battle to win control of Fruehauf Corp., a Detroit-based maker of auto parts, before being outbid by an alliance of management and Merrill Lynch & Co. Still, he emerged from that battle with an estimated profit of $39 million, including Fruehauf’s settlement of legal charges.
LUCKY STORES AT A GLANCE Lucky Stores operates 575 supermarkets, including Lucky and Food Basket stores in California, Eagle stores in the Midwest and Kash n’ Karry in Florida. The company, based in Dublin, Calif., also owns 80 Gemco discount department stores, 377 automotive specialty stores, 327 fabric stores and 109 Yellow Front general-merchandise stores.
1985 1984 1983 Revenue (in billions) $9.4 $9.2 $8.4 Net income (in millions) $86.5 $94.6 $105.4
Assets: $2.3 billion Employees: 68,000 Shares outstanding: 51.6 million 12-month price range: $21.75-$36.00 Thursday close (NYSE): 36.00, up $1.75
