Crains New York - August 6, 2012 - (Page 30)

Battle of the bazillionaires Continued from Page 1 Now there’s something to bind the two Wall Street warriors even closer together: Each has filed a lawsuit alleging the other man siphoned tens of millions from a business they co-own—AM General, the maker of Humvee military vehicles. In a suit filed in Delaware Chancery Court in late June, the Perelman-controlled AM General alleges that Mr. Rennert and his company, Renco Group, withdrew $109 million by borrowing from AM General at below-market rates that are “unfair and disadvantageous to the company.”The suit also alleges that Mr. Rennert violated an agreement when he invested some of AM General’s cash with hedge fund manager Ezra Merkin, who funneled the money to Bernie Madoff. (Mr. Merkin’s lawyer wouldn’t comment.) The defendants, the suit complains, treat AM General “as a convenient drive-thru teller to which they pull up and ask themselves for as much money as they like.” Mr. Rennert fired back a week later with a countersuit accusing Mr. Perelman of “diverting”$175 million by charging AM General excessive management fees and royalties. The suit claims the actions by Mr. Perelman and his holding company, MacAndrews & Forbes, “reflect a consistent pattern by which they have repeatedly used their control of enterprises to unfairly enrich themselves at the expense of minority stakeholders.” Some of the details in the lawsuits shed light on how these highly successful executives make their money. The Manhattan moguls also take the opportunity the lawsuits provide to almost gleefully describe the others’ business challenges. Both Mr. Perelman and Mr. Rennert rose to prominence in the 1980s as prize clients of junk-bond king Michael Milken, and both have spent decades fishing in similar waters for acquisitions. Mr. Perelman bought such prominent consumer brands as Revlon and Marvel Comics, and his personal life, especially his four marriages and divorces, has been a tabloid mainstay for years. go into business together for the first time, according to a person familiar with the matter. Until then, they were acquaintances, the person said, but not friends. Even by the lofty standards of these billionaires, AM General was a home run of a deal. Mr. Rennert, who had bought the company in Shedding light on how two big-time execs make money 1992 for $133 million, sold a 70% stake to Mr. Perelman for $935 million. Only $110 million was paid in cash; the rest was borrowed. The wars in Iraq and Afghanistan drove such heavy demand for Humvees that Mr. Perelman’s company received $1.7 billion in distributions from AM General through last year, according to Mr. Rennert’s suit. “A remarkable return,” Mr. Rennert’s suit tartly noted, “even [after] subtracting the amounts that MacAndrews … diverted to itself from Renco.” Joint venture Mr. Rennert, who endeavors to keep a low profile, made his money in metals and mining. In 2001, the Justice Department described a magnesium company he owned as the nation’s top polluter, and lately he’s caused a fuss among neighbors angered by the noise that his helicopter makes en route to Mr. Rennert’s sprawling 29-bedroom residence in Sagaponack, L.I. In 2004, the two men decided to One reason the fight at AM General may seem so bitter is that while the company thrived, other ventures of Mr.Perelman and Mr.Rennert hit some rough times. In 2010, Mr. Rennert’s suit offers as an example, Mr. Perelman was forced to hand creditors control of Panavision, the movie-camera maker he’d owned since 1998 but which was buckling under a heavy debt burden. Scientific Games, a lotteryticket maker in which Mr. Perelman owns a 35% stake, has seen its share price sink 75% over the past five years, and the value of Siga Technologies, a drug-development company in which he owns 45%, has dropped almost three quarters in the past 18 months. Mr. Perelman’s 2009 effort to acquire the 25% of Revlon that he didn’t already own was greeted by shareholder suits alleging that he offered too little for the cosmetics company, whose stock has fallen 94% since going public in 1996. Revlon earlier this summer paid $20 million to settle with one large shareholder, mutual-fund giant Fidelity Investments. A MacAndrews & Forbes spokeswoman denied the suit’s allegations: “[Mr. Perelman] is a longterm investor who focuses on intrinsic value. The outlook of each of the operating companies is strong, with each having their best year ever.” Mr. Rennert’s empire also has challenges, some of them cited in the Perelman-led suit. In May, RG Steel filed for bankruptcy only a year after Mr. Rennert acquired the manufacturer for $1.2 billion. A sale of the company’s factories has been delayed.The Pension Benefit Guaranty Corp., a federal agency, notes that RG Steel’s pension plan is underfunded by $70 million and that Mr. Rennert shouldn’t be allowed to walk away from that obligation. Problems in Peru In addition, Mr. Rennert has lost control of a metals refinery in La Oroya, Peru, which at one point last decade generated one-third of Renco Group’s revenue. A Renco subsidiary closed the factory in 2009, and the next year a creditor put the division into involuntary bankruptcy proceedings. A criminal investigation opened last year by a local prosecutor (and cited in the Perelman suit) will be dropped, a Renco spokesman said, because it was founded on a “corrupt local Peruvian police report.” The refinery’s largest creditor— the Peruvian government—reopened the factory last week. The Renco spokesman said the company has submitted a reorganization plan that calls for it to continue owning the facility while management would report to creditors. “Renco’s overall business continues to enjoy robust profitability and strong results,” the spokesman said. “Renco metals businesses are generating record-level profits, and its mining operations continue to be highly cash-generative.” Events CALENDAR Ensure Your Next Event is a Blockbuster Post your next event on the Crain’s Events Calendar and we will help you market it to an influential audience that regularly attends in-person conferences. Featured Listing Includes: crain’s To start your listing today, visit: To start your listing today, visit: www.crainsnewyork.com/section/events_calendar/submit www.crainsnewyork.com/section/events_calendar/submit Or contact Joanne Barbieri at (212) 210-0189 or jbarbieri@crainsnewyork.com 30 | Crain’s New York Business | August 6, 2012 http://www.crainsnewyork.com/section/events_calendar/submit http://www.crainsnewyork.com/section/events_calendar/submit

Table of Contents for the Digital Edition of Crains New York - August 6, 2012

Crains New York - August 6, 2012
Contents
In the Boroughs
In the Markets
The Insider
Business People
Opinion
Greg David
From Around the City
Report: Business of Sports
Classifieds
Small Business
Real Estate Deals
Helluva Town
Source Lunch
Out and About

Crains New York - August 6, 2012