Maybe we ought to fold the tent, Maher thought. Cut your losses.
The possibility of giving up made him wince; humiliating wasn’t a strong enough word for what that would feel like. All day Maher silently fought his demons. Then, Friday afternoon, came a glimmer of hope.
Greg Malcolm called, sounding excited. Chase Manhattan had agreed to look at the monetization proposal, Malcolm said, “and from the tone of the guy’s voice, we may really have a chance.”
Maher crossed his fingers.
Friday afternoon Johnson squeezed in a round of golf and afterward suggested to Laurie that they invite John Greeniaus and his wife over for dinner. The Greeniauses were spending Thanksgiving at The Breakers in Palm Beach. Johnson sensed his protégé’s concern about Nabisco’s future and wanted to assure him that he would be taken care of. “It’s been tough for the kid,” Johnson told Laurie.
Greeniaus, who continued to talk daily with Fennebresque while in Florida, arrived at Johnson’s condo at seven-thirty. He was petrified. The two men hadn’t talked at any length for two weeks, and Greeniaus dreaded Johnson’s questioning what he had been up to.
Once inside the condo, with its views of the Atlantic in front and the lush greenery of the Intracoastal Waterway out back, Greeniaus found Johnson his normal, bubbly self. He’d just been interviewed by Time, Johnson said, and it looked like he was going to make the cover. The cover! He was excited. Not everyone made the cover, you know. “I’m not as bad as Khomeini,” Johnson joked, “but he made it.”
Johnson, as usual, monopolized the conversation. Afterward he sat Greeniaus down and talked to him about the incredible opportunities he faced now that Nabisco was going to be sold.
“Listen, even if we take a little less, a little bit of a haircut, I want to make sure Nabisco gets in with the appropriate company,” Johnson said. “It’ll give you and your guys a chance to be top banana.” Why, Johnson and the Standard Brands Mafia had done it twice already. What an opportunity!
Greeniaus nodded a lot.
“I’m convinced I can do something that makes a hell of a lot of sense for you,” Johnson said. “For your people, John, you’re far, far ahead, because there’s many more paths of progress as part of a Kraft, a Philip Morris, a Nestlés, a Unilever, whoever it might be. Because they sure as hell don’t have the skills you have at Nabisco.”
Nabisco and Reynolds and Del Monte just didn’t belong together, Johnson said. They had nothing in common. No synergy. No flow of ideas or people back and forth. It just made sense to break them up. “You understand, don’t you, Johnny?”
Greeniaus nodded again, which Johnson took as agreement.
As the night wore on, Johnson talked to Greeniaus as if he were a member of the management team, confiding his innermost concerns about the upcoming bid. One hundred dollars a share was a hell of a bid, Johnson said: Don’t know if we can boost it.
“I’ve really got my doubts, Johnny,” he said. “I don’t know if we can go this high. They want a lot of cash. My biggest problem will be to try and hold my investors to the one hundred number. A short-term trader like John Gutfreund, you know, his attitude is the other guy is at ninety-four, ‘Why the hell should I come in at one hundred again, why shouldn’t we come in at ninety-seven or ninety-eight?’”
Even so, Johnson made it clear he wasn’t considering any bid much over $100 a share. From a financial point of view, it just didn’t make any sense. “Hell, we coughed up our goddamn toenails the first time around,” he said. “I haven’t seen anything that’s changed in the last ten days to enable us to bid any more.”
When the time came to leave, long past midnight, Greeniaus was immensely relieved. Not once, in more than five hours of conversation, had Johnson asked Greeniaus how he had been spending his time.
Later, the only words Johnson could remember Greeniaus uttering all evening were these: “Ross, I just pray you get it.”
On Friday Paul Raether, whose eagerness for the bidding was mounting daily, reached George Roberts at his home, hoping to gauge Roberts’s own enthusiasm for the second round.
“Gee, I don’t know,” Roberts said. “I’m trying to clear my mind of all this. I’m sick of talking about it.”
“Have you talked to Henry?”
“No, we’re intentionally not talking to each other.”
Roberts was a problem, Raether knew. He never had completely shared the rest of the firm’s ardor for RJR Nabisco. He seemed to pride himself on being the governor on Kravis’s engine. But in the battle for RJR Nabisco, Roberts had kept their speed so low they had finished last. Raether was worried whether Roberts would even make it to the starting line for the final round.
“I’m telling you, George, we can bid as high as the one-oh-five range and still get good returns,” Raether said.
But Roberts was being cagey. Raether couldn’t tell whether his message had any effect.
Kravis stretched his arms and took a deep breath of the cool Colorado air. It was good to be away from the rigors of wrestling with Ross Johnson. For two days Kravis had put RJR Nabisco out of his mind. He hadn’t talked much to Raether or Roberts, and didn’t mind a bit.
It was the Kravises’ second Thanksgiving at their new Vail home. Few places were better suited for a retreat. Two years earlier Kravis, while on a skiing vacation, had called his wife in New York and suggested they look for a chalet here. They both loved to ski so much, it only made sense. Kravis’s only condition was that he be able to ski in and out of the new house. Together they had tramped through home after home, never finding the perfect one. Finally they came on the right hillside, although the house atop it appeared to be a disaster—at least it looked that way from the outside. Kravis and Carolyne never actually went in, but simply bought it, tore it down, and had a new home designed in its place.
The result, a Tyrolean symphony of stone, wood, and glass, had been finished at Thanksgiving a year earlier. They named it Woodhaven. Kravis loved it. The house was surrounded by towering silver aspens, and the air smelled of pine. Inside, the living room was dominated by a massive seventeenth-century French hearth and twenty-four-foot arched windows overlooking the slopes. The library’s intricate paneling was of Hawaiian koa wood, hand tooled and rubbed by an Austrian-born artisan who spent months on the task.
Kravis had stopped talking about the deal the minute they arrived. Only once did Roehm bring it up. “What do you think you’re going to do?” she wondered.
“I don’t know,” Kravis replied.
Roehm again searched for clues in her husband’s face, but found none. “He was playing the great poker hand,” she said later. “He played it very close to the vest, even with me.”
On Thanksgiving they celebrated their third wedding anniversary. Carolyne gave Kravis a two-week-old black Labrador retriever. Actually, she gave him a picture of herself with the puppy in her arms. Kravis already had a yellow Lab named Kristi, which Roehm had given him for Christmas two years earlier.
“What are you going to name the dog?” one of Kravis’s children asked.
Kravis thought a moment. “If we end up bidding for RJR Nabisco, and if we win, his name’s going to be Nabisco. If we don’t get it, we’ll have to figure out another name.”
The kids weren’t too hot on Nabisco. “Why don’t we call him Oreo instead?” one suggested.
Kravis was on his way to the slopes Saturday morning when he returned a call from Paul Raether.
“Have you talked to George yet?” Raether wondered.
“No, have you?”
“Yeah, yesterday.”
“Where is he?”
“He’s not sure he wants to do this at all.”
“Where are you?” Kravis asked.
“Jeez, you know where I am,” Raether said. “I’ve always been more bullish on this than George.”
They debated for a while about how intransigent Roberts would be, and agreed to meet first thing Monday to plan their strategy. “You know George won’
t want to leave till Monday morning,” Kravis reminded him. Roberts hated New York so much he tended to hang on to every last minute of California time. “We really ought to get together Monday night then,” Raether said.
By the weekend, the drumbeat that had begun so quietly in the days before Thanksgiving was growing louder and louder. All weekend Shearson and the management team heard the same message repeated from every corner:
Kravis won’t be there.
Kravis won’t be there.
Kravis won’t be back.
Through every back channel, from every Kravis investment banker and lawyer, the rumor spread. Relaxing in Connecticut, Jim and Linda Robinson heard it and recalled Linda’s strange conversation with Kravis. In the Hamptons, Peter Cohen heard it and thought of his talk with Dick Beattie. In his home on the north shore of Long Island, Tom Hill heard it and thought of his own discussions with Bruce Wasserstein. The rumor spread to each of the Salomon Sausages and through the ranks at Lazard and Dillon Read. In Florida, Johnson heard it from Linda Robinson. All of them heard the same thing. Kravis was bidding low if he was bidding at all.
The question was: Would they believe it?
Jim Maher’s team worked feverishly through the weekend, inching toward the Tuesday deadline. Among the sundry investors roped into the bid was a British sugar company named S&W Berisford. Jay Pritzker held an 11 percent stake in Berisford, which also paid Jerry Seslowe for financial advice.
Seslowe had penciled in the British company for $100 million of the $1.2 billion in equity First Boston needed. Saturday the group’s tax attorneys ruled that, of the $250 million in equity required for buying Nabisco itself, at least half must come from a third party unaffiliated with the Pritzkers or First Boston. Seslowe immediately thought of Berisford.
Two of the British company’s senior executives were in New York, but no one could find them. Seslowe phoned Berisford’s chief financial officer in London, who reminded the accountant why he couldn’t locate the men. They were orthodox Jews. They couldn’t work on the sabbath, or even answer the phone. Seslowe waited all day. Shortly after sunset, he took a call from Howard Zuckerman, head of Berisford’s U.S. operations.
“Howard, we need a commitment within two days.”
“If it’s so important,” Zuckerman replied, “how about meeting tonight?”
Wonderful, Seslowe said. Come on over.
Fennebresque greeted the two Berisford executives when they arrived at First Boston that evening. Ushering them into a conference room, he thought he heard a young First Boston associate softly whistling. Fennebresque turned and looked at Berisford’s chairman, Ephraim Margulies, and immediately recognized the tune. It was the theme from Alfred Hitchcock’s 1950s television show. Margulies was the spitting image of the renowned British director.
Fennebresque’s food team made a forty-five-minute presentation. Afterward Maher’s aide was pleased; he thought the odds good that the Berisford people could make their decision by Tuesday. Twenty minutes later, Howard Zuckerman took Fennebresque aside.
“We’ll do it.”
Fennebresque didn’t understand. “You’ll do what?”
“We’ll take the $125 million.”
Fennebresque watched in disbelief as Zuckerman picked up a discarded pizza box and, on its rear flap, scribbled out a wire authorizing Berisford’s London office to make the investment. He had never seen anyone work so fast.
Brian Finn turned to Hank Handelsman and asked, smiling, “Do these people have any idea what they’re doing?”
“No,” Handelsman said. “Not really. Why?”
“Well, it’s important, I would think. I mean, they’re going to commit $125 million. Why should they do it?”
Handelsman stared at Finn as if it was the silliest question he’d ever heard.
“Jay asked them to.”
Monday morning Felix Rohatyn convened a meeting of the board advisers in conference room 32C at Lazard. Inside the firm, 32C was known as the queen of conference rooms. It had paneling.
There was much to do in the final thirty-six hours before bids were due. Everyone had heard the worrisome rumors about Kravis. If that weren’t bad enough, ominous noises were beginning to emanate from First Boston as well. No longer could they be certain that either group would bid tomorrow.
Now, more than ever, they had to examine the feasibility of a restructuring. Luis Rinaldini had worked long hours formulating the plan and was convinced it would work. Others, including Rohatyn, had their doubts. What happened to the company after that? And, most important, who would run it? “How do you run a recap without management?” Rohatyn asked rhetorically.
Johnson would have smiled had he known the only candidate to step forward and offer to assume that leadership. It was John Macomber—the same Macomber who as a special committee member now sat in judgment of Johnson and who, on at least two prior occasions, had been involved in aborted attempts to head RJR Nabisco. When the subject of a restructuring had come up weeks earlier, Macomber had approached Hugel and volunteered to run the company if Johnson was thrown out. It was no coincidence that Macomber was also the biggest supporter of the recap among the five committee members.*
The advisers decided to take a risk. If they were certain the recap could be valued at $100 a share, why not let the bidders know it? That way they could set a bidding floor, hinting pointedly that the board stood ready to reject anything less. It was a bluff, more or less. And while directed mainly at the management group, fairness dictated the same message be passed to all three. Therein lay the gamble: laying a $100 floor might be enough to scare off at least one of the other bidders.
First stop on the board’s eleventh-hour drive was the management group. Monday at twelve-thirty a Shearson–Salomon contingent led by Tom Hill met with a squad of board advisers at Dillon Read.
To the board bankers, Hill seemed unbelievably cocky. He had fallen hook, line, and sinker for Kravis’s disappearing act, and First Boston, he said, was a joke, “an air ball.” In a sidebar conversation with his golfing buddy Rinaldini, Hill put his fists together and pumped them up and down, mimicking a bellows, as if to suggest the board had been pumping up another player to roll out against Kravis and Johnson. “Hill was his usual arrogant self,” recalled one of the committee bankers. “Only worse.”
Dillon and Lazard brought several messages for Hill’s group. One, firm up your securities. Unlike the Kravis securities, Shearson’s had no “reset” mechanisms that, in effect, guaranteed a security would trade at a certain number over time. Shearson’s junk bonds could float up or down at will, leaving the buyer open to the vagaries of the market. The board advisers also rolled out the $100 recap plan. Anything less, they suggested, would be rejected as inadequate.
Rather than thanking them, Hill fought every suggestion. There was nothing wrong with their securities, he said. And the recap? A bluff. That day Hill was a man who thought he held all the cards. The bankers wasted little time arguing: If Hill chose to ignore them, it was his funeral.
Monday afternoon Felix Rohatyn passed on similar messages to Jim Robinson and Henry Kravis, who had returned to New York Sunday evening. “I’m not sure what we’re going to do,” Kravis told Rohatyn. “I don’t know if I’m going to bid at all. I’ve just had all this bad publicity…”
Rohatyn encouraged Kravis to bid. “Winning will only help your public posture, Henry. You’ve been hurt as much as you’re going to be. I can’t imagine your public posture would be any worse if you won than if you just dropped out.”
Monday afternoon, with twenty-four hours to go, the Kravis troops remained scattered. Raether, having returned from Florida, had driven to New England to move his daughter into a new private school. That morning he was buying supplies in a hardware store in Manchester, Vermont; by noon he was pounding hooks into the walls of his daughter’s dorm room. Roberts was in the air over the Midwest; both were due in by late afternoon.
That evening Kravis hosted a dinner fo
r Roberts, Raether, and a dozen others from the firm. Gathered beneath the Marquis of Londonderry’s stern gaze, they talked about what a victory would mean for the firm. For the most part eschewing financial details, they worried about the repercussions from Washington, life in the media spotlight, and the practical difficulties of swallowing a company the size of RJR Nabisco. The firm only had fifteen deal makers. Did it want to buy a company that would require the attention of eight or nine?
To Raether’s consternation, Roberts remained downbeat.
“Let’s just not bid,” Roberts urged at one point.
“No, George, come on,” Raether said. “We can’t do that. If we don’t want to bid, let’s at least reaffirm our earlier position.”
They talked for a time about what bothered each of them, but the issue of their bid remained unresolved. Tomorrow would tell.
On Monday First Boston’s carefully wound ball of string began to unravel. The first to falter was Jerry Seslowe. Pritzker’s aide had gathered from his investors informal commitments totaling more than $600 million—half again the $400 million he needed. Almost all, though, were contingent on meeting with First Boston and reviewing RJR Nabisco’s financial data. Seslowe arranged to assemble his stable at First Boston Monday afternoon for a presentation, after which he planned to rake in formal pledges.
Skadden Arps, always edgy about the issue of preselling, okayed Seslowe’s plan, but with a caveat. To attend the meeting Seslowe’s people would have to sign a confidentiality agreement. No sooner had Seslowe faxed a copy of the agreement to each of the investors than objections came flying back.
Among its clauses was one limiting the sale of RJR stock. Nearly all Seslowe’s backers were active stock players and had accumulated large RJR positions. Men like Martin Gruss, the New York investor, pointed out to Seslowe that signing the agreement would lock them into their positions, leaving them vulnerable to massive losses should the inflated stock somehow collapse. One by one, Seslowe’s investors began backing out.
Barbarians at the Gate Page 55
