John Kluge

This part will be about John Kluge. It was challenging to research because there isn't much information about him out there. I might consider doing an extra series where I only talk about the M&A guys from the '70s, '80s, and '90s, as mentioned in the book "A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A.

John Kluge was born in 1914 in Chemnitz, Germany. After moving to the US in 1922, he obtained his economics degree from Columbia in 1937. During World War II, he worked at an interrogation facility outside Washington. His first job was at a Ford assembly line.

Kluge started his career when he founded the Maryland radio station WGAY for $15k. After that, he began by acquiring stock in the Metropolitan Broadcasting Corp in the mid-50s. Until 1958, he joined the board and became the largest stockholder after purchasing $6M in stock from the founder. In 1961, he gained control of the company and renamed it Metromedia. In the following years, he started acquiring over 200 businesses, including billboard companies, telephone systems, Fritos corn chips, the Ice Capades, the Harlem Globetrotters, Radisson hotels, and Bonanza steakhouse chains

In 1984, he wanted to delist the company to eliminate the strong regulations of the agencies. He turned to Marty Lipton, a famous lawyer who proposed to him a leveraged buyout of his own shares. He borrowed $1.3B from 10 banks and proposed a $40 per share offer, with $30 in cash and a $10 debenture. The stockholders voted in his favor, and he made $115m in cash and stock, while his ownership stake rose from 26% to 75.5%. Due to the high amount of debt, his next interest payment would be $200M in 1985. He likely had to sell some assets. Now, Drexler Company helped him. They refinanced his debt by issuing four kinds of junk bonds worth $1.35B. You might ask, won't this increase his interest payments? No, these bonds were zero-coupon bonds, so he did not need to pay any interest to the creditor. He took the proceeds of this issuance to pay the bank debt. He was betting that his businesses were making money faster than the maturity of his junk bonds, where he needed to pay the full face amount coming up.

In 1985, during Mike Milken's Predators' Ball, Kluge and Rupert Murdoch negotiated the sale of his Washington, DC, Houston, Dallas/Fort Worth, Los Angeles, and Chicago TV stations. Kluge demanded $1.05 billion. Altogether with the New York stations, Kluge sold them to Rupert Murdoch's Fox Television for $2B. In 1986, he further sold some of his businesses for $0.5B. He also sold some properties he had bought in 1983 for $300M to Southwestern Bell for $1.65B in 1986. What you have to grasp is that he bought back the shares from the public in 1984 for $1.3B while, two years later, being worth himself $7B after selling the assets. He basically got Metromedia at a 6x discount.

John Kluge was now the richest man in America, owning the biggest house. Guests like Phyllis Wagner, Norman Lear, Paul Anka, Tony Bennett, and Ivana and Donald Trump attended his wedding to his new wife, Patricia Rose Gay. In his later years, he contributed significantly to philanthropy. There was also controversy about John Kluge due to employees of his estate killing protected animals. He remarried again and died in 2010 at his home in Virginia

Much of the information is taken from the book A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A

Thanks,

Finn