Highest-Stakes Poker

When the price of Cities Service Co. stock tumbled last week, no one felt the pain more than the small band of risk arbitragers. These quintessential Wall Street risk takers buy shares in a firm soon after a takeover bid is announced, in the hope that they can resell the stock to the acquiring company at a much higher price when the deal is finally concluded. Risk arbitragers made estimated profits of about $200 million last year on Conoco stock when it was sold to Du Pont. Ivan F. Boesky, 45, is said to have made at least $40 million on the Conoco takeover.

Not every announced merger is completed, however. Some 21% of them failed in 1981 because of antitrust objections or various corporate complications. When that happens the stock price usually plummets. Last week Wall Streeters speculated that the Ivan F. Boesky Corp. could be holding losses of $25 million to $50 million on Cities Service. Boesky was publicly unperturbed. Said he: "Since our firm is one of the largest arbitrage firms on Wall Street, our denominations are always large, whether a deal works out or not."

Such stomach-churning changes are commonplace to Boesky. Says one envious competitor: "For Ivan to lose $30 million is like someone else losing a few hundred thousand dollars." Last year, for instance, he made about $3 million when Allied Stores Corp. acquired the Garfinckel, Brooks Brothers, Miller & Rhoads Inc. department stores, only to drop an estimated $12 million on Delhi International Oil Corp. one month later.

At his headquarters in Manhattan's financial district, Boesky draws on a staff of 60 lawyers, bankers, accountants and M.B.A.s in making his investment decisions. Says fellow Arbitrager Carl Icahn: "Ivan has made as much a science of this game as you can make of it."

The son of a Detroit milkman, Boesky earned degrees in both law and accounting and worked for two brokerage firms before starting his own partnership in 1975. His first big success came two years later when he made an estimated $7 million in the takeover battle for Babcock & Wilcox Co., the electrical power plant manufacturer. Before last week's setback, he had parlayed a $4.1 million investment into a firm with assets of $300 million in less than two years. A stylish dresser, Boesky stays in shape for his 18-hr, workdays by playing squash or tennis four times a week. Says he of risk arbitrage: "If one is willing to work hard and can withstand the mental and physical pressures, there is probably no more exciting enterprise."

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