Saul Steinberg

Saul Steinberg (1939-2012) was a prominent American businessman and financier, best known as one of the most audacious and feared corporate raiders of the 1970s and 1980s. A prodigy who graduated from the prestigious Wharton School at the University of Pennsylvania, Steinberg built his empire from the ground up, starting with a computer leasing company he founded with his father's backing. He became famous for pioneering aggressive takeover tactics, including the leveraged buyout (LBO) and, most notoriously, greenmail. Steinberg's method involved identifying undervalued companies, acquiring a significant stake, and then threatening a full-blown takeover. This would often pressure the company's management to buy back his shares at a premium to make him go away, netting him a handsome profit. While his actions were often seen as predatory, they highlighted a key market inefficiency: many large corporations were poorly managed and their stock prices did not reflect the true value of their underlying assets. For value investors, Steinberg's career is a masterclass in asset valuation and a cautionary tale about the perils of debt.

Steinberg burst onto the scene in the 1960s, becoming a self-made millionaire before he turned 30. His company, Leasco Data Processing Equipment Corporation, was a pioneer in computer leasing. However, Steinberg had bigger ambitions than just leasing IBM mainframes. He had a brilliant eye for sniffing out companies whose assets were worth far more than their stock market valuation. His first major success—and a landmark deal in corporate finance—was the 1968 acquisition of Reliance Insurance Company. Reliance was a sleepy, old-line insurer with a massive portfolio of conservative investments. Steinberg realized that Leasco, a much smaller company, could use Reliance's own investment portfolio to finance the takeover. This was an early, and brilliant, example of a leveraged buyout. By using the target company's own assets to pay for its acquisition, Steinberg took control of a company ten times Leasco's size. This single move transformed him from a successful entrepreneur into a major Wall Street player, Wall Street's new enfant terrible.

After the Reliance deal, Steinberg became the master of a corporate shakedown tactic known as greenmail. The process was simple but effective:

1. Step 1: Identify a Target. Find a publicly traded company that is undervalued or poorly managed, often sitting on a pile of cash or valuable, underutilized assets.
2. Step 2: Accumulate Shares. Quietly buy a significant minority stake in the company, enough to get the attention of the board of directors.
3. Step 3: Rattle the Cage. Announce a hostile takeover bid or begin making public demands for a change in strategy, a board seat, or the sale of company assets.
4. Step 4: Get Paid to Go Away. In many cases, the frightened management team, fearing for their jobs, would offer to buy back Steinberg's shares at a price well above the market rate. This premium payment was the “greenmail.”

His most famous greenmail attempt was his 1984 run at The Walt Disney Company. At the time, Disney's stock was languishing, and its assets—from its film library to its theme parks and real estate—were vastly undervalued. Steinberg acquired an 11.1% stake and threatened a proxy fight to break the company up. In a panic, Disney's board paid Steinberg a premium of over $60 million to sell his shares and walk away. The move was controversial and infuriated other shareholders, but it was a textbook Steinberg play.

While Saul Steinberg was no disciple of Benjamin Graham, his career offers invaluable, if unconventional, lessons for the modern value investor.

Steinberg's entire strategy was predicated on a core value investing principle: buying assets for less than their intrinsic worth. He was a master of the sum-of-the-parts valuation, recognizing that a company's individual divisions, real estate, or intellectual property could be worth far more if sold off separately than the value the market assigned to the company as a whole. This hunt for a deep margin of safety by analyzing the balance sheet, not just the income statement, is a technique every value investor should master.

Steinberg was one of the earliest and most effective practitioners of what is now called shareholder activism. His raids, though hostile, often served as a powerful catalyst that forced complacent management to unlock value for all shareholders. The threat of a takeover often led to restructuring, asset sales, or share buybacks that benefited everyone, not just Steinberg. For investors today, identifying companies with lazy balance sheets that could become targets for activists can be a profitable strategy.

Steinberg's story also serves as a stark warning. His empire was built on leverage, and for years, it worked beautifully. Reliance Insurance became a holding company for his investments, but it became heavily invested in the junk bond market pioneered by Michael Milken. When the junk bond market collapsed in the late 1980s, Reliance suffered massive losses. Compounded by a lavish lifestyle funded by debt and a series of ill-timed investments, Steinberg's fortune evaporated. He declared personal bankruptcy in 2001. His downfall is a timeless lesson on the dangers of excessive leverage and the importance of risk management. For a value investor, avoiding ruin is just as important as generating returns.