Business Career
In 1961, at the age 22, Steinberg founded Leasco Data Processing Equipment Corporation, a computer leasing company that leased IBM computers. While at Wharton, Steinberg had written a paper about IBM Corp., and he had learned that IBM was charging premium prices to lease its computers. Steinberg discovered that he could offer computer leases that would undercut IBM's prices and still obtain bank financing for the entire purchase price of the computers by using the signed leases as collateral with lenders. Leasco grew rapidly, and in 1965 went public.
Leasco bid to acquire Reliance Insurance Company, a Philadelphia insurance company 10 times the size of Leasco. Reliance had been in business 150 years, having been established in 1817 to provide fire insurance. It was managed conservatively. Insurance companies have lots of capital, which is just what computer leasing companies need. Steinberg offered the Reliance shareholders a combination of convertible subordinated debentures and common stock warrants (rather than cash). Reliance management resisted but eventually capitulated, and Leasco was successful in assuming control of Reliance in 1968. Steinberg was age 29 when he took over Reliance.
In 1969, Steinberg attempted to take over Chemical Bank, then one of the nation's largest financial institutions. The attempt failed.
Steinberg became the CEO of Reliance, and he and his brother were the senior managers of Reliance for the next thirty years. Steinberg took on large amounts of debt during the junk bond era and grew, apparently by underpricing its insurance policies. The company paid out dividends to the shareholders, including the Steinberg family members as major shareholders, and paid Saul Steinberg large sums in compensation.
At Reliance, Steinberg hired dealmaker Henry Silverman, who would later become the CEO of HFS Inc. and later Cendant Corp. In 1986, while Silverman was at Reliance, he and Steinberg were involved in acquiring Spanish language television stations, and creating the Spanish-language media company, Telemundo.
In 1995, Steinberg had a serious stroke. He was forced to step back from management of Reliance. The leverage, low pricing on insurance policies led Reliance to financial problems. Management attempted to sell the company. Reliance Group negotiated a transaction to be sold to Leucadia National in 2000 for stock and the assumption of debt. However, this transaction fell apart in July, 2000.
Reliance filed for bankruptcy in 2001 and entered into a long process of liquidation. Steinberg was forced to sell his extensive art collection along with his 17,000 square-foot, 34-room duplex apartment at 740 Park Avenue in Manhattan, which was bought for $37 million by Stephen A. Schwarzman of the Blackstone Group.
Read more about this topic: Saul Steinberg (business), Background
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