The Insurgent

While windsurfing in San Francisco Bay one day in 1992, Barry Rosenstein '81 felt something in his neck and upper back. He went home and didn't think much about it--until he woke up in the middle of the night, screaming in agony and unable to move the upper left side of his body, including his left arm and fingers.

It turned out that I had completely ruptured four disks in my neck and back, and I'd suffered severe nerve damage, says Rosenstein, founder and managing partner of the multibillion-dollar hedge fund JANA Partners LLC.

After first being told he would need immediate, emergency surgery or face permanently losing use of his left arm, Rosenstein visited a number of physicians and specialists before finding one who instead recommended a grueling regimen of physical therapy, relearning everything from how to sit and stand to how to walk.

At the suggestion of his physical therapist, Rosenstein took up yoga, and he says that decision helped cure him and changed his life. He has since searched out and studied with yoga teachers all over the world.

Eighteen years later, it's just a part of my life, Rosenstein says. I do two-and-a-half hours of yoga, six days a week. I don't think it's just a coincidence that over time, my business got better, my marriage got better, my everything got better. It keeps me in shape, and it keeps me in check mentally. It's a touchpoint every day, and it's a discipline that forces you to slow down and breathe and then be in touch with yourself and your body. I can't imagine ever not doing it. It's done wonders for me.

The experience taught him an invaluable lesson: What looks like the worst thing that could happen to you in your life can turn out to be the best thing. You just don't know it at the time.

That realization has guided Rosenstein through the ups and downs of a colorful career that has seen him start over more than once, while rising to heights that--for a middle-class guy growing up in West Orange, N.J.--are unimaginable: a spot on the 2007 list of the Forbes 400 Richest Americans, as well as on the 2008 Forbes World's Billionaires list.

To me, it's kind of amusing the kind of life I live today because I didn't even know this life existed, Rosenstein says. The son of an accountant whose biggest clients were a local bar and gas stations in town, Rosenstein concedes that he had very limited aspirations coming out of high school.

His parents encouraged him to study accounting, and it seemed like a good idea, since Rosenstein had always done well in math. Lehigh University's strong accounting program led him to South Mountain.

When I went to Lehigh, I was completely unprepared, Rosenstein says. Academically, I was behind everybody when I started. And culturally, this was like a step up into the big leagues.

When Rosenstein returned to campus in October to deliver this year's lecture in the Donald M. Gruhn '49 Distinguished Finance Speaker Series, those old feelings came rushing back over him.

It's funny, I had this sensation when I walked into the campus here today, Rosenstein says. And I remember being right in this area, right before classes started, and I remember thinking, 'I hope I don't fail out of here. I hope I can make it.' So I just worked hard and ended up doing fine. Every step along the way that I got exposure to something greater or broader, I sought to achieve that and I just kept going.

Rosenstein passed his CPA exam his senior year and graduated Phi Beta Kappa.

After working as an accountant for a year at PriceWaterhouse in New York City to earn his certification, he went on to earn his MBA at the Wharton School of the University of Pennsylvania. His Ivy League experience made him appreciate his Lehigh education even more.

I actually worked a lot harder at Lehigh than I did at Wharton, Rosenstein says. As his graduate school days neared an end, though, Rosenstein had little success landing job interviews in the investment banking world he hoped to enter.

I figured out a trick, a pretty simple one, Rosenstein confides. When you call someone after 5 p.m., there's a reasonable chance their secretary goes home and they end up picking up the phone themselves. So that's what I started doing.

Rosenstein cold-called Wharton alumni who were working in investment banking in New York, and managed to talk his way into a couple of interviews. It worked. He got a job with a firm, but after just one week, it was bought by Merrill Lynch, and Rosenstein found himself unemployed.

It was an impressive start to my career, he notes, wryly.

He wasn't out of work for long, though.

A week later, Merrill Lynch called and offered him a position with the company. Rosenstein gladly accepted, but quickly discovered that his new employer was quite a bit more conservative than he was.

By 1986, Rosenstein was ready for something more exciting. Every day, on the front page of The Wall Street Journal and other business publications, he read about the new breed of corporate raiders who would buy stakes in public companies and launch ferocious bids for hostile takeovers.

They were like swashbuckling pirates, Rosenstein says. And I would read about this and think, 'Man, that looks really cool. That's what I should be doing.'

The most prolific of the raiders was Asher Edelman, who served as the basis for the Gordon Gekko character in Oliver Stone's Academy Award-winning film, Wall Street. Rosenstein obtained Edelman's phone number through a colleague at Merrill Lynch and tried his old trick, waiting until after 5 p.m. to call him out of the blue. Once again, it worked.

Fortunately, he had the attention span of a gnat, Rosenstein recounts. So he said, 'Fine, just call my secretary tomorrow and we'll make a lunch date.'

They met for lunch--prepared by Edelman's private chef, no less--in the storied raider's sleek office, the walls covered with modern art. Edelman started telling Rosenstein that he was looking for someone to co-run his takeover business, and that he had been talking to the heads of mergers and acquisitions (M&A) at major firms in the city.

Rosenstein was baffled why Edelman was telling him this, but went along with it. I'm a decent poker player, so I didn't flinch, he says.

After about 20 minutes, Edelman looked at Rosenstein and said, All right, you and I are going to do a deal. What's it going to take to get you to come here and take this job?

Rosenstein was making $40,000 at the time, working in an office that was literally a converted broom closet. At Merrill Lynch, he was hoping that maybe he would earn a $30,000 bonus at the end of the year, but he had his doubts.

Still, he had read that people at the top of M&A departments at major Wall Street firms were pulling down salaries of a million dollars a year.

So I looked at him and said, 'A million bucks.' He looked at me. And looked at me. And looked at me. For about a minute. Just stared at me. Didn't say a word. It was very uncomfortable, but I managed not to blink. And he said, 'All right, done. But you've got to start tomorrow.' I said, 'I'll sleep here tonight. I'll start right this minute if you want.'

For the next three-and-a-half years, Rosenstein worked closely with Edelman on hostile takeovers. The experience shaped his career and set him on the course that has made JANA one of the leading shareholder activist firms.

I actually believed in what we were doing, in the sense that our activities were catalysts to causing underperforming companies to change, one way or another. Either they got bought out by somebody else, bought out by the person going after them, or forced to restructure in some way, which forced them to get much more efficient, Rosenstein says of his years with Edelman. The only reason a company is a target is if it's underperformed for its shareholders over a long period of time.

So for me, it was eye-opening in that regard and shaped what I ultimately wanted to do. Rosenstein left Edelman to go out on his own, but when the economy took a sharp downturn heading into the 1990s, he found himself running out of money with no paycheck coming in. I didn't know how I was going to feed my family.

He found the answer in San Francisco, moving his family there in 1991 and landing a job in a boutique investment banking firm, where
he engineered the stunningly successful investment in Copart Inc., a California-based company that auctions cars that have been classified as totaled by insurance companies. Rosenstein managed to raise $7 million to invest in the company, which had plans to go national.

It did, successfully went public a year later, and today enjoys a $3 billion market cap, Rosenstein says.

Following the Copart success, Rosenstein founded his own private equity firm, but the results were less than overwhelming, and as a new decade once again dawned, he found himself back in a familiar place.

As recently as 2000, I started living off savings, wondering where or how I was going to make my way. So I started over again.

As the country emerged from the recession that followed the bursting of the Internet bubble in the late 1990s, Rosenstein saw an opportunity.

Public companies were trading at steep discounts to what their ultimate pay cap values were. And I saw an opportunity to create a hedge fund--even though I didn't know the first thing about running a hedge fund--to accumulate positions in companies and try to close that arbitrage. In other words, force the companies to sell out to somebody else or restructure to realize the full value.

Potential investors were skeptical of the whole notion of corporate activism, but Rosenstein managed to raise $17 million to start the fledgling hedge fund. From that initial investment, JANA has consistently bested relevant benchmarks, and reached a peak value of $8 billion.

I really believe in what we do. I believe it's for the greater good of the economy, notwithstanding that embedded, entrenched managements for years tried to paint us as bad guys. That's really changed today. No longer is there the taint being associated as an insurgent. It's very legitimate today and people recognize it as an agent for change.

Rosenstein describes his approach to business as an iron fist in a velvet glove. His years of practicing yoga help him remain calm
and focused in a business world that can be brutally tough.

It's not like I set out and said, tactically, I'm going to be low-key about things. I am who I am. I don't feel the need to scream and yell. I don't lose my temper, Rosenstein says. And even when I'm having a meeting with a CEO and you could cut the tension with a knife, frankly it's much more effective, I've found, to deliver your message clearly and calmly than to be yelling and screaming. It's not to be confused with being a pushover. I may have a calm demeanor, but I can be as tough as anybody when it comes to dealing with a management team.

You can't fake who you are.