What It Takes: Lessons in the Pursuit of Excellence

by Stephen A. Schwarzman

you don’t want the cash, I’m going to substitute a private issue, PIK [payment in kind, i.e., not cash] preferred stock with no maturity date.” What this proposal meant was that he could either take the cash, or we were going to turn his asset into a serious liability. If he wanted to take CSX hostage, I was going to do the same to him by using the tender offer to force a merger and freeze him out. His preferred stock wouldn’t be listed on any exchange, so he wouldn’t be able to sell it easily. It would also be junior to corporate debt in the capital structure, so if anything went wrong, he wouldn’t get paid until after the creditors. And with no maturity date, he would never even have a chance to redeem his stock because it would never come due. He would just be stuck holding stock that generated ever-increasing tax bills for the indefinite future. The proposition was detestable and highly unusual.