”The `deal` has arisen as a corporate way of life in the past 20 years,” the calorie-conscious Whalen notes over a bare slice of chicken breast in a restaurant off the lobby of his office building. ”Skadden, Arps has been the evolutionary response to the need for law firms to handle these deals,” he says.
”Deals are our focus. If someone wants to do a deal, he can come to us to get it done, because in the world of deals, there is no greater crime than the lawyer botching it up. Lawyers are notorious deal-killers. Their stodginess, their uncertainty about the law, their unfamiliarity with different kinds of deals all contribute, and so does the fact that they tend to lose their nerve. Even those who don`t can wreck things. You`ve got to be able to do it right. It takes more than bravado and threats.”
Skadden, Arps, Slate, Meagher & Flom certainly does it right. Last year it completed 48 major deals nationally, eclipsing its nearest rival by more than 10 transactions. The deals ranged from mergers and takovers to stock offerings, debt offerings and initial public offerings.
Skadden, Arps began life in 1948 as a three-lawyer firm-Skadden, Arps and Slate-whose first associate was a short, awkward, shy young man from a poor Brooklyn family who had gotten through Harvard law School on the GI Bill but failed to get a job with a Wall Street firm because he was Jewish.
Within 10 years, the man, Joseph Flom, had taken over leadership of the firm. During this time, Flom-who is revered by his colleagues for his legal brilliance, his foresight and creativity and his near-fanatical devotion to hard work and client service-was deeply involved in the great proxy fights of the 1950s and early 1960s and developed a keen expertise in corporate infighting and stockholder stroking that would serve him in good stead later. By 1969, Flom recognized the coming age of mergers and acquisitions, or M&A as it came to be called, and steered his firm along a path that by the 1980s had made Skadden, Arps a behemoth in the field. Through the decade, just two law firms held a monopoly on M&A work. One of them was Skadden, Arps (the other being Wachtell Lipton Rosen & Katz, inventor of the ”poison pill”).
And what a decade it was. In 1981 Du Pont bought Conoco for $7.2 billion. In 1984 Texaco purchased Getty Oil for $10.1 billion. The same year Chevron snatched up Gulf for $13.2 billion. Three years later Philip Morris seized Kraft for $12.9 billion, and the next year Bristol-Myers merged with Squibb for $12.7 billion. In 1989 RJR Nabisco was taken private for the incredible sum of $25.1 billion, and just last year Time Inc. merged with Warner Communications in a transaction amounting to $7 billion.
Skadden was in the midst of almost all these deals, representing corporate raiders such as Icahn, T. Boone Pickens Jr., Sir James Goldsmith, Robert Maxwell and Ronald Perelman; business giants such as American Express, United Airlines, Time Inc., Tyson Foods, Penn Central and Occidental Petroleum; and investment banks such as Drexel Burnham Lambert Inc. and Salomon Brothers. Sometimes the firm was engaged just to keep Flom from being hired by the other side, a step that was known in the trade as ”sterilizing Joe.”
A disproportionate share, about 15 percent, of Skadden, Arps` largest deals originated in the Chicago office. They included Centel`s sale of Centel Cable Television Co. for $400 million; the $100 million leveraged buyout of Palais Royale Inc.; the sale of Conwood Corp. for $400 million; American Express Co.`s selloff of Fireman`s Fund Employer`s Insurance Co. for $210 million; Canadian Pacific Ltd.`s $205 million acquisition of the Soo Line Corp.; and Outboard Marine`s defense against takeover artist Irwin Jacobs of Minnesota. The Chicago office is also helping to represent Groupe Schneider of France in its $1.98 billion takeover bid for Square D Corp., a Palatine-based electrical equipment company.
Time and greed took their toll, and by 1989, the M&A business was beginning to fall off. The collapse of Michael Milken`s junk-bond market and other factors caused Skadden, Arps` M&A practice to plummet by a full 10 percent in one year. The bubble had burst, and lesser companies might have panicked. But it was here that the resourcefulness of Skadden Arps truly showed itself. The firm can sniff out money the way a French pig locates truffles. On Jan. 1, 1990, the partners announced a completely new department of specialized practice. Called the Restructuring and Reorganization Group, a team of 75 Skadden attorneys-including 14 from Chicago-devotes its full time to helping companies in bankruptcy or Chapter 11 to revamp their holdings and corporate anatomy to make them lean and viable. It also helps troubled firms restructure their debt to enable them to avoid filing for protection from creditors.
Many corporations are sick because of the recession. They cannot get credit from shaky banks in order to finance deals or the sale of assets. But other firms are blatant casualties of the rampant M&A activity that made Skadden so rich. Now Skadden has found a way to get even wealthier by patching up companies ruined by the ravages of M&A.
In other words, having helped create a number of commercial invalids, Skadden was now about to go into the doctoring business.
”Yes, we are definitely working the other side of the street now,”
Whalen owns up. ”We are very opportunistic. We really try to stay ahead of the curve.”
Eternally vigilant for the main chance, Skadden has been actively involved in virtually every airline restructuring of the past several years, including the pickover of Braniff, the selloff of Pan American routes to United Airlines and the acquisition of Eastern Airlines. Its role has ranged from representing companies such as Southland Corp., Ames Department Stores and Carter Hawley Hale Stores Inc.; creditors such as General Electric Capital Corp., which was owed $500 million by Eastern Air Lines; trustees such as those in the Cardinal Enterprises case in Columbus, Ohio; or senior financial institutions, such as Heller Financial.
The firm is currently representing the Big Three auto companies in an attempt to revive a critical-parts distributor that supplies 80 percent of American automakers and whose demise would have the ripple effect of shutting down part of Detroit`s operating lines. It also represents the Bank of New England, which has been taken over by the Federal Deposit Insurance Corp.
Jack Butler, 35, who heads up R&R for the Chicago and Boston offices (on the road three days a week, he ran up 750,000 miles in frequent-flier points last year) claims to be emotionally affected by the work he does. ”It raises a lot of feelings,” he says. ”When you are involved, like I was, with the failure of one of the largest paper mills in the country, you could not help but see the number of people who were thrown out of work. The human element of observing such people with family needs and medical needs bothers any turnaround professional. But we were eventually able to get someone to buy the company, and most people came back to work.”
A shockwave rumbled through the Chicago legal community seven years ago when the six partners debarked from Mayer, Brown & Platt and set up their own shop. On the day it opened for business, Skadden`s Chicago office already had an estimated $4 million in annual billings from the clients the partners brought with them from Mayer, Brown, including JMB Realty (the nation`s largest real estate syndicator), Inland Steel, Continental Illinois National Bank and Trust Co., Charles H. Shaw Co. and First Boston`s Chicago office.
Joining Whalen, a public-finance specialist who carried Continental over with him, were John Schmidt, a real estate specialist who did a great deal of work for JMB; Mulaney; Art Rollin; Christopher Kell (now in the New York office); and Karen Hedlund (now in the Los Angeles office).
Says Schmidt, ”To say it was boring at Mayer, Brown is too strong a word. But we did see that Skadden was taking a lot of the most interesting legal business away, or, where there was a deal to be made, the participants were going to Skadden. Rather than bemoan that we weren`t engaging in the most stimulating practice, the idea of joining Skadden became very attractive. Today we have the most exciting law practice in the world.”
Schmidt, a Harvard graduate who carries himself stiffly but can quickly exchange his dour expression for a flashy grin, is one of the office`s premier M&A specialists. Like Whalen a political enthusiast and liberal, he was chief of staff during the first 80 days of Mayor Richard M. Daley`s first term and was instrumental in winning the independent lakefront vote for Daley.
Schmidt and Daley have had a long friendship dating back to Daley`s days in the state legislature when Schmidt was active in trying to generate mental- health reform. ”We`re not a political firm,” he notes, ”but I don`t think it is a negative thing for the firm to have a close working relationship with the mayor.”
Going further back, Schmidt wrote the speech Jesse Jackson delivered at the 1972 Democratic Convention. From 1974 to 1976, he was president of the Chicago Council of Lawyers, and in 1989 he was named chairman of the Metropolitan Pier and Exposition Authority, which is responsible for redeveloping Navy Pier and operating McCormick Place. He is also a trustee of the Chicago Symphony Orchestra.
In the years since, the Chicago office was founded, it has diversified broadly. It has become quite strong in patents, stock offerings, mutual funds, public finance and, particularly, in litigation and product liability. It was one of two firms that represented Jewel Food Stores in settlements related to the salmonella poisoning case of several years ago.
Along the way it has picked up such clients as Ball Corp., First of Chicago, Metropolitan Life, Dai Chi Congo Bank, Quaker Oats, Sara Lee, Abbott Laboratories, Baxter Travenol, GATX Corp., R.R. Donnelley, American Stores, Citibank, Merrill Lynch, Prudential Securities, Goldman Sachs, Anheuser Busch and Paine, Weber, Morgan Stanley.
No one would argue that in terms of sheer volume of legal business, Skadden`s Chicago office comes anywhere near competing with the city`s biggest law firms, such as Sidley & Austin, Baker & McKenzie, Winston & Strawn or Kirkland & Ellis. But in terms of handling important legal matters for exacting clients in return for spectacular fees, Skadden is at or near the top of the list in anybody`s rankings.
And it has done it all in only seven years.
Among the stars who have joined Skadden`s local office since its inception is Susan Getzendanner, the first woman to be appointed a federal judge in Illinois. Getzendanner, who left the bench after seven years to go to Skadden in 1987, is engaged in litigation of cases involving bankruptcy, racketeering, patents, cleanup of the environment under the federal Superfund and questions involving constitutional and takeover law.
”To grow the way this firm has is a phenomenon,” Getzendanner, 48, says. ”I`m the second oldest person here. When I go to a firm dinner dance, I feel like I`m the chaperone. We have so many 20- and 30-year-olds. You just don`t have this accent on youth at other firms.”
Getzendanner says the firm treats women and men ”equally badly.”
”If there is a trip to New York to make, we don`t draw a distinction between a man and a woman or a woman with a baby. There is a lot of traveling in this job, and you can`t give a woman a pass.” On the other hand, she notes, three of the 18 Chicago partners are women, and they do financially as well as the male partners.
(The firm, despite its claim of aggressively recruiting minorities, has no black or Hispanic partners locally and only six minority partners worldwide. It recruits heavily from top law schools such as Harvard and the University of Chicago and consistently snares the highest-ranked people in their class).
When she retired from the judiciary, Getzendanner vigorously denied it had anything to do with money. She has become much more candid, however, about the subject. ”Looking back over 3 1/2 years, money did have something to do with it,” she admits. ”I wanted to make a nest egg for my children and my children`s children.”
A visitor responds, ”Still, I presume you didn`t come to Skadden because they pay so much.”
”I didn`t?” she says. ”Don`t make me out to be a candidate for sainthood.”
She takes a pull from a black coffee mug. The firm, in a desire to strike a blow for the environment, has banned paper cups and issued everyone a corporate mug. ”Lawyers have been incredibly well-situated,” she muses.
”For some reason, society has decided to compensate lawyers overly, like baseball players. There`s no reason we should be making more than a philosophy professor.”
As a partner, Getzendanner is clearing more than $1 million annually. To earn it, however, she works a brutal 70-hour week, traveling frequently-an ordeal because she has claustrophobia and fears flying. She is so busy these days, she laments, that she has not had time to draw up her own will.
One consequence of the backbreaking schedule at Skadden, Arps, insiders say, is that the divorce rate is quite high among partners and associates. Nevertheless, many of the marriages-particularly those in which both mates are lawyers-are extremely stable. Not the least of these is the 21-year union of Whalen and Paula Wolff, who was a chief policy advisor to former Gov. Jim Thompson for many years and recently was in the headlines when she attempted unsuccessfully to win the chancellorship of the University of Illinois.
Whalen recalls when Wolff started working for Thompson, they had two small children. Wolff would spend three nights a week in Springfield, and Whalen admits, ”I couldn`t cope.” The solution was for Wolff to start commuting each day.
”She never complained once we did the deal,” Whalen says. ”I gave her love, affection, toleration-plus I let her work for a Republican.”
The worst thing about flying to Springfield, Wolff used to tell her husband, is that if the plane goes down, ”your obituary appears along with a bunch of scuzzballs.”
It is getting late in the day. Soon, the receptionists at most of the city`s law firms will head for home. Skadden, Arps, however, keeps its staff on 24 hours, so that a phone call will always raise someone.
Whalen is leading a small tour of Skadden, Arps` compact but harmoniously attractive offices. He leads the way into a locked room that holds a battery of computer, fax-machine and communications firepower that would make a defense official envious. A bank of gleaming copying machines stands against one wall, where staff members are tirelessly running off copies of documents, in triplicate, quadruplicate, in numbers untold.
”We makes dupes of everything in case there`s a nuclear attack,” says Whalen. ”The deal,” he says, ”must go on.”
