Warren Murphy: Hostile Takeover

Within moments the Telerate screen began to show a dramatic rise in Global's selling price. Looncraft's undertaker's face frowned darkly.

It held that expression well into the afternoon, as the stock market rebounded slowly. Frequent calls from his secretary were met with a curt, "Take a message." Until her voice came over the intercom with even more hesitancy than usual.

"Ronald Johnson to see you, sir."

Looncraft's eyebrows lifted in astonishment.

"Who?" he asked, momentarily taken aback.

"He's one of your floor traders."

"Cheeky sort, isn't he?" Looncraft muttered. Only ten years ago a Wall Street trader would have been beneath his notice. But not these days. The whole financial world had been turned turtle after a decade of leveraged buy-outs and junk bonds.

"Show him in," Looncraft said. He did not say, "Show him in, Miss McLean." It was better if his employees thought he didn't know them by name, as if such minutiae were beneath his lordly notice.

Johnson stepped into Looncraft's spacious office like a nervous poodle. Looncraft silently waved him into a black leather chair and tented his long aristocratic fingers.

Looncraft waited for the young man to sit down, and then looked at Johnson with eyes that invited explanation rather than asked or demanded it. Looncraft had an inkling why a mere floor trader would leave his post at such a hectic time. Johnson handled the Global account.

Ronald Johnson cleared his throat before speaking. He wore the uniform of a broker-striped shirt, red suspenders, and a haircut that reinforced his poodlelike demeanor.

"Mr. Looncraft, sir," he said deferentially, "I realize that I may be out of line asking to speak with you at a time like this, but-"

Looncraft cut him off with a wave of his hand that made his Rolex flash in the late-afternoon sunlight coming through the thirty-fourth-floor window.

"But," the young man continued, "as you may know, I handled the Global transaction, and I'm puzzled by the buying we've done."

"Puzzled? In what way?"

"Sir, we liquidated our Global positions this morning at forty-six. Now we're buying back at fifty-eight. It makes no sense. We'll take punishing losses."

"Oh?" P. M. Looncraft asked, with just the right arching of his right eyebrow. Behind him, portraits of past owners of Looncraft, Dymstar d hung in massive gilt frames that could be considered tasteful only because of their great age. There were no Dymstars or Buttonwoods on the wall. Only Looncrafts. The Looncrafts had forced out the Dymstars and Buttonwoods generations before keeping only their reputations. The Looncrafts looked down with imperious glares, making the young trader in the black leather chair even more nervous than he would have been. Just as P. M. Looncraft knew they would. That was why they hung along the walls of the office: so that wherever a visitor looked, he either stared at a Looncraft-living or dead-or kept his eyes on the floor.

"Yes," the young man said. "I wonder if in the heat of the meltdown-"

"There is no meltdown," Looncraft snapped. "The Dow is rebounding. The system is very resilient. We are merely experiencing a correction."

"Excuse me, sir. You're right, of course. But I couldn't help but wonder if in the excitement, the buy orders weren't miscommunicated."

"They were not," Looncraft said flatly.

"I see," Ronald Johnson said vaguely. He adjusted his neat blue tie.

"No, you do not see," Looncraft said. He knew that in trader's logic, a transaction was either profitable or unprofitable. In that way, they were as binary in their thinking as his computer. Buy cheap and sell dear was their prime directive. So when the chairman of LD and rebought the same shares at significant cash losses, it simply did not compute. "And you would like to know why," Looncraft added.

Ronald Johnson leaned closer, his eyes almost feverish.

"Is this something new?" he asked hoarsely. Looncraft suppressed a smile. He knew that shine. It was greed. He had seen it in younger eyes than Johnson's-seen it grow brighter as the eyes behind it grew dimmer. He saw it in the mirror every morning.

"No," P. M. Looncraft said. "It is not a new market strategy. "

Ronald Johnson's face fell. He was disappointed.

"As you know, we divested ourselves of all Global stock when the price reached forty-six points."

"Yes, sir. I executed that liquidation personally."

"While I was out of the office," Looncraft added pointedly. "Had I been in the office, my curious young man, I would have overridden that move. For I have heard rumors of an intended takeover of Global."

"By whom?" Johnson blurted out.

Looncraft shushed him with a wave. "It would be illegal if I were to tell you. But I heard it. I heard it perfectly."

Ronald Johnson smiled. He knew that when P. M. Looncraft said he heard rumors of an intended takeover, it was gospel. And Looncraft knew that within minutes of leaving his office, Ronald Johnson would buy as many shares of Global as his personal portfolio could absorb.

"When I arrived at the office," Looncraft continued, "the damage had been done. I've been monitoring the situation with care. I first thought that I would wait until just before the closing bell and buy back Global at rockbottom prices. A happy accident-although I disliked not enjoying a solid position in Global for the brief hours that was true."

"But when the market rebounded . . . " Ronald Johnson said.

" I had no choice. Obviously, the takeover rumors I had been hearing had reached other ears. Thus the hasty and admittedly costly buy order."

"Yes, yes," Johnson said eagerly. "It makes sense. Those shares will be worth much more. But it's still a tremendous amount of stock. Too much. What if the price drops again?"

"There is no such thing as too much stock," P. M. Looncraft said severely.

"Perhaps you're right, sir. But it is risky."

"That is why it's called risk arbitrage, and why the term 'junk bond' was invented."

Ronald Johnson blinked. He realized his superior was not simply talking about acquiring soon-to-be-hot shares. He was hinting that LD self be involved in a takeover of Global Communications.

He cleared his throat. " I think I understand."

"You are a very bright young man."

"But our position is massive. If the stock falls again, we could be ruined. All of us."

"Negative thinking," Looncraft clucked. " I do not believe in negative thinking. I would appreciate it if you did not spread such sentiments around the trading floor-or at one of those watering holes you traders like to frequent after hours."

"No, sir. Count on me, sir."

"I will," said P. M. Looncraft, touching his intercom. "Send Lawrence in. Instantly."

Almost before Looncraft's gaze left the intercom, a tall management type stepped into the room. He wore conservative gray pinstripes and a gold silk tie. A complacent expression settled over his clean-shaven face as he said, "Yes, Mr. Looncraft?"

"Give Johnson your tie," said P. M. Looncraft.

The complacent expression fell apart. "Sir?"

"Your tie. Give it to Johnson." Turning to the floor trader, he added, "Johnson, would you please lend this man your tie for the remainder of the day so he will be presentable?"

Ronald Johnson came to his feet, beaming. "Yes, sir, Mr. Looncraft. Of course, sir. I appreciate this, I really do. "

"But, Mr. Looncraft," Lawrence moaned, his face dropping like that of a man whose proposal of marriage has been rejected, "I am supposed to have this another three days."

"Let me remind you that the gold tie belongs to the firm," Looncraft said aridly.

"But, sir, I earned it. This is my month to wear the gold tie. "

"It belongs to Johnson now," Looncraft told him. "He has earned it by his concern and ernestness during a most unsettling business day. Johnson has performed with great presence of mind, and LD o recognize that service."