Mike Milken's legendary Wall Street career began in 1969 when he joined the firm that would become Drexel Burnham Lambert. Having completed in-depth studies of financial history and credit at the University of California, Berkeley, and of corporate capital structure at the Wharton School of the University of Pennsylvania, Milken concluded that the key to institutional competitive success on Wall Street was research. This was an inversion of the pyramid at most firms where sales was valued most - followed by trading, with research at the bottom. This belief was the foundation for his financial revolution, which helped build America's current industrial and commercial infrastructure. Simply stated, Milken believes that capital structure deeply matters. The choice of capital structure can significantly affect a company's valuation and its investment risk. Over the span of two decades, Milken financed more than 3,200 companies that became engines of job creation, beginning with his very first transaction, which helped assure Boeing's market leadership through the rest of the century.
Starting in Drexel's fixed-income research department, Milken eventually assumed responsibility for a wide range of financing. He used more than 50 types of securities in 14 asset categories to provide customers with a full range of debt and equity services to match their capital-structure needs. By 1976, he had established unrivalled credibility and trust by building up the quality of Drexel's debt research: The financial theories he developed in the 1960s had been proven in the world's markets.
Milken didn't simply oversee a variety of departments in his work at Drexel. He and his colleagues created what is today a major part of the structure of global finance based on their financial innovations in the 1970s. This structure - now taken for granted and taught in business schools globally - powered job growth in America for a quarter-century and is now moving around the world through the efforts of the Milken Institute.
The concept of "financial innovation" has sometimes been cited as a contributing factor to the market disruptions of 2008-2009. However, as Milken pointed out in a series of 2009 articles, innovation wasn't the cause of the problems - it was the misuse of innovation through "a combination of excessive leverage in real-estate-related financial instruments, a serious lowering of underwriting standards, and ratings that bore little relationship to reality." Read his Wall Street Journal article "Why Capital Structure Matters." And for his fundamental view of corporate finance, see "The Corporate Financing Cube."
Milken's most important work was financing entrepreneurs who had good ideas for building companies that became significant engines of job growth. Based on his studies during the 1960s and his practical experience in the 1970s, Mike was determined, first, to focus on cash flow rather than reported earnings; and second, to consider human capital part of the balance sheet. He transformed entire industries where smaller players simply did not have access to capital until he provided it. In home building, which employs millions of people directly and through subcontracting, Milken financed KB Homes, now the largest company in the industry, as well as Toll Brothers, MDC Homes, Oriole Homes, U.S. Home (now Pulte) and many others. These are companies that literally built the American Dream.
In entertainment, TCI (Liberty Media), Viacom, Time Warner,Cablevision, Telemundo and Metromedia were all Milken-financed. The toy industry: Toys-R-Us, Mattel, Hasbro and LeapFrog. Hospitality: Hilton, Days Inn, Holiday Inn, Mirage Resorts (Wynn), MGM and others. Convenience stores: 7-11 (Southland Corp.) and Circle K. Health: Medco and Humana.
Safeway is a company with 200,000 employees in almost 1,800 stores across the U.S. and Canada. Those employees can thank Milken for helping build the company that provides their paychecks. His financing was crucial to Chrysler when it most needed capital to stay in business and grow in the early 1980s. The cable television industry would not be in four-fifths of American homes today if he hadn't financed several of its major companies. Occidental Petroleum wouldn't have jobs for its 8,000 current employees without Milken.
Cellphones are in just about everyone's pocket today. The industry started in the early 1980s when Milken financed a small company called McCaw Cellular Communications.
Another way to look at the impact Milken has had is to consider just one state. The economy of Nevada was kick-started when Milken financed its gaming industry, newspapers and homebuilders. The rule of thumb in the gaming industry is that every job created within the industry creates more than three additional jobs in the local economy. By that measure, his financing of MGM Mirage, Mandalay Resorts, Harrah's Entertainment and Park Place accounts for some 600,000 jobs.
Milken was also a pioneer in providing access to capital for minorities and women. In the early 1980s, he received hate mail - even a death threat - for financing African-American entrepreneurs such as Reg Lewis. Before Milken, no woman had ever headed a publicly traded company that she had not inherited; Milken was the first to finance such a company.
Among other companies Milken financed: AMC Entertainment, Bally's Manufacturing, Barnes & Noble, Beatrice, Caesars World, Calvin Klein, Chiquita Brands Int'l, Danaher, Duracell, Filene's Basement, GAF Corp., General Host Corp., Kay Jewelers, Knoll Int'l, MCI, Mellon Bank, Philadelphia Electric, Playtex, Sunshine Mining and Uniroyal Goodrich.
The effects of Milken's financing revolution - and the jobs it created - are sometimes overlooked amid heated accounts of 'takeovers' by so-called 'raiders' during the 1980s. Read more about the actual effects of takeovers.
To read more of Milken's articles on finance, click on Articles above.