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主题: Comments on the Movie “Wall Street”
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作者 Comments on the Movie “Wall Street”   
ohdemail
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文章标题: Comments on the Movie “Wall Street” (2753 reads)      时间: 2005-4-12 周二, 13:20      

作者:游客海归商务 发贴, 来自【海归网】 http://www.haiguinet.com

Written by one of my professors
=======================================
I. Background
A. Bud Fox (Charlie Sheen) is an account executive on the trading desk of a brokerage firm, Jackson, Steinem & Company. The firm also has an investment banking side. (Note Gekko's initial question to Bud at their first meeting on a pending merger, being handled by the firm's investment banking side. Bud, because of a Chinese Wall, is not supposed to know about any investment banking deals and refuses to comment. This is before Bud turns to the dark side.)
There are five other characters of interest in the firm. There are two floor managers (partners?). Lou Mannheim (Hal Holbrook) spouts platitudes about the trading markets (“stick to the fundamentals…there is no such thing as a sure thing…invest for the long term”) but lost all his money in the ’71 recession (I cannot figure out whether the directors intended him to be a spoof or a serious character. ). Lynch (James Karen), a jerk with a lion's-head cane, values those who generate results and is quick to condemn those who fail (“I always knew you were no good.”). Also, there are three account executives besides Bud Fox. Marv, a fellow young executive; an older guy, Dan (with the striped suit and red carnation) who is fired due to poor performance despite his long history with the firm; and Chuckie, a trading desk manager.
The trading desk is accurately portrayed––most of the extras are the real McCoy. The personnel on the trading desk are historically male, crude, frenetic, and occasionally deviant (drugs are a serious problem), and all this is acceptable as long as they make money. The movie does show a few female traders, however. For more information on the bizarre behavior on trading desks, see Liar's Poker (1989), the funny and readable book by Michael Lewis that portrays the bond trading desk at Salomon Brothers.

B. Gordon Gekko (Michael Douglas) is an ’80s-style corporate raider. He buys and sells control in companies, usually through plays in the stock market. Once he acquires a company he does not run it. Instead, he resells some companies after making changes in management, he liquidates some of the companies, and he restructures and holds other acquired companies using a small pool of investors. He uses large pools of cash; some is his own, and commercial and investment banks and institutional investors (pension funds and insurance companies) loan him the rest.

C. Darian Taylor (Daryl Hannah) and the other female roles are an embarrassment (she is also painfully awful as an actress ). Taylor, supplying the “love interest,” is Hollywood's view on what it takes to sell a movie to the public. It is unfortunate that there are no strong professional female roles. The corporate bar has many successful female participants. Women are also appearing on brokerage trading desks. (The NYSE is way behind on this front. Do you see any women or people of color on the NYSE floor scenes?) The only redeeming part of her role is her usefulness in a sub-theme of the movie, the analogy of art speculation to stock speculation that runs throughout the film. She points to ugly paintings and to the surprise of Bud Fox describes their absurd prices (like stock prices they do not reflect fundamentals). Value is perception (mutual self-deception?).

II. The Main Transactions
A. Gekko’s LBO Takeover of Teldar Paper Company
The takeover runs throughout the movie. Gekko opens the movie by trying to buy a “veto block” of stock, enough to stop takeovers and get access to the corporate records (“to see if the books are cooked”). The management of Teldar frustrates Gekko. When the president refuses to take his calls he begins to buy stock for a takeover. He tells his top gun trader, Lou, to organize fellow large block holders.
When he accumulates over 5 percent of the outstanding common stock, he should file a Schedule 13D disclosure statement (he mentions this while looking out the window). But why does Gekko have Bud Fox buy Teldar stock for Gekko’s account surreptitiously? Why does Gekko encourage Bud to “put your buddies in the stock”?
One explanation for Gekko’s silent ownership is stock “parking.” Gekko wants to avoid public knowledge of his role in a takeover. Public speculation puts the stock “in play.” The price of the stock instantly increases when this happens. Therefore, to avoid the disclosure requirement, he uses Bud Fox to “park” stock in other accounts. Fox is resourceful in this venture. He uses his college buddy Barnes (an attorney who waffles because of the illegality) and others to secretly buy up Teldar stock. This is a relatively difficult violation for the SEC to catch and Fox quiets Barnes’ fears by mentioning that Gekko “does it all the time.” (Stock Watch is on the ball on this one, though, as they later inquire into Barnes’ purchases and flag the purchase of Teldar by Bud through an “offshore account.”) Stock “parking” was the principal allegation against Ivan Boesky that landed him in jail.
The realism in the movie breaks down a bit here. In conflict with this “parking” scheme is Gekko's appearance at the shareholder meeting of Teldar with his claim that “I am the company’s largest shareholder.” Presumably he has revealed his 4.999 percent stake (and not the stock held through the front accounts) and this is sufficient to back the claim. However, the claim certainly includes the “parked” stock, but why park stock and then reveal yourself? Perhaps “warehousing” was the scheme, not parking. In stock “warehousing,” Gekko wants to push the market price upward to force the managers of the target to give in to the takeover. If the managers block the takeover, they face an immediate decline in the stock price to pre-rumor levels, much to the anger of their shareholders.
Next Gekko makes his “Greed is Good” speech in front of the Teldar board that he is apparently trying to replace (“Greed marks the upward surge of mankind.”). The Teldar board asks its shareholders to reject Gekko’s tender offer and vote for an alternative “stock reorganization.” Presumably the board is asking the shareholders to consolidate voting power in a new class of super-voting stock which will be held by the managers (dual-class voting stock is a powerful takeover defense). (Why does the board allow Gekko to speak at all?) Other takeover defenses such as poison pill plans do not typically require a shareholder vote (unless the articles must be amended to authorize more preferred stock or stock rights or a shareholder attempts to rescind one already in place using a Rule 14a-8 resolution).
The movie stretches reality again at this point. Usually stock reorganizations must be done well before a takeover has started. Calling a special shareholder meeting to approve a defensive reorganization takes too long. A hostile bidder usually can close a cash tender offer before the meeting can be held (twenty days is the minimum; they usually take one to three months). In this case, Teldar was holding its annual meeting and the shareholders would have to have had notice of the reclassification vote in advance of the meeting. It is possible the board anticipated the takeover attempt and thus set up its strategies in advance. (Note the camera’s focus on the older, poorly-dressed women at the shareholder’s meeting; there are always a few local, small shareholders that attend along with representatives of the institutional investors and the press.)
Since the early ’90s, tender offers coupled with proxy fights have been the only way to avoid an anti-takeover defensive (you have to throw out the board in a proxy contest; the new board waives the defenses before you buy a controlling block of stock). However, this does not seem to be the situation in the movie. Gekko does not appear to be soliciting proxies for an insurgent slate of board candidates. Instead, he looks to buy a controlling block of stock and then replace the board.
His efforts must have been successful. On the plane he is angered by the news that insurance companies are no longer willing to insure his logging trucks (“we will self-insure”). He is also angry that “replacing half the management” does not seem to have improved the company’s operation condition. Apparently Gekko is running Teldar at this point. This is a dig at those raiders of the ’80s that successfully bought companies in financial plays and then found they had to run them. Many of the raiders found operating a company to be far more of a challenge than they anticipated (note how poorly Carl Icahn did when he took over and ran TWA).

B. Wildman’s Takeover of Anacott Steel
Sir Lawrence Wildman is a corporate raider of financial means superior to those of Gordon Gekko. They are rivals in the world of financial takeovers. Gekko senses that Wildman is about to take over another company and he wants in on the action. Knowing that a takeover increases the stock price of the target, Gekko uses Bud Fox to discover which company Wildman is after. After following Wildman to investment banks, a French restaurant, and the airport, Fox determines that Anacott Steel is the target. Gekko then has Fox buy up Anacott stock.
His purchases drive up the stock price of Anacott and make closing the acquisition more expensive for Wildman (“you are free-riding on my efforts”). Wildman’s company will have less cash to reorganize Anacott Steel and refurbish the otherwise outmoded factory. Why? Wildman needs the steel company’s assets to pay off his financing, and a higher purchase price on the Anacott stock means a cash drain on the steel company. The price is higher because Gekko has driven up the price of the Anacott stock through his aggressive purchasing, thereby making Wildman’s pre-tender offer purchases more expensive, and perhaps affecting the tender offer price.
Gekko is playing the role of “arb,” buying on tender offer rumors and hoping to put the stock to the successful bidder. Wildman threatens to stop the tender offer and “fry you’re a—” because terminating the tender offer will cause the stock price to drop to pre-rumor levels causing Gekko to lose a substantial amount. However, Wildman doesn’t carry through on the threat because he wants to “turn around” the company. Important in the Anacott Steel takeover are Gekko’s instructions to Fox. He tells Bud to buy calls and then buy shares; when the price hits 50, tell your friends (who will also buy) and call the Wall Street Chronicle to tell them that “Blue Horseshoe likes Anacott Steel” (for the “heard on the street” column?). This is the same method Fox later uses to stick it to Gekko in the Blue Star takeover.
Gekko wants to buy and then hold in anticipation of a takeover. Informing others will increase the price pressure on the Anacott Steel board (you block the takeover, your share price will plummet and you will have unhappy shareholders). Gekko could also sell into the now hyped-up market and walk away with a profit. In the end, the play works, as Gekko sells to Wildman in a private transaction. (Wildman accuses Gekko of greenmail tactics; Gekko responds, “My mail’s the same color as yours, pal.”)
The Anacott takeover is the second confrontation between Sir Lawrence Wildman and Gordon Gekko. The first, mentioned in the limo discussion with Bud Fox, happened when, according to Gekko, Wildman bribed Gekko's secretary and pre-empted his bid for a vulnerable company. Bud Fox sets the stage for the later use of Wildman to defeat Gekko.

C. The Blue Star Airline Bust-up LBO Takeover
This is the central event of the movie. The airline has recently expanded its routes but found itself in a price war with the “majors.” It is bleeding cash. Chapter 11 is a real possibility. In Chapter 11, the airline’s stockholders would lose their shares and enough of the airline’s debt holders would have their debt obligations converted into shares so that the company could emerge as a solvent, going concern.
At first, Gekko is reluctant to get involved with Blue Star because “guys like him have had their a-- hung in a sling by the airlines.” Bud Fox manages to sell him on the idea. Fox likes the financial position of Blue Star (large capital reserves and plenty of fat to cut) and he “knows” people (his father is the representative of the machinists’ union).
Gekko then negotiates with the three unions (pilots, machinists, and stewards) to get wage concessions (in exchange for some stock) so he can finance a buyout of the airline. The wage concessions would free up cash flow that he can use to pay off his financing. The wage concession will also enable him to run the airline at a profit. He decides, after negotiating the wage concessions, to liquidate the company but the unions block his plan.
The logic in the movie is not clear. Why does Gekko need wage concessions if he plans to sell the planes to Mexico and turn the hangar into a condo development? (There is some indication that Gekko decided to liquidate after “taking another look at the numbers.”) Why does the confrontation between the union representatives and Gekko on the critical day matter (“baggage for Miami may end up in St. Louis”)? Why didn’t Gekko just laugh at the union representatives’ refusal (something like, “So what, I’m selling the planes; there will be no baggage.”)? Perhaps, Gekko must run the airline for a short time before liquidation. In the end, the wage concessions are needed only by Wildman to keep the airline flying and competitive.
The airline takeovers were classic. It was a highly regulated industry and competition was based on service not prices. Unions negotiated for lucrative contracts industry-wide (remember the baggage handlers who made $80,000 a year?). Deregulation of the industry, started under President Carter, stimulated price competition. Initially all the airlines lost money and those that survived renegotiated with their unions for wage concessions. Some airlines were better at the renegotiation process than others and some had weaker union contracts to contend with. Raiders who saw management balk at renegotiation bought companies and forced the negotiations. Recall Bud Fox’s description of Blue Star’s options: break the union contract in Chapter 11 bankruptcy with creditors in the lead, or sell to Gekko with concessions.
The over-funded pension plan issue is wonderful. In the ’80s, because of a healthy stock market, pension plan investments were more valuable than necessary to pay all future anticipated pension claims (matching returns on the pension fund assets and claims on those assets in the future). Under the terms of the plan and allowed by federal statute (ERISA), the excess value goes to the firm, not the employees, unless the plan otherwise specified (most did not). Even if the plan did specify that employees could keep the excess, the firm can, if done carefully, amend the plan to change the provision (although there are new rules on amending the plan) to remit excess to the company. Gekko wants to take over Blue Star and use the excess value in the fund to pay his financing. The press has a field day with this type of maneuver, assuming incorrectly that the money belonged to the employees.
For a readable book on the financing of takeovers in the go-go ’80s, see The Predator’s Ball (1988) by Connie Bruck. See also Bruce Wasserstein, Big Deal (1998).

III. Insider Trading Issues
The movie makes the point that in Wall Street, information is money. The use of information raises many legal questions, most of which are insider trading questions. The issues below are noted in the order of appearance in the movie.

A. Could Bud Fox tell Gekko about his firm’s participation in an upcoming financing for a cosmetic company using information from his firm’s investment banking side? No. He breaches his obligation of confidentiality to his firm and his firm’s client. He also is guilty of tipping (he is a constructive insider).
B. Could Fox tell Gekko about his father’s information, from the controller of Blue Star, that a soon-to-be-published FCC ruling would doom a plaintiff’s lawsuit on a plane crash, free the company from probation, and enable it to get valuable new routes? This factual situation sits right on the margin of the language in the Dirks case. In order for a violation to exist, both Fox’s father and the controller must be liable as tippers and both must receive a personal benefit from the disclosure.
C. Can Fox use the information he overheard in Gekko’s office about Teldar? Not under Rule 14e-3. Gekko later chides him in the limo about this.
D. Fox followed Wildman to the investment banks, the French restaurant, and the airport. Was it legal to use this information to discern that Wildman was planning to take over Anacott Steel and then buy up stock in the company? Probably not, under Rule 14e-3, if Wildman was using a tender offer. If Wildman is not using a tender offer then this is just market research. A potential legal problem under Rule 10b-5 occurs when Fox lies to the airplane mechanic about needing to deliver a package to Wildman in order to find out where the plane was headed. Does this create a misappropriation under O’Hagan?
In the movie this episode is Fox’s fall from grace. Fox is reluctant to accept the spying mission because he doesn’t want to break the law (“but that would be illegal”). Gekko dismisses him from the limo and Fox, face framed on the screen in the rolled down limo window, commits to the dark side when he says “you’ve got me.”
E. Wildman buys Gekko’s stock on the eve of Wildman’s tender offer for a price in excess of the tender offer price (71.50 while the tender offer will be at 65). Is this legal? Once a tender offer is announced, all shareholders must be treated equally. The SEC has taken the position that “creeping tender offers” can trigger the rule. Do we have a creeping tender offer in this case?
F. Do insider trading rules apply to Fox’s office break-ins when he poses as a member of a cleaning crew? (Recall his phone call to Gekko on the Rourker Electronics takeover.) Does the misappropriation doctrine extend this far? The law firm partner is not a tipper merely because Fox secretly rifled through his files, however.
G. Gekko has Fox sign a contract, prepared by Gekko’s nervous-looking lawyer, stating that Fox has power of attorney over brokering stock deals for Gekko. He has sole power to act without Gekko’s knowledge. Is the contract sufficient to segregate Fox’s activities from Gekko’s? Is Gekko safe from possible accusations by Fox that Gekko coordinated all actions?
H. Was Fox’s stock parking (or warehousing) illegal? It depends on what he knew of Gekko’s schemes. Fox used an offshore bank, spread the buyers around, and even used his college buddy Barnes to front accounts. We hear him, on the phone, talk to one of his front accounts (“just send the settlement money check to Blue Horseshoe”). The offshore bank in the Cayman Islands (probably a Swiss branch) operates under secrecy statutes, so the SEC cannot get the names of its customers. How does the SEC figure out he is using the offshore bank? Again the movie lacks realism.
I. The Blue Star takeover presents a series of legal questions:
(1) Should Bud Fox have been at the meeting at Barnes’ office with the attorneys and the investment bankers? Gekko, his boss, did not want him there. (Barnes invites Fox and sarcastically responds to Fox’s ignorance of the meeting by saying, “You’re only the president of the company, what the hell do you know anyway?”)
(2) Can or must Fox tell the unions (or other shareholders) the truth about Gekko’s liquidation plans?
(3) Can Fox tip Wildman on Gekko’s plans? What about the call to Wildman on the yacht when Fox informs him that Gekko plans to sell at 16.50?
(4) Can Fox tip his friends (and the Wall Street Chronicle) on the Blue Star acquisition? Can the brokers trade on information if it is unspecific (merely saying “it’s a sure thing”)? Can Marv and Lou advise their clients based on the information?
(5) Can Fox tip the market on Gekko’s falling-out with the unions?
(6) Can Fox misadvise his own client, Gekko? Recall that he executed Gekko’s buys at up to 23 and then his sales at 16.50. (“The bid is 16.50; I advise you to take it.”) Gekko also screams at Bud, “You got me into this, you better get me out.”
J. Why was a “postal inspector” present at Bud Fox’s arrest (along with a US Attorney and an SEC enforcement official)? Here you appreciate the level of expert detail in the movie. The inspector is a federal law enforcement official and Fox is charged with federal crimes; moreover, one of the criminal charges will be mail fraud. See Chestman.
K. What did Gekko say to Bud Fox in the park that may incriminate Gekko? “Sandbagged me on Blue Star, huh. I guess you think you taught the teacher a lesson.... I opened doors for you. I showed you how the system works, the value of information, how to get it.” The focus was on the fact that he showed him how to get information. Is that wrong? What of Gekko’s claim that “I gave you [several names of corporations].” Is this the incriminating evidence?
For readable treatments of the insider trading scandals in the ’80s, see Call, Eagle on the Street or James Stewart, Den of Thieves.

IV. Was the Movie Fair in its Portrayal of Financial Takeovers (LBOs)?
First, consider the arguments of Gekko before the Teldar board, before he gets into his “greed is good” analysis. He starts by trumpeting shareholder accountability. Managers should be accountable to shareholders. He makes several points: first, the chairman holds only one percent of the stock (and the rest of the board a total of three percent); second, the company has lost $110 million in the last year; third, the company is fat with white collar employees (200 vice presidents who make $200k a year); and fourth, 2.5 million target shareholders who tender to Gekko in previous takeovers have made over $12 billion dollars in profits (early in the movie he complains that he cannot reach the CEO who is off giving speeches while his company is losing money). His takeovers do not “destroy, they liberate value.” Better management attention to stock prices will “save the malfunctioning corporation called the USA.”
These arguments show the good that corporate raiders do. They force management to stay on its toes for fear of being taken over. Accountability is important, as Gekko points out in his speech, because the board chooses to invest its money in other places leaving little risk in its own company’s success.
The other side of the argument is found, in part, from Bud's father, Carl Fox (Martin Sheen), an honest, hard-working union man. He feels the existing CEO could do a better job of running the airline than Gekko. The CEO has been with the airline since its inception. (“He started with one plane.... If that’s scum I’ll take it over a rat any day.”) He also distrusts Gekko and accurately fears that Gekko would break up the airline.
He expresses dismay that Bud does not use his intelligence to “create something instead of living on the backs of others.” This theme is expressed privately by Gekko (“I create nothing.”). Trader Lou Manheim adds a counterpoint to this argument: “What we do allows firms to do R&D and provide jobs.” But Lou also adds comments like “stick to the fundamentals...stay away from rumors and other short-term sure things.”
The comments feed off the political debate, which was evident in Clinton’s ’90 to ’92 campaign, that Gekko and Wildman are socially useless. A caveat exists, however. If the raiders see the light, as Wildman does with Anacott Steel (after he was knighted), and turn around companies rather than liquidate them, we are supposed to have sympathy for their efforts. Wildman wants to buy Anacott, refurbish the plant, and save jobs. Gekko laughs at the argument, recalling a Wildman takeover in which Wildman fired thousands of workers.
Both the main line and the caveat are false. Gekko and Wildman are major players in the market for corporate control. They buy control for a premium over market price, oust old management, and then profit from the increased value of the company. The threat of their appearance is strong incentive to existing management to behave. Moreover, if a company is worth more to its shareholders liquidated (with assets placed in the hands of others that value them more), a board has a fiduciary obligation to the company to liquidate. Boards are hesitant to do so, of course, because they lose their positions. Gekko buys, ousts the board and does what the board should have done, liquidate. This is hardly deserving of the wrath that folks like Gekko attracted.
In the movie, Blue Star is worth $30 a share in liquidation. Gekko is willing to spend up to $24 a share to buy the company and liqudate it. In the end Wildman purchases the company as an ongoing concern at $17 a share when the Gekko takeover appears doomed. After the market close Wildman announces his takeover. The markets value the company as a going concern at $17 a share. The shareholders are better off with Gekko’s liquidation plan.
Argument against Gekko comes from those who assume that his ilk cost people their jobs. Evidence shows, however, that blue-collar workers did not lose jobs as a result of takeovers, white-collar workers did. The fat in corporations was in the management ranks, not the blue-collar ranks. Even a busted-up corporation kept blue-collar workers. The raider kept one plant (adding a new shift) and sold another, which put the plant in the hands of those who could better use it (and they added a new shift as well perhaps). There was, however, some downward pressure on blue-collar wages.
Consider, however, the social commentary. Gekko is the villain who gets defeated in the end. He also is given some choice politically-tinged lines: “This is not a democracy, it’s a free market.” (Apparently free markets are the antithesis of democracies.) Bud Fox grows a conscience and dumps Gekko (and Darian) in favor of a real job at the airline. His Dad (union labor) and Wildman are the heroes. We are left with a distaste for stock traders (even Holbrook’s character comes off as pitiful) and takeover participants (the LBO funds and the bankers that fund them).
A legitimate criticism of Gekko is, of course, his efforts to violate the federal securities laws in his takeovers. My complaint is that the movie conflates the takeover activity with the securities law violations.


作者:游客海归商务 发贴, 来自【海归网】 http://www.haiguinet.com









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  • Comments on the Movie “Wall Street” -- ohdemail - (26647 Byte) 2005-4-12 周二, 13:20 (2753 reads)
    • nice -- Ainz - (287 Byte) 2022-9-12 周一, 13:39 (1510 reads)
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