Financier gives in rather than reply to shareholder suit

September 18, 1992|By Neil Roland | Neil Roland,Bloomberg Business News

MIAMI BEACH, Fla. -- On Aug. 24, a defiant Victor Posner strode to the stand in a Cleveland courtroom to face for the first time the shareholders who sued for his ouster.

The white-haired, black-suited chairman of DWG Corp. responded to 97 questions by reading a prepared statement invoking his Fifth Amendment right to remain silent lest he incriminate himself. At the end of the day, the judge indicated he was going to order the Baltimore grocer's son to answer questions the next time he took the stand.

There was to be no next time.

Overnight, Mr. Posner ordered a speedup in negotiations to sell his stake in DWG, the Miami Beach company that owns Royal Crown Cola Co. and Arby's Inc. With court hearings suspended, Mr. Posner raced to put together a deal to end his 26-year reign atop the conglomerate that he built up from a small-town Ohio cigar factory.

In the space of two weeks, the imposing chairman who many thought would never go without a struggle had voluntarily agreed to resign from DWG, sell his 46 percent ownership stake in the billion-dollar company and pay $10.7 million to settle the shareholder suits.

"He saw the odds shifting against him," said lawyer Richard Kerger, one of three court-appointed directors of the company.

If Mr. Posner had taken the stand again, the 74-year-old executive would have faced the prospect of questions about the truthfulness of the deposition he swore to before the trial began. Frances Floriano Goins, a shareholder's attorney, said she intended to ask Mr. Posner about his use of the company yacht and whether he had company employees perform maid service at his home.

A court-ordered audit found that Mr. Posner owed DWG $500,000 for the private use of the yacht and the employees, Ms. Goins said. Mr. Posner denied the charges in his deposition.

The momentum against Mr. Posner had been building for months.

In February, U.S. District Judge Thomas Lambros suspended Mr. Posner as chief executive, an order that was stayed pending appeal. The judge, while praising Mr. Posner as a "rugged individualist," added: "He just takes and takes and takes, hundreds of thousands, millions of dollars, millions of dollars under the auspices of 'salary.' But as I see it, it really is his dividing the pie entirely to himself . . . a dividend only to himself and not to the shareholders."

Judge Lambros also was due to consider the sealed reports of the three attorneys he appointed to the DWG board to represent shareholders. They found that Mr. Posner had received $31 million in salaries and bonuses during the past five years, an average of $6.2 million a year, while DWG earned a total of $26 million.

One of the attorneys' reports that was recently unsealed faulted the chairman's lavish spending at a time when employees were subjected to a five-year pay freeze. Mr. Posner spent $500 a day, seven days a week, on meals at expensive Miami restaurants, billing the expenses to the company, the report said.

"This company is hemorrhaging cash, and its board of directors doesn't care," the panel's report said. It compared the board to an audience at a revival meeting. "Mr. Posner is the preacher, and his relatives and other hand-picked directors respond 'Amen' to his every statement."

The panel was unsparing in its recommendations. It called for the suspension of Mr. Posner and his son Steven, who was DWG's vice-chairman. It suggested the appointment of a receiver to run the business. And it recommended that Mr. Posner return $24 million to DWG and have his 12-million-share stake in the company frozen and placed in a trust.

The deal Mr. Posner worked out was more accommodating. He is to resign, but Steven, who received $665,000 last year, is to stay on as vice-chairman. The elder Mr. Posner is to sell half his 12 million shares for $71.8 million to a New York group headed by Nelson Peltz, who has a reputation for turning companies around. And Mr. Posner is to exchange the remaining shares for non-voting, preferred stock in DWG.

Mr. Posner wanted more. During negotiations, he sought a consulting arrangement with DWG that would pay $1 million a year for five years. The market reacted to the deal by pushing DWG shares to a 52-week high of 12 1/8 on Sept. 3 in unusually heavy trading.

The DWG stock began a steady climb Feb. 14, when Judge Lambros suspended Mr. Posner as chief executive. Shares rose from 4 5/8 the day before to 5 3/8 and continued to rise.

The new owners, Trian Group L.P., aren't saying what they have in mind. They still have to get the deal done, which is expected to take place by the end of the year.

"This is a company we've had an interest in for a long time," said Leon Kalvaria, a Trian spokesman.

As for Victor Posner, he has rarely talked publicly and isn't starting now. He's had to adjust to a groundswell of criticism and challenges to his authority in the last year. And indications are that the adjustment hasn't been a smooth one.

At a January board meeting, for instance, he had to contend with challenges from the three court-appointed directors. Their report that month says Mr. Posner lashed out at questions about his salary. "Without me, there is no company," he said.

What's in store for the blustery entrepreneur? Said Mr. Kerger, a litigation and corporate attorney from Toledo, Ohio: "Victor Posner is a stubborn, bright capitalist who really doesn't care what anyone else thinks. He's entitled to sit back now and put his feet up and relax. But I wouldn't be out preparing a tombstone for him."

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