The time the CEO trumped the securities analyst

Lost among the unceasing barrage of news media coverage of Donald Trump is his tenure as the CEO of a publicly-traded company and its predecessors.  In July 1987, over a year after James Crosby, the CEO of Resorts International, died unexpectedly, Donald Trump prevailed over other bidders to purchase a controlling stake in the company from Crosby's family for $79 million.  (Crosby's transformation of Mary Carter Paints into Resorts International is a fascinating corporate makeover story.)  Mr. Trump already owned two Atlantic City casinos and asserted that he would complete Resort's massive casino in about a year.

Originally slated to cost $250 million, the budget to construct the Taj Mahal swelled to $930 million.  Early in 1988, with the company having difficulty lining up funding to complete the project and reporting that it was nearing bankruptcy, Mr. Trump made a $22 tender offer for the company.  Famed TV producer Merv Griffin topped Mr. Trump's bid sparking a takeover battle and the filing of countersuits.  The two reached a settlement in 1988 by which Griffin purchased the company for $365 million and Trump purchased the Taj Mahal from the company for $273 million.

Securities analyst Marvin Roffman of Philadelphia-based brokerage Janney Montgomery Scott had been following Mr. Trump's new entity since 1988 when it issued $675 million in junk bonds at a 14% interest rate to complete the construction of the Taj Mahal.  Almost from the outset, Mr. Roffman was negative on the bonds, doubting that the casino property could generate sufficient revenue to maintain interest payments on the bonds.  Nonetheless, the buzz surrounding the project and Mr. Trump's name - not to mention his publicists who crowned it the "Eighth Wonder of the World" - pushed the bonds' price to a premium in early 1990.

However, the bonds' price had already started downward when, on March 21, 1990, the Wall Street Journal ran a story in which Mr. Roffman commented on the looming opening of the Trump Taj Mahal.  Particularly fateful was his quote in the piece: “When this property opens….he [Trump] will break every record in the book in April, June and July. But once the cold winds blow from October to February, it [the Taj] won’t make it…the market just isn’t there.”

Not long thereafter, Mr. Trump sent a letter in protest to Norman T. Wilde Jr., president and CEO of Janney Montgomery Scott, to express his displeasure with Mr. Roffman's comments.  Mr. Trump reminded that he had sprung to the defense of Mr. Roffman after the analyst noted reservations about the Mirage casino in Las Vegas built by Golden Nugget Companies, now part of MGM Resorts International (MGM), and whose CEO Steve Wynn had taken umbrage at the assessment.  Mr. Trump said Mr. Roffman had a reputation among gaming industry proprietors as a "hair-trigger" and that the analyst was “somewhat unstable in his tone and manner of criticism.”  And for the capper, “I am now planning to institute a major lawsuit against your firm unless Mr. Roffman makes a major public apology or is dismissed,” said Mr. Trump.

After acquiescing to Mr. Trump's demand by submitting a deferential letter of apology to Mr. Trump and then retracting it after learning Mr. Trump planned to publish it, Mr. Roffman was unceremoniously terminated by his employer. On April 2, 1990, the day the Taj Mahal opened for business, legendary Barron's editor and columnist Alan Abelson waded into the matter to recount the chain of events in a cover story for the finance sector's must-read weekly.  His incomparable sardonic wit set the tone for the ensuing unflattering coverage of the story.  On the bright side, Michael Jackson showed up to help celebrate the Trump Taj Mahal's opening.

By the time Mr. Roffman was fired the bonds were trading in the 80s and declined into the 20s after the entity that owned the Taj Mahal defaulted on its first interest payment in October 1990.  The company filed a Chapter 11 bankruptcy in the spring of 1991.  In 1995, Mr. Trump established a new publicly-traded company, Trump Hotels and Casino Resorts (ticker THCR, delisted in 2007), which purchased the Trump Taj Mahal at a valuation of $890 million.

Of course, Mr. Trump was not the first CEO or CFO - nor will he be the last - to dispute an analyst's unfavorable assessment of his company's prospects.  Exhibiting his trademark aggressiveness, however, Mr. Trump pushed the envelope as is his wont.  Unavailable at the time, mind you, was tweeting to vent his frustration real time, since Twitter (TWTR) was not around yet.  In contesting an allegedly erroneous evaluation, most execs, reluctant to risk the backdraft, refrain from such heavy-handed tactics, which would seem advisable. 

Robert Stead