When Genius Failed: The Rise and Fall of Long-Term Capital Management

by Roger Lowenstein

Apart from CBS, Long-Term’s biggest position was MCI Communications, which in 1996 agreed to be acquired by British Telecommunications. Both CBS and MCI had to clear regulatory thickets, and each deal dragged on for longer than expected. In the case of CBS, Long-Term continued to snap up shares even when CBS stock had inched to within 62 cents of the deal price. Long-Term’s leverage on the trade was 20 to 1—without its having any specialized knowledge of the merger. “You’re picking up nickels in front of bulldozers,” a friendly money manager warned Rosenfeld, alluding to the risk that one deal or another would collapse. Eventually the CBS merger was completed, which only emboldened Long-Term to do more such trades. Its portfolio would grow to thirty deals.