Other People's Money
By David Henderson
I was talking to a friend the other day about good movies that drive home basic economics. One of his favorite was Other People’s Money, starring Danny Devito as Lawrence Garfield, Gregory Peck as Andrew Jorgenson, Penelope Ann Miller as Kate Sullivan and Piper Laurie as Bea Sullivan. One scene that many economist friends have pointed to as their favorite scene–and it’s mine too–is the scene where Garfield, aka Larry the Liquidator, makes the case to stockholders that they should sell to him. This is the scene. My favorite line: “I’m not your best friend; I’m your only friend.”
But I told my friend that I actually like better the play by the same name on which the movie is based. It’s by Jerry Sterner. Instead of Lawrence Garfield, the main character is named Lawrence Garfinkle. I’ll leave it to the reader’s imagination why Norman Jewison or his screen writer changed the name.
One scene that’s really good is where Garfinkle is kind of a one-man Greek chorus listening [this is easy to do on stage] as lawyer Kate Sullivan explains to company chairman Jorgensen, his long-time assistant and friend (and Kate’s mother) Bea Sullivan, and company president William Coles about how to save the company from being bought out by Garfinkle. He comments with some moral outrage about some of the nasty things Sullivan suggests that are well-known strategies for the anti-takeover crowd.
Here it is:
Kate: We can formulate a “shark repellent.”
Bea: Come again?
Kate [the play gets it wrong, attributing this to Bea.]: The purpose of a “shark repellent” is to make yourself undesirable to an unwanted suitor, i.e., shark.
Bea: How would that work?
Garfinkle: Listen close. It’s an education.
Kate: Take the most attractive part of the company–in this case I assume it’s the non-wire and cable divisions–give someone, anyone–the option to buy that part of the business for a song. The option only gets triggered if and when anyone not presently on the Board acquires thirty per cent or more of the company’s stock. Garfinkle buys more shares, the option gets triggered. He now owns a lot of shares that are worth considerably less than he paid for them.
Jorgenson: So do we. So do all the stockholders.
Kate: That’s the risk. The hope is that the shark will go elsewhere to feed.
Garfinkle: Ingenious, isn’t it? Next.
Garfinkle: Mah man!
Kate: We could create a poison pill. It’s a form of shark repellent, but one you might find more acceptable. Get the Board to authorize three million shares of preferred stock, one share for each share held by Garfinkle. If he gains control of thirty per cent or more, issue them for, say–a dollar a share.
Jorgenson: A dollar a share!
Coles: What a great idea. We’d make Garfinkle’s shares worth less. We’d dilute them.
Jorgenson: We would be diluting ours as well. Book value and earnings per share would be halved.
Kate: Exactly. Once you swallow the poison pill you’re no longer desirable. But you can still keep your business. To most everyone nothing has changed.
Garfinkle: Except the stuckholder. [Throughout, Garfinkle refers to stockholders as “stuckholders” because they are stuck with the various kinds of restrictions that regulations impose.] People get paid big money–honored people–pillars of the community–to sit and dream this s**t up. You know what I said when I first heard it?
Jorgenson: That’s legal?
Garfinkle: That’s what I said.