DEALS I

In his bid for Norton Simon Inc. David Mahoney nearly pulled off the biggest deal of its kind. What's he plotting now?

DAVID Mahoney, the sixtyyear-old former chairman and president of Norton Simon Inc., has it all, it would seem. A profile known to millions from his Avis ads. Pete Rozelle and Halston for pals. A stunning wife. A $38 million settlement from N. S. I. And the best table at “21.”

So why is he here in a suite of offices forty-eight floors above Fifth Avenue, still returning phone calls at six o’clock on a Friday—when employed tycoons are halfway home to Darien? Why isn’t he enjoying [a dolce vita in his Manhattan coop, his Jamaica villa, his converted barn in the Hamptons, his house in Palm Beach?

Something is going on here: there is the ozone smell that comes from a business deal in the making. Mahoney’s desktop Economist diary is filled with appointments; the phone rings incessantly. His offices are opulent, but he obviously doesn’t intend to stay long. Not a single personal picture hangs on the walls, no books fill the shelves.

A year ago, David Mahoney was at the pinnacle. He had built Norton Simon Inc. into a $3-billion-a-year conglomerate comprising such companies as Max Factor, Avis, Halston Enterprises, and Hunt-Wesson Foods. In 1982 its profits reached $107 million. On June 6, 1983, Mahoney made the strike that, in effect, would have changed Norton Simon Inc. into David Mahoney Inc. (although he sincerely insists he would never have changed the company ’ s name, out of deference to its founder). He offered to buy the company from its shareholders, to take it private, for the impressive figure of $725 million, and to assume nearly $1 billion in debt. But he lost N.S.I. to another suitor, Esmark, which offered six dollars a share more than Mahoney had. “At $35.50 a share (the final Esmark price], it was a good deal for the shareholders,” says Mahoney, “and that was the most important thing tome.”

In many ways, it was a good deal for Mahoney too. He soon parted ways with his new employers, collecting $12 million for the balance of his contract and $26 million for his stock and stock options.

Skeptics carp that Mahoney never intended to buy N.S.I., that he was merely a brilliant tactician ready to cash in his chips, and that he made an offer merely to attract another buyer—in Wall Street parlance, to ‘ ‘ put the company into play. ”

“Nonsense!” explodes Mahoney. “They don’t know what they’re talking about. Norton Simon could always have been bought by anybody willing to pay the price.”

He views the bid to take N.S.I. private as a safe bet that he somehow lost. “Of the five hundred largest companies in America, I figured there was only one that could go after N.S.I., and I gambled that they wouldn’t. Those were 499-to-l odds, and they looked good. ’ ’

It was nearly the biggest deal of its kind ever. In the 1970s, Mahoney promised and delivered annual profit gains of 15 percent, and N.S.I.’s stock price soared. But in recent years N.S.I. shares had been underpriced. The reason, in Mahoney’s opinion, was that Wall Street didn’t appreciate that he was managing the company for cash flow, not annual profit gains. While the stock price languished, he took advantage of the situation by using N.S.I.’s own money to buy shares in at bargain prices. So when he launched his blitzkrieg on N.S.I., he had already repurchased about half of the outstanding shares, and those that remained were not expensive.

Mahoney was surprised and stung by the critical reaction to his strategy from parts of the financial community and business press. “What we were doing was no deep secret,” he protests. “Every time we bought a million shares, it was in the newspapers for everybody to read.” And, in fairness, the strategy of buying back N. S. I. ’ s underpriced shares had often been urged on Mahoney by shareholders.

“If you’re going to criticize me for anything, accuse me of trying to steal the company,” bristles Mahoney. “I knew my initial offer was too low, and I figured I’d have to raise it, maybe to thirty-two or thirty-three dollars.”

In the aftermath, Mahoney would like you to think he is uncertain about his plans. He dodges direct questions about his strategies and goals, seeming to answer them but saying nothing. He mentions retirement.

Yet experienced Mahoney watchers see a man who is close to mounting the deal that will catapult him back to the top. Like a good general, Mahoney is a master of secrecy and surprise; the quick thrust and the unexpected move are his trademarks. The most he will say is: “I’ll have some real news for you soon.”

But, again, why should he bother? True, the tax man took a major slice of his $38 million golden good-bye, but what’s left is enough to live comfortably on, even in the limousine-andLearjet set, without the long, brutal hours as chief executive of a company.

Part of the answer is the drive that took this son of a construction worker from a childhood in the Bronx during the Depression to the chairmanship of N.S.I. But, for Mahoney, merely living well is not the best revenge: he needs vindication. He is competitive, and he begrudges the winners their prize.

Mahoney wants to be back in the game. The odds that he will be—perhaps even by the time this appears in print—are a better bet than his 499-to-1 shot at N.S.I.

Donald Rosendale