(FORTUNE Magazine) – ONE OF THE FIRST of the high-stakes takeover battles of the 1980s was for ITT, the giant conglomerate that had been assembled and dominated for over a decade by the imperious Harold S. Geneen. (A subordinate whom Geneen once reprimanded for abrasiveness was bold enough to respond: ''Coming from you, Hal, that advice has to be taken seriously.'') Under Geneen, the company, originally called International Telephone & Telegraph, expanded rapidly. It took in such vast and varied enterprises as Avis, Sheraton hotels, the Hartford Insurance Group, and Continental Baking. When Geneen's successor, Rand V. Araskog, became chairman in January 1980, he inherited a company that FORTUNE later described as ''a museum of the investment and management ideas of the Sixties.'' It fell to Araskog, a Minnesota farm boy and West Point graduate who debriefed Soviet defectors for the National Security Agency in the 1950s, to bring ITT into the Eighties. As he was selling substantial parts of the company's assets, he also had to fight off a trio of well-heeled raiders. In The ITT Wars, to be published by Henry Holt in April, he spins a tale of high- pressure intrigue, confrontation, and treachery. His account is sure to be controversial; some of the people he mentions challenged his description of their roles when FORTUNE consulted them. Excerpts:

After the board meeting at which I was elected CEO, I found a message in my office from my wife, Jessie, asking me to bring home some fresh tomatoes. Excited, I called her with the great news about my new job. She said, ''Wonderful, Rand, and don't forget the fresh tomatoes!'' I hung up in amazement. But that was Jessie. Of course, when I got out of the car at home, I had forgotten the fresh tomatoes. By the time Harold Geneen stepped down as chairman, ITT had made more than 250 acquisitions. Revenues had gone from $800 million to $22 billion, and earnings from $30 million to $381 million. It was the fourth-largest employer in the United States, with 368,000 breadwinners. Some 219,000 stockholders held 116 million shares. Geneen's methods were widely copied in other conglomerates and taught in the nation's business schools. He was imitated, admired, and envied. HE LEFT BEHIND, however, a debt-laden corporation struggling to pay the bills for its many mergers and acquisitions. Worse, the company was vulnerable to any corporate raiders that might come to call. As business conditions changed, call they did. When the attack started, ITT was in the midst of its own transformation. In the course of our seven-year effort to save ITT, the company ran into most -- if not all -- of the problems and issues that defined corporate America in the 1980s: inflation, deflation, regulation, deregulation, an overvalued dollar, an undervalued dollar, an expanding economy, a recession, hostile takeover bids, demands for corporate liquidation, officious bureaucrats, even well-meaning but impractical do- gooders. Moreover, there were specific problems that seemed endemic to ITT: alleged security breaches, extortion plots, alleged espionage in foreign subsidiaries (especially in Chile), and subtle as well as heavy-handed political pressures from foreign governments. In 1970 Geneen had viewed the potential election of socialists, communists, and splinter left-wing groups in Latin America as a threat to ITT's Chile Telephone Co. Geneen met privately with the head of the CIA's clandestine services for the region. Unhappily, the official reported to his chief that Geneen offered ''a substantial fund'' to the CIA. He was turned down, the official noted, but it was a major public relations disaster for ITT. AS A CONSEQUENCE of the hundreds of mergers, the company had taken on over $4 billion of debt, more than 40% of ITT's capitalization. That was tolerable as long as interest rates remained low, but as they rose it became intolerable. One of my first long-range business plans involved reducing the debt by selling off companies, while at the same time transforming ITT into a service- and technology-oriented company. Every year from 1979 through 1983, ITT divested itself of businesses with more than $200 million in sales. By the end of 1984 the corporation had sold 69 companies for close to $2 billion. Still more needed to be done to reduce fixed costs, yet hindering us was a major obstacle: The quarterly dividend had steadily increased, with only one interruption, for almost 15 years.

We got the first intimation that we were in a new business environment one afternoon in October 1983. DeRoy ''Pete'' C. Thomas, then chairman of Hartford Fire Insurance Co., a wholly owned subsidiary of ITT, was called on by one Jerry Seslowe. Clever and articulate, Seslowe was a financier specializing in venture capital and investment banking. He had come as point man for two businessmen, Jay Pritzker and Philip Anschutz, who wanted to take ITT private. The attempt to buy out ITT was no doubt based on some very appealing numbers. What Pritzker and Anschutz perceived in 1983 was a cash-rich, asset- rich multinational company whose market price did not reflect its true value. ITT's valuation then -- about $40 a share -- was low. Clearly Pritzker and Anschutz had done their homework and run the numbers. In their view ITT was worth far more liquidated than living. They thought they could low-ball the company with a private offer that would have given them a $20-per-share profit. ((Pritzker told FORTUNE that he believed the stock was undervalued but had no other plans.)) If they could entice shareholders with an offer over $40 per share, they might pocket a profit of $3 billion or so, conceivably much more. To tempt management to cooperate, they offered a sweetener. Seslowe suggested that senior management would be allotted 10% of the return on the venture. ((Seslowe denies suggesting this.)) My share would be $30 million -- which I perceived to be a gargantuan bribe. In May 1984, just before the annual meeting, the storm hit. An unexpected metalworkers strike in West Germany began to affect not only all ITT's automotive and components industries, but also our major telecommunications activities. A week later the People's Republic of China announced that it was canceling all its log purchases from Rayonier, causing a $40 million loss for that company in 1984. Then the Hartford's problems of heavy damage claims because of inclement weather worsened. Suddenly our ability to meet the year's goals was becoming uncertain. JOHN PFANN, ITT's treasurer, recommended that we take steps to stanch the outgoing tide of money. Almost all the revenue from the companies we had sold off had been offset by dividend payments. Few of those dollars had gone toward improving the ITT balance sheet. In his memo, Pfann outlined several possible action plans, including reducing the dividend. After much discussion the board of directors agreed to cut the annual payout from $2.76 to $1 -- a 64% slice. It was the most difficult management decision they ever had to make. What we did not know was that, simultaneously, Jay Pritzker and Phil Anschutz had begun buying ITT stock. Two months later, when Jay Pritzker disclosed this to me, I realized that if they had purchased substantially more of our stock before the dividend cut, they would have had no choice but to go after ITT immediately or take large short-term losses. The timing of the cut was inadvertently opportune for them in the short term, since they were able to buy a great deal of cheaper stock to offset their earlier purchases. In the long run, what they did was probably favorable to ITT, since their subsequent buying helped support the stock and, as the share price recovered, also made their total investment in ITT profitable. Clearly they had no urgent financial need to attack. When the New York market closed at 4 p.m. on July 10, 1984, ITT issued a press release on the dividend reduction. Our stock immediately went into a tailspin. There was a fantastic overreaction. Telephone calls were coming in from investment bankers seeking participation with ITT, seeking to help, seeking to defend, offering information, seeking a position. The investment bankers were on the loose, saying that the Pritzker and Anschutz combination was buying large amounts, that arbitragers were buying all over the place. Names such as Icahn, Boesky, Jacobs, and Steinberg were thrown around at random. ITT was about to enter something similar to a war. I decided to confront Jay Pritzker about his plans. We met in Chicago on August 10. Pritzker made it clear that he and Anschutz were in it together, that they were interested in a short-term profit, and that they did not think I would survive to the next annual meeting. It was a pressure-cooker encounter. Jay Pritzker may have been testing. In his nice, friendly way, he was certainly threatening. He suggested that he and Cindy have dinner with Jessie and me on their next trip to New York, which only added more steam to the pot. But he did stop buying stock -- a major concession. ((Pritzker says the meeting was purely friendly.)) In fact, that visit may have saved ITT. Had Pritzker and Anschutz marshaled their forces and acted with alacrity, they might have won. Certainly they had the financial resources to accomplish their goals. But they revealed themselves as too indecisive, too cautious to launch the final assault. With ITT's stock selling in the low 20s, they were not likely to have a better . opportunity. They had a chance for the gold ring and missed it.

According to Araskog, in December 1984 Bill McHale, the company's regional public relations chief in Florida, asked a colleague to plant a long, hostile article about ITT and Araskog in a West Coast newspaper. McHale also wrote a press release in an effort to discredit ITT management, possibly to help to put the company in play. McHale reportedly laid the plot to Ned Gerrity, a longtime Geneen confidant and ITT senior vice president. Gerrity headed the corporate relations department, which had made news in 1972 when Dita Beard, an irrepressible member of his Washington staff, wrote a memo suggesting that an ITT contribution to the Republican party for its convention that year had helped win settlement of antitrust charges against ITT over the acquisition of Hartford Fire Insurance.

Bill McHale was confronted in Florida and refused to talk, but the tape of the damaging press release was still in his IBM typewriter. The evidence was conclusive, and he was fired for cause. The same day, Ned Gerrity was confronted in his office. He denied any involvement. Nevertheless, he was suspended as an officer of ITT. Although I was in my office, and Ned knew it, he left 320 Park immediately, and I have not talked to him since. ((Gerrity continues to deny that he had anything to do with the article and says Araskog has no evidence involving him. He insists that he tried to see Araskog but that two aides told him Araskog would not speak to him under any circumstances. Gerrity left with a pension and two years' salary worth an estimated $800,000.)) In the rushing tide of events, I had not had much time to reflect on Ned Gerrity's actions. Suddenly a huge incubus was dispelled, and great relief settled over me. Gerrity had been my friend and my mentor in my early days with the company. He had kept Harold Geneen aware of my name and what I was doing. On the one hand I had an obligation to him, but on the other hand I felt that he owed me and the company more than a modicum of loyalty. When Ned Gerrity departed, loyalty was not the first word that came to mind to describe his behavior. THAT DECEMBER was probably the most anxious period in the history of ITT. No sooner had we resolved the McHale-Gerrity problem than we were faced with a powerful new threat. On December 5 and 6, Irwin Jacobs made extensive ITT stock purchases. (He had acquired something of a reputation by salvaging and | selling off damaged goods from flood insurers -- hence his nickname, ''Irv the Liquidator.'') At the time, it was far from clear what trouble he could or could not make.

In early January 1985 the ITT board's capital committee approved divestiture of 12 industrial products companies with sales totaling more than $700 million, valued by ITT at $300 million to $375 million. The board also approved the sale of 48% of Abbey Life Insurance Co. in the United Kingdom, and of ITT Publishing, Eason Oil Co., and ITT Grinnell, a package expected to be worth $1.7 billion in cash. The announcement went out on January 16, accidentally coinciding with the day Irwin Jacobs began his next charge. The news came as a shock to him, and he lamely remarked that the program was ''too little and too late.'' ON JANUARY 17, Jacobs asked through an intermediary whether we were interested in buying back the ITT stock he held. ((''An absolute lie,'' says Jacobs. ''They approached us first and attempted to buy back the stock through intermediaries.'')) That same morning, I had been interviewed by FORTUNE magazine and had taken a firm position that ITT would not buy back stock from any raider, Jacobs included, and that if any one of them wanted out, he would have to get out in the open market -- the same way he got in. Jacobs seemed to have launched a last-ditch attempt to get us to buy him out. We turned down his proposal. During the worst of the takeover battle, Jessie and I were never closer. I was frequently awake at night, and she was awake with me. I walked and walked in the evening -- she was there. She would come down to the library from our upstairs bedroom and sit with me. I knew that I had to win the battle, or my life and my family's life would be shattered. I knew that if all was lost, it would affect the confidence of my son, Bill, a bond trader at the Lazard Freres investment banking house, as well as that of Julie, who had just moved to the West Coast, and Kathy at Hotchkiss. That period was particularly trying for Jessie, and I loved her so much for enduring it. Kind herself, she always looks for kindness in those she hopes will be her best friends. Life became overbearing for her, and in January 1985, with great wisdom, she decided the best thing would be to do something for people she did not know. She was sick of hearing about the greed of raiders, sick of people such as Jay Pritzker and Irwin Jacobs. She went to work as a volunteer at Memorial Sloan-Kettering Cancer Center. Within weeks, she picked up. Her strength increased, and when she hugged me, energy moved from her to me, powerful energy when I needed it most. The annual meeting on May 16, in Savannah, of course featured the perpetual corporate gadflies, Evelyn Y. Davis and Lewis Gilbert, along with Irwin Jacobs. I gave a fairly long ''state of the union'' message, and then Gilbert and Davis went back and forth to the microphones. Jacobs obviously was getting antsy. Suddenly he jumped up to grab a microphone, but Davis got there at the same time and said, ''Ladies first.'' Irwin shrugged and sat down, and I remarked, ''Mr. Jacobs, now you know what I have to put up with.'' The room exploded in laughter, and I knew then I had him. GILBERT ATTACKED JACOBS as a poor manager. I had never before appreciated Gilbert's and Davis's presence at annual meetings, but now they acted like my picadors. Jacobs finally bullied his way up to the microphone. He plodded, sometimes losing his place, through a long, handwritten speech. Near the end of the balloting, I learned that the Pritzker-Anschutz votes were being changed in favor of management. The final count showed an overwhelming majority for management: 116 million out of 128 million shares voted. On October 11 ITT filed suit in the New York courts against Jerry Seslowe, charging that he had violated the securities laws and damaged ITT by attempting to manipulate our stock and approaching the shareholders improperly with a proposal to break up the company. The suit set ITT on an entirely new course. The company was on the offensive and counterattacking. We would seek discovery of Pritzker's and Anschutz's records and files. We were ready for deadly serious combat. The war of nerves quickly intensified. We learned that FORTUNE magazine was doing a major piece on ITT, based on Pritzker's efforts to assemble a new board. It would probe the whole relationship of Anschutz, Pritzker, and Jacobs, as well as their intentions toward ITT. This was a time of decision for Irwin Jacobs. Should he stay in the stock and do battle? To Myron Magnet, writer of the FORTUNE article, he said about ITT's top managers: ''I've had it up to my neck with them. Those guys are the biggest bunch of losers I ever met.'' In any event, Jacobs sounded as though he was ready to surrender to the ''losers.'' He and his group had purchased their stock for about $32 per share. They had held it a year at high interest rates and needed a price about $34 per share to break even. On October 30, there was a great deal of selling. Two days later Jacobs announced that he had sold out all of his ITT stock and had no further financial interest in the company. By early November Pritzker and Anschutz were gone as well.

Rid of the raiders, Araskog dropped the lawsuit against Seslowe and went ahead with his plans to restructure ITT. Because he concluded that the company's technologically advanced but costly digital telecommunications switching System 12 would not be profitable in the U.S., he made a painful decision to abandon the American market for it and took a $105 million write- off. At the same time he was conducting intricate, off-again-on-again negotiations with Cie. Generale d'Electricite and the French government to sell off a majority interest in the overseas telecommunications business that had given the company its start. The $2 billion deal was formally concluded in 1986. At the end of 1988 ITT's debt was below 30% of capital, the goal Araskog set in the early 1980s. Analysts give him credit for slimming the company down and raising profits. They agree, however, that he should have started sooner and needs to do still more. In a decade that saw many CEOs bite the dust, Araskog's survival skills were remarkable. Understandably, he remains bitter about the people who tried to take over ITT. He offers policymakers several proposals for limiting the damage he believes raiders do to U.S. business:

IN A FREE-MARKET ECONOMY, if our resources are to be put to their best and most effective use, individuals and corporations should be free to buy and sell companies. However, the major consideration in many of these takeovers has more to do with the self-fulfilling prophecies of some egomaniacal financiers and overweening ambition of some investment houses than with business efficiencies. Too many deals are being done because of the ability to do them -- not because they have sound economic logic or business validity. Admittedly, the subsequent arbitrage activity in the stock of a takeover target does raise the price of the company's shares in the marketplace. This ''surfacing of value'' has helped some stockholders realize the real or underlying value of their shares -- but at a debilitating price to the target company. What should the federal government do to level the playing field? The Federal Reserve took one step by ruling that if a borrower uses only stock as collateral for a loan to finance a buyout, he must put up stock with a market value of twice the amount of the loan. The regulatory agencies and Congress should consider additional measures:

-- In order to curb rampant speculation in potential takeover candidates, insist that an acquirer have all of his financing in hand before the public offering. -- Eliminate or restrict the use of so-called highly confident letters issued by investment banking houses. -- To forestall rushed or panic action, extend the minimum duration of a tender offer from 20 days to 60 days or 90 days. This would give stockholders more time to make a considered judgment. -- Outlaw greenmail and golden parachutes. This would put necessary starch into wavering boards and would preclude payments by crony boards of directors. -- Shorten disclosure time, when an acquirer has taken a 5% position in a company's stock, from ten days to one day. This would reduce the risk of sneak attacks. Or consider lowering the 5% trigger to 1% or 2%. -- Rigorously enforce rules against ''parking'' stock -- keeping shares in a third-party name to avoid disclosure. -- Require that an offer for more than 10% of a company's stock be made to all shareholders. -- Finally, consider altering the rights of stockholders. If investors had to hold their shares at least one year before they could vote them, the destiny of the corporation would not be at the mercy of arbitragers and speculators. -- Stockholders are beginning to recognize that takeover artists are not only no improvement over professional management, they are frequently worse. The Texas Air complex of Frank Lorenzo is a case in point. Judged by profits, for example, Eastern is in worse shape than before he took it over. Carl Icahn has TWA leveraged up to its eyeballs with long-term liabilities nine times greater than the common equity. Moreover, the raiders are no bargain for stockholders when the target company does manage to defend itself, since it inevitably takes on heavy debt to ward off the attacker. Unocal is a case in which the raiders did not enhance stockholder values but actually depreciated them. Some corporate boards, such as those at Gillette and Goodyear, have only themselves to blame for paying greenmail. Have raiders and LBOs made American business leaner and meaner? I say no, they have made it weaker and bleaker for the decade to come.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: RAND'S RECORD: RISING STOCK, FALLING DEBT, A ROLLER-COASTER ROE Since Araskog took over as chairman in January 1980, ITT's fortunes have generally improved -- though the stock has climbed only 108.8%, barely more than the 104.5% rise in Standard & Poor's 500-stock index, and return on equity ended last year below its 1980 level. DESCRIPTION:Three charts.