PRESIDENT BUSH took huge campaign contributions from the nation's leading leveraged buyout (LBO) artists. Does this put him in an awkward position similar to that of the five United States senators who accepted altogether $1.4 million in campaign donations from Charles Keating, the head of Lincoln Savings and Loan Association? That institution later collapsed at an expected cost to taxpayers of $2.5 billion.
The five are under investigation by an independent counsel appointed by the Senate Ethics Committee. The counsel will determine whether their meeting with a regulator, Danny Wall, was proper representation of a constituent or an exercise of undue influence on behalf of their campaign contributor.
Next year, Mr. Bush will have to take a stand on various bills now moving through Congress that would put some restraints on mergers and acquisitions, including LBOs. If he should oppose the measures, will it be campaign money talking? Or will it be his honest assessment of what is best for the American economy?
During the 1987-88 campaign, 239 of the individuals most active in LBOs, along with 54 wives and offspring, contributed more than $1.3 million to the Bush campaign, according to Common Cause Magazine. There were 10 contributions of $100,000 each from such deep pockets as those belonging to Henry Kravis, George Roberts, Theodore Forstmann, Nicholas Forstmann, and Stephen Schwarzman, all names familiar to those who follow the takeover game. Millions more of Wall Street money went to members of Congress, Republican and Democratic party committees, and political action committees.
Undoubtedly these contributors hope that Bush will continue the hand-off policy of President Ronald Reagan in regard to mergers and acquisitions, a stand that often ignored anti-trust implications. It was a policy that helped the donors get rich from handsome fees for helping arrange the many deals of recent years, or, in the case of LBOs, from being principals themselves.
Max Holland, the author of a Harvard Business School Press book on a takeover that eventually flopped (When the Machine Stopped), offers a slogan for Wall Street's campaign funding: ``Keep America safe for deals.''
Three bills to restrain corporate takeovers and LBOs have already been introduced in the Senate. Another is in the works. For example, a modest one introduced last month by Senators Frank Murkowski (R) of Alaska and Nancy Kassebaum (R) of Kansas aims at strengthening the nation's ``antiquated securities laws'' which, according to Mr. Murkowski, ``in many cases are no longer effective against today's high-tech manipulative practises.''
When an investor has acquired more than 5 percent of a company's securities, this Corporate Integrity and Full Disclosure Act of 1989 would require a filing with the Securities and Exchange Commission (SEC) within five days, instead of the current 10-day period. The investor could not make additional stock purchases until the filing has been made. Another provision would permit a takeover target to sue if the acquiring company has violated Federal Reserve margin requirements for stock purchases. At present, the SEC has the responsibility for policing Fed margin requirements, but doesn't always do so.
A third provision would require a takeover company to have firm commitments for financing at the initiation of a takeover attempt, something already required in Britain. Now the takeover party may only have a letter from an investment banking firm saying it is confident it can arrange the financing. This provision is intended to weed out fake merger attempts, aimed at making a financial killing for their proponents on a price rise of the takeover stock, from real merger moves.
The bill, says Murkowski, is not designed to prevent all corporate takeovers and LBOs because some such transactions lead to increased efficiency and productivity. Rather, it is ``designed to bring some reason back into the process and protect the integrity of this nation's capital markets.''
The securities subcommittee of the Senate Banking Committee held a hearing on the bills Nov. 21. A goal is to have a legislative package ready in late February or March. At some point, Bush will have to state a position on the proposed legislation. If it is against any restraint, he could be suspect.