“You realize, if we go with Shearson,” he said, “you’re probably all gone.” Shearson’s chances of beating Kravis seemed that remote; no one was even sure Cohen’s people could raise the money necessary to do battle. If they went with Shearson and lost, they’d all lose their jobs.
Listening to the speech, Ed Horrigan knew Johnson was serious in encouraging them to reconsider their allegiances. The two men had earlier spoken privately, and when Horrigan asked about Johnson’s meeting with Kravis, he had been startled by Johnson’s apparent ambivalence. “Boy, they’re great guys,” Johnson had said of Kravis and Roberts.
“They are?” Horrigan said, incredulously.
Horrigan had questioned Johnson closely about what had happened six floors below. At one level, the feisty tobacco chief was suspicious about what kind of deal Johnson, acting as a free agent, might have cut for himself. At another, he was baffled: How could they suddenly go from regarding Kravis with fear and loathing to embracing the SOB? Maybe hang-loose Ross Johnson could make that flip-flop. But not hang-tough Ed Horrigan.
“I don’t know what you talked about,” Horrigan said, “but I don’t like it.”
“I don’t understand you,” Johnson replied. “I’m making the biggest deal in the world and you’re not impressed.”
Horrigan tried to make it simple for him. For one thing, he said, think about how all this will look to the board. How on earth could the management group maintain it was trying to serve shareholder value if it was cutting a deal with Kravis that would no doubt hold down the company’s selling price? “The board will shove it right up our butt,” Horrigan declared.
Johnson disagreed. With the $90 floor established by Kravis, shareholder value had already been served. Now, he said, it was important to make sure this bidding contest didn’t get out of control, that it didn’t get to the point where the debt they piled on would make it impossible to run the company.
Horrigan didn’t want to hear any more about consorting with Kravis. “They’re the enemy,” he had said. “I don’t see how we can work with them.”
Now, as they went around the room one by one, Horrigan again decried Kravis and his methods. Staying with Shearson was the right thing to do, no matter what the chances of victory. “You go home with the guy who brung you,” Horrigan said. “We win with Shearson or we go out with Shearson.”
The others—Henderson, Ed Robinson, Sage—agreed. “Look, we’re in. We’re with you,” John Martin said. “We picked our partners and we’ll stay with ’em.”
The crisis had passed. When the group adjourned, Johnson summoned Cohen. “I know you had some doubts about us,” he said. “You made a very generous offer to free us up. I appreciate that. I just want to reaffirm that we’re with you.”
Cohen was clearly gratified. “I appreciate the vote of confidence. Let me tell you, we’ll stick with you to the end.”
At the height of the evening’s chaos, Ted Forstmann arrived on the forty-eighth floor. The moment he emerged from the elevator, Forstmann had a bad feeling. The place was crawling with people. Most of them seemed to be lawyers. Forstmann groaned. Too many cooks….
Forstmann had brought along his brother Nick, his lawyer Steve Fraidin, and Geoff Boisi of Goldman Sachs. They, too, noticed the disorder. Boisi, accustomed to dealing with investment bankers, was puzzled to see senior executives such as Cohen and Robinson darting about. Who’s in charge here? he wondered.
The Forstmann group was escorted into a windowless conference room dominated by a single cherry table and packed with more than a dozen lawyers and investment bankers. Johnson was there, as was Cohen. Immediately the Shearson troops began pelting Forstmann with questions, most of them variations on a single theme: How do you fight Henry Kravis? Forstmann brushed the questions aside. There was no sense in talking about that, he explained, until they were sure they were on the same wavelength. For at least the second time that day, Forstmann launched into The Spiel.
First came the denunciations of Kravis. No junk bonds. No bridge loans. Forstmann was gathering steam when he noticed Johnson duck out. No hostile tender offers, he continued. None of that crazy shit. On and on he went. After a bit Cohen followed Johnson out the door. “I don’t fuck around,” Forstmann concluded. “We don’t say yes to many things. But we’re there on this one. Are you there?”
Forstmann looked around. Suddenly it struck him that the conference room had emptied. Only three of the original group remained. As Forstmann scratched his head, a junior Shearson banker began suggesting ways that junk bonds could be wedded to Forstmann Little’s goals without sullying the firm’s moral views.
Forstmann was annoyed. Hadn’t this guy heard anything he’d said? Hadn’t he bothered to read the article in The Wall Street Journal that very morning? Didn’t he know who he was talking to? “Wait, wait, wait,” Forstmann said in exasperation. “You guys don’t understand. I don’t do that stuff.”
Then, distracted, he paused. “Where did everybody go?” he asked.
No one knew. When the remaining Shearson bankers left, Forstmann wasn’t sure what to do. He waited. For more than an hour there was no sign of Johnson, Cohen, Jim Robinson, or Tom Hill. Geoff Boisi began to get mad. “Something funny’s going on here,” he warned.
All evening Cohen had been trying to reach Kravis. It was important, he and Johnson agreed, to send a message back to him that his $125 million “bribe” was entirely unsatisfactory. John Martin suggested a dead fish might get the idea across. Cohen left messages at Kravis’s apartment. He called Dick Beattie: Did Beattie know where Kravis was? The lawyer knew, but he wasn’t telling Cohen.
As they spoke, Kravis was in fact enjoying a lavish black-tie dinner at a nearby restaurant, La Grenouille, given by the agent Swifty Lazar for Henry Kissinger. There he chatted with Felix Rohatyn, the Lazard banker now working with Charlie Hugel’s special committee, and with Salomon’s John Gutfreund. The room, of course, was abuzz with gossip on the RJR Nabisco deal. Gutfreund sat at Kravis’s table, smiling to himself as his tablemates quizzed the diminutive financier. Not once did Gutfreund let on that Salomon was on the verge of joining the battle against Kravis. His dinner chatter with Kravis was limited to a comment about Kravis’s newfound press exposure.
“I think,” Gutfreund said, “this is the first time I remember a financial guy has been on the front page of The Wall Street Journal and The New York Times in the same day.”
Henry Kravis smiled; he didn’t much like John Gutfreund.
After dinner Kravis returned to his apartment and waited for Cohen’s call. From his library window he could see the forty-eighth floor of Nine West ablaze with light. They’re still up there, he thought.
At 12:15 the phone rang. It was Johnson.
Johnson’s normally ebullient air was gone. “Henry, I’m disappointed in you,” he said. “That’s a lousy offer you made to them. I thought you were going to be fair. That wasn’t fair at all. That’s not right.”
There was still room for a dialogue, Johnson explained, but not on those terms. If Kravis had something better to propose, he was still welcome to do so.
Kravis wasn’t surprised. Beattie’s intelligence, as always, had been on target. “Fine,” Kravis said. He was in no mood for a debate. “If that’s the way you feel….”
Johnson put down the phone and looked at Goldstone. The two men were seated in the anteroom just off Johnson’s office. Cohen hovered outside the door.
Goldstone wasn’t pleased with his client’s performance. Johnson’s personality simply wasn’t built for confrontations. The guy was too cheerful for his own good.
“Ross, look, if you’re intending to give the message to Henry that you’re not going to switch sides here, you didn’t give him that message,” the lawyer said. “I think you should call him again and give him the message more clearly.”
“Maybe I didn’t make it clear enough.”
“I think that’s right,” Goldstone said. “It sounded kind of vagu
e.”
“Maybe I ought to call him back.”
“Yeah, I think you ought to.”
Five minutes later Johnson phoned Kravis again.
“Henry, maybe I didn’t make one thing clear. Let me tell you I’m staying with Shearson. I don’t want you to think in any way we’re not partners. You can’t expect me to abandon the people that are my partners.”
Kravis wondered why Johnson was calling a second time. Someone was pulling Johnson’s strings, he decided. He wondered who was really in charge of the management group.
“I wouldn’t expect you to,” Kravis said. “Ross, let me make one thing clear. Nobody’s given a thought to splitting you two. That’s not what we’re about.”
It was a lie, more or less. But this was no time to alienate Ross Johnson. Kravis hung up, worried, and quickly conferred with George Roberts and Dick Beattie. Rejection of their offer was not good, not good at all. A $90-a-share tender offer looked fine in the papers. But Kravis was acutely aware that he had never made a major takeover bid without the analytical help of a management team that knew its company inside and out. He didn’t like to admit it, but one thing was clear: He needed Ross Johnson. Besides, a bidding war at these levels could cost the winner billions of dollars. Kravis and Roberts agreed a second approach was called for.
Kravis dialed Johnson at Nine West. After a minute Cohen came on the line.
“Peter, I think it’s probably good for us to talk,” Kravis said. “You know we’re not trying to split you up. I just think we should talk about this.”
Fine, Cohen said. Let’s talk.
“Why don’t we meet in the morning?”
“No, if you want to meet, let’s meet right now.” Cohen didn’t mention that he had Ted Forstmann cooling his heels in a back room.
“Peter, it’s twelve-thirty at night….”
“No, if you have something to say, say it now. Tomorrow might be too late.”
Kravis called Dick Beattie minutes later.
“They want to meet.”
“What time tomorrow?” Beattie was ready for bed.
“Tonight.”
“Tonight?”
Beattie pulled on a light jacket, walked out of his Fifth Avenue apartment and hailed a cab. On the way he picked up Roberts at the Carlyle Hotel, then Kravis at his Park Avenue apartment. The cab made good time moving through the empty streets. When the trio pulled up outside Nine West, they were surprised to find a long line of limousines parked outside.
Kravis shook his head. “Geez,” he said, “the whole world must be upstairs.”
George Sheinberg, the Shearson vice chairman, saw Kravis come off the elevator a few minutes past one o’clock. An accomplished photographer, Sheinberg had brought along a camera. He started to raise the camera to snap a picture—this was history in the making—but stopped. Normally not a superstitious man, Sheinberg didn’t want to jinx the meeting.
Shearson’s Jim Stern waved as Kravis, Roberts, and Beattie emerged from the elevator. Stern had spent much of the evening updating a team of Salomon investment bankers in a conference room just eight feet from the one where the Forstmanns sat. A pair of locked doors was the best bet the two groups wouldn’t run into each other. Hurrying back to the Salomon people, Stern couldn’t help thinking what a three-ring circus the evening was turning into.
The air was electric inside Johnson’s office as the Shearson group awaited Kravis’s arrival.
Cohen and a half-dozen others, including Jim Robinson and Tom Hill, paced the room nervously. Among other things, Shearson’s chief was deathly afraid Kravis would somehow run into Ted Forstmann. God only knew what would happen then.
Johnson’s office was, literally and figuratively, a smoke-filled room. A cigarillo hung from Johnson’s lower lip, and Cohen puffed one of his ever-present cigars. A layer of smoke hung low in the stale air. No one seemed to mind. This was, after all, a cigarette company they were trying to buy. On a shelf behind Johnson’s desk was a copy of Sun Tzu’s The Art of War; there was no evidence Johnson had ever read it. Windows ran the length of one wall: Outside the view looked south past the darkened RCA building and the red neon letters of PaineWebber to the twinkling lights of lower Manhattan beyond.
Kravis, Roberts, and Beattie were escorted into the executive suite, past Andy Sage’s empty office and rows of burl-paneled cabinets and into Johnson’s office. Pleasantries took several minutes in the crowded room. Jack Nusbaum ribbed Beattie, who looked as if he had thrown on a jacket over his pajamas: “Dick, you look like you just tucked in for the night.”
The smoky air immediately bothered George Roberts, who instinctively began waving the haze from his face. His eyes stinging, Roberts attempted to make light of his discomfort. “I’m glad you guys don’t make cigars,” he said as he met Ed Horrigan. “Cigar smoke drives me nuts.”
It took a moment for the irony of Roberts’s remark to register. Johnson and Horrigan exchanged astonished looks. Did he say smoke bothered him? It seemed an incredible admission from a man looking to buy one of America’s great cigarette companies; Roberts’s faux pas set the tone for what would be a bewildering evening for all concerned.
“If it really bothers you,” Cohen said, motioning to his lit cigar, “I’ll put it out.”
“Yes, it does,” Roberts said.
“This is fucking beautiful,” Horrigan muttered.
Cohen left the room, returning seconds later with an unlit cigar. Holding it in his hand, he moved behind Johnson’s empty desk. Earlier, Cohen and Jim Robinson had agreed that it would best if the American Express chief made himself scarce when Kravis arrived. Cohen knew the Robinsons and Kravises were horseback riding buddies, and he didn’t want Robinson’s judgment blurred in a confrontation with his friend.
Now Robinson and Johnson rose to make their exit. “We’re going to let you banker types talk,” Johnson told the group. “I hope you guys can put something together. It’ll be better for everybody. We’ll be down the hall if you need us.”
“Let’s all keep in mind that a lot of people are watching this process, including Congress,” Robinson said.
“We wouldn’t want to hurt the business that we’ve grown to love and admire,” George Roberts said wryly.
As Robinson and Johnson left, Cohen instinctively knew how he and Hill would handle their opponents. It was the same in every Wall Street negotiation, he felt: The senior partner tended to play the statesman’s role, the “good cop,” while the junior partner inevitably played the enforcer, “the bad cop.” For years Cohen had played Sandy Weill’s bad cop, a role he played so well it became second nature. Tonight Cohen would try out his new role as diplomat.
Still angry about Kravis’s “bribe,” he started out poorly. Standing behind Johnson’s desk, Cohen emphasized that Shearson remained “open-minded” to a partnership with Kohlberg Kravis. But although his tone was even, Cohen’s combative instincts soon took over. “This is our deal,” he said. “We’re not going to go away. We’re not going to take a subsidiary role, to you or anyone else. We’ve got Ross on our side, and that gives us an obvious advantage.”
As for Kohlberg Kravis’s offer, Cohen went on, “We’re not interested in taking any bribes. You couldn’t pay us twice what you’ve offered. It’s insulting, and it’s arrogant.” (Later, Cohen himself would acknowledge, “No one’s ever going to confuse me with a statesman.”)
George Roberts, sitting on the couch beside Beattie, spoke coolly, his hands never leaving his lap. “Peter, we’ve come here to talk about this in a businesslike manner. Why don’t you give us some idea of a way we can work together? We’d like to explore these possibilities, see what we can work out.”
But Shearson wasn’t done yet. Tom Hill—cool, well tailored, clearly unintimidated—weighed in as the bad cop. “Management has now made the decision to stay with Shearson Lehman,” he began. “We are now entering a realm where, absent a deal between us, we will be competing.”
Hill wanted to
make clear the risks facing Kravis in an all-out fight. “Henry, you’re entering uncharted territory. This is unique. You don’t have management on your side. That raises a whole host of questions, chiefly your ability to get at the right numbers.”
Now Hill bore in. “This all raises the question of how you will be perceived, friendly or hostile. This is a hostile bid, and your investors will have reservations about this deal. It also has real implications for how future managements will want to deal with you. In addition, as you know, RJR has its operations in the South and in the Carolinas. These are constituencies where there are some very strong legislators, including Jesse Helms. I’m sure Jesse Helms would take a very active interest in the future of this company and its community.”
The threats were unmistakable. When Hill paused, everyone spoke at once. Kravis was infuriated. “Tom,” he said, “if that’s a threat, that’s ridiculous. I’m not going to sit here and listen to you threaten us.”
“If you want to call Jesse Helms, Tom, go ahead, be our guest,” Roberts said. “It’s a free country.”
Dick Beattie, palms outstretched, tried to head things off. “Tom, that’s not going to get us anywhere.”
Cohen interrupted before anyone built up a head of steam. “Hey. Hey. This is ridiculous,” he said. “This is not what this meeting is about. We’re here to see how we can go in together.”
Beattie, glad for Cohen’s olive branch, didn’t miss the fact that the Shearson chief had waited until Hill finished to intervene.
It was past two o’clock when a messenger stuck his head into the conference room where the Forstmanns sat waiting. Ross Johnson wanted to see them. “Should I bring Fraidin?” Forstmann asked.
“No,” the man said, “no lawyers.”
Wearily, Ted Forstmann and his brother Nick pulled themselves from their seats and followed their guide past darkened rooms into Ed Horrigan’s corner office. Inside sat Johnson, Jim Robinson, and Horrigan. Robinson wore a rumpled tuxedo with the tie pulled down.
Barbarians at the Gate Page 34
