Barksdale nodded. “I’m even aware that you were involved when NASO acquired the Bank of Manhattan.”
“Right. I’ve been through this drill before. I know about keeping things confidential.”
“Of course, of course. I just felt I had to say it.” He paused. “We—by ‘we’ I mean Boreman. It’s really his relationship. Boreman has a very strong relationship with an investment group out of Germany.”
“Which one?” Falcon would know the group. He could feel adrenaline suddenly pumping through his body. It would probably be a small deal, but so what? It was a chance to get back in the game. God, it had been so long. If this was a real opportunity, he would make certain the transaction closed. He would make certain that Boreman allowed him to set up an M&A group at NASO afterward. And he would make certain that Granville rued the day he had not returned his calls.
“You will meet them. Soon. But for now I would like to keep their name out of this. Boreman’s orders. You must understand that.”
Falcon was not pleased. “Okay.” His voice betrayed his irritation.
“Look, I can’t violate a direct order from Boreman.”
“Fine. So this group wants to acquire someone here in the United States. Probably a basic manufacturer. Auto parts, specialty steel, chemicals. Something like that.”
Barksdale hesitated. “That’s right. How did you know?”
“The deutsche mark has strengthened considerably against the U.S. dollar lately, which makes a U.S. acquisition by a German company relatively inexpensive in mark terms. As far as the industries I referred to, those are industries the Germans traditionally like. Basic manufacturing. So, what company is the target?”
“Penn-Mar Chemicals.”
Falcon stared at Barksdale. “What!”
“Yes.” Barksdale took a sip of his coffee.
“Penn-Mar Chemicals? The Penn-Mar Chemicals headquartered in Toledo, Ohio?”
“Yes.”
“Penn-Mar is the second largest chemical company in the United States, Phil. It’s a behemoth.” Falcon rose from the chair and moved to the Bloomberg terminal he had spotted on a table beside Barksdale’s desk. He typed Penn-Mar’s stock symbol on the keyboard and waited. Almost immediately the information he sought flashed onto the screen. “My God, Penn-Mar has over four hundred million shares outstanding, and the share price is thirty and a half. That makes its market equity value over twelve billion dollars.” He looked at Barksdale uncertainly. “And to acquire a company, any public company, you don’t just go out and pick up the shares at the current trading price. To gain control, we’d have to pay an acquisition premium. It would cost these people sixty to seventy-five dollars a share to successfully close a public acquisition.” Like so many times before, he was calculating as he spoke. “That’s a total of twenty-five to thirty billion dollars to buy Penn-Mar’s equity. And that assumes Penn-Mar’s management is amenable to the takeover, which I doubt they would be. An unwilling management team would translate into an even higher acquisition price.”
“I certainly hope the Germans don’t have to pay thirty billion. Jesus Christ!” The older man almost spilled his coffee.
“They will. Count on it. I hope they have a lot of money to put into this thing.” Andrew returned to the chair.
“A billion. They will put a billion into the acquisition of Penn-Mar.”
Falcon gazed down at the carpet and shook his head. “I don’t want to make it rain on my own parade, believe me, Phil, but that isn’t nearly enough to seed the acquisition. The Germans, assuming they are real and they do have money to put into this transaction, could borrow some of the purchase price, but I doubt we would be able to raise twenty to thirty billion dollars of debt on top of only one billion in equity. Banks are skittish. They were burned in the eighties in highly leveraged deals, and, in case you haven’t heard, the chairman of the Federal Reserve, Carter Filipelli, is not keen on the idea of banks lending into highly leveraged, risky transactions. And ‘not keen’ is putting it mildly. He’s made speech after speech about how he won’t allow banks to dive into the LBO business again. About how he and the President aren’t about to let a go-go eighties mentality return to the market.”
“You mean he wouldn’t be terribly happy about NASO funding a Penn-Mar LBO.”
“Of course that’s what I mean.” Falcon shook his head. “It doesn’t matter anyway. We haven’t got the firepower if all the Germans have is a billion.”
“NASO will strongly support the transaction in whatever way it has to so that the transaction is completed.” Barksdale said the words quietly, almost inaudibly.
Falcon glanced up at Barksdale. “What did you say?”
Barksdale stared steadily back at Falcon. “I said that NASO is willing to commit a significant amount of capital to this transaction.”
“How much are we talking? What is a ‘significant amount’?”
“Whatever it takes.”
Falcon allowed the words to hang in the air between them for a few moments. “You realize, of course, that there are legal lending limits involved in banking.”
“Thanks so much for that sound bite. To think, after forty years in this business I’m finally learning about legal lending limits.”
Falcon ignored Barksdale’s sarcasm. “Seriously, NASO can only lend a maximum of fifteen percent of capital into one transaction. How much capital does the bank have at this point?”
“About fifteen billion dollars.”
“So NASO could commit a little over two billion. That doesn’t come close to what we need.”
“I told you, we are willing to do whatever it takes. First of all, we have a securities subsidiary that can underwrite junk bonds. I figure we can do five or six billion in the securities subsidiary alone. I’ve already spoken to Hennings, who heads up the Section Twenty Group. He thinks they can do that amount.” Barksdale could see that Falcon was doubtful. “Second, we manage several equity funds thanks to recent deregulation. I think we could pull another three billion from those entities. And finally, there is no love lost between Wallace Boreman and Carter Filipelli. If we went a bit over our legal lending limit, I doubt Boreman would be too troubled. Besides, there is little the Fed could do to us. We’re too big.”
“They could fire your asses.”
“Only if they find out.” Barksdale sipped on the coffee. “So, let’s add up those figures. For fun, let’s say we committed four billion in bank debt, six billion in long-term junk bonds, and three billion in equity. That’s thirteen billion dollars. With the Germans’ equity of one billion, we’d have a total of fourteen billion to pay for the acquisition. We’ll need more, but remember, now the acquisition vehicle has four billion in equity and six billion in subordinated debt. We ought to be able to raise a helluva lot of bank debt on top of ten billion of deep capital.”
“You’re serious?” Falcon looked at Barksdale in disbelief. Even Winthrop, Hawkins would not have been able to commit that kind of money to a deal. “Has Boreman presented this to NASO’s board of directors? I would think this kind of commitment would require board approval.”
“Sure. Certainly he has.”
“You were at the meeting?” Falcon was unconvinced.
“Of course I was.”
Barksdale was lying, and Falcon knew it. “You realize that if for some reason Penn-Mar went bankrupt with NASO holding a thirteen-billion-dollar investment, the bank would be out of business in a minute. There would be people lined up for miles outside the doors to this place trying to get their money out. And the bank wouldn’t be able to give it to them. And NASO’s crash would send the financial markets into chaos. The stock market, the bond market, the currency markets. They’d all crater.”
The older man put down his coffee cup and said smoothly, “The Federal Reserve would step in. They would put in whatever money was necessary to keep the
bank solvent. Hell, the savings and loan crisis cost the United States government three hundred billion dollars. Thirteen billion pales in comparison.”
“But the S&L crisis involved thousands of different savings banks, which didn’t all fail simultaneously,” Falcon argued. “And those institutions weren’t big players in the currency or derivative markets, the way NASO is. NASO has literally thousands of contracts with other financial institutions around the world to deliver currencies at specified dates. Thousands of situations where the bank is the other side of options contracts and interest rate swaps. If there were a run on NASO because the word got out that we couldn’t meet our deposit obligations, the Fed would have to react in seconds, literally. If there was any delay, any at all, the system could disintegrate. The entire banking system. Other financial institutions would encounter liquidity problems immediately because we couldn’t meet our obligations with them. Investors would pull their huge deposits, and banks would start failing all over the place. It wouldn’t be just a thirteen-billion-dollar problem. It would be catastrophic.”
“You are exaggerating.”
“Bullshit! This country has never had a large bank go down. Sure, Continental Bank in Chicago had some problems in the early eighties, but the Fed had plenty of advance warning. It was a situation that developed over a prolonged period. The Fed had time to step in. And things weren’t so incestuous at that point either. Institutions weren’t so interdependent. The system is like a house of cards now. Every institution depends on the others. Literally, the chain is only as strong as the weakest link. Phil, if we invest thirteen billion dollars in Penn-Mar and for some reason Penn-Mar goes bust, we could cause havoc in the U.S. financial markets. A bank just isn’t supposed to invest all of its capital in one deal. For very good reasons.”
“Look, Falcon, I’m not proposing that NASO hold all thirteen billion. We would make the initial investment and then sell most of the securities to other institutions, thereby spreading the risk through the system and making us a nice profit at the same time.”
“So we would presell the deal?”
“What do you mean, ‘presell’?” asked Barksdale.
“I mean that we would send the money out to pay for the shares, but then the other institutions would send money to us immediately. In other words, we would take this to hundreds of other banks and insurance firms and make certain of their commitment before we sent the money out to pay for the shares. So that we knew we wouldn’t really be on the hook for thirteen billion.”
“No! We can’t do that. We will talk to a few firms, but only to obtain the balance of the money we can’t come up with ourselves. The Germans and Boreman have been very specific about that. They don’t want anyone knowing about the deal before we announce our offer to purchase, other than people who absolutely have to know. They are paranoid that if word gets out about this deal, someone else like DuPont or Hoechst will preempt them. The Germans want a fully financed offer in place before we announce the takeover. After the takeover is complete, we can sell the paper to other institutions.”
“So then we will be taking a risk. A huge risk. It will take us at least thirty days to sell the paper. Probably sixty. And that’s extremely optimistic. What if during that period something happens? What if we can’t resell the paper after we send the money out the door because Penn-Mar suddenly develops a bad case of pneumonia?”
“That’s why you are involved, Falcon. To make sure Penn-Mar is clean. To make certain that we and the Germans don’t overpay for it. And to make very certain that within no more than sixty days after the close of the transaction, NASO holds less than two billion of the paper. You can sell the bank debt, the junk bonds, and the equity. Once we’ve won the bid, you can call any contacts you have. Hennings will do the same. Work together. Work separately. Pull in our people in the bank’s syndication group. I don’t care. But sell the stuff. We have to be able to get rid of it fast!”
“It would be a huge effort.”
“Are you saying you don’t think you can do it? Are you trying to tell me, now that you have something real to work on, you’re backing off on all of that talk about how good you are?”
“You aren’t going to intimidate me, Phil. It won’t work.”
“Push things as close to the edge as possible. Wasn’t that what you told Malley you did at Winthrop, Hawkins in your interview with him?” Barksdale wasn’t going to let up. “Let me see you work that edge now, Mr. Falcon.”
“I’ll need a top lawyer. I have a good friend at Davis, Polk who would be perfect—”
“No. We’ll use Dunlop & Latham.” He finished the coffee and pulled out a pack of Salems. “Smoke?” Barksdale thrust the pack at Falcon.
Falcon ignored the offer of cigarettes. “Dunlop & Latham? You must be joking. I mean, Phil, they are an excellent labor relations firm, but those guys wouldn’t know the difference between takeover documentation and a dime-store novel.” Falcon maintained his calm exterior, but inside he was beginning to boil. He couldn’t hope to complete a transaction of this magnitude without experienced legal help.
Barksdale pulled a cigarette from the package, lit it, and threw the pack toward the desk. It fell short. Several cigarettes bounced out of the pack and onto the carpet as it hit the floor. “I’m not joking. It’s already decided. And we don’t want them brought in until the last minute either. Until just prior to when you need to file the offer to purchase. Until just before we launch the tender. Next question.”
“We’ll have to file Hart-Scott-Rodino antitrust papers.”
“Dunlop & Latham can handle that too.”
“I’m telling you, they don’t know that stuff.” Falcon was becoming exasperated. “Let me ask you a question. Do you actually want to win this thing? Do you want the Germans, whoever the hell they are, to get control of Penn-Mar? Because if you do, you’ve got a funny way of going about this thing. This is the big game. I’m a first-string quarterback. But you are giving me the second team with which to win the game.”
“Next point.” Barksdale exhaled and smoke began to envelop the room.
“I can’t stand smoke.”
“It’s my office. Next point.”
“I’ll need analytical help. An associate to crunch the numbers and do the research.”
“Out of the question. As I told you, we want as few people knowing about this as possible. In fact, after today I want you to work at home. I will set you up with everything you need there. By tomorrow afternoon you will have in your apartment a personal computer complete with a laserjet printer, and you will have a Bloomberg terminal. If you need Securities and Exchange documents, call Disclosure and have them deliver the papers directly to your address. Do not have them delivered to NASO.”
Falcon hadn’t expected this. “Where am I supposed to be?”
“At a seminar.”
“You can’t really expect me to do this without working closely with the people in the securities subsidiary before we make the offer. You were talking about six billion dollars in junk bonds.”
“Anything you need to say to Hennings goes through me. Don’t take it personally, Falcon, but Boreman and I want to keep this thing confidential until the minute we go public. We want all of the information to flow through us so that if there is a leak, we’ll know exactly where it came from. You haven’t been at NASO that long. We don’t know you that well yet.” Barksdale blew more smoke into the office. “Win this one for us, and we’ll know you very well. It’s worth five million dollars to you, Falcon. You personally, that is. It’s worth five million, your managing director title, and the chance to head up an M&A group. And wouldn’t that be a nice thing to wave under Granville Winthrop’s nose?” Barksdale paused, knowing the arrow had hit its mark. “The computer equipment will be at your apartment by noon tomorrow. I believe you live at 232 West 82nd, Apartment 1004. Is that correct?”
Fal
con did not acknowledge Barksdale’s question except to lift one eyebrow. These people had checked him out very thoroughly. Very thoroughly. They knew which buttons to push and when to push them. He had underestimated them, and that irritated him. But five million didn’t. Nor did the chance to get back in the game.
* * *
—
NASO’s executive washroom was magnificent, replete with showers, sauna, inlaid tile, and an elderly gentleman who did nothing all day but distribute towels and collect dollar bills. Falcon washed his hands in the warm water. He took his time. He did not want to go back into Barksdale’s smoke-filled office. But they had a great deal more work to do.
In the mirror Falcon spotted one of the stall’s marble doors opening. The man who emerged was dark-haired and tall. His face was deeply tanned so that it emitted a healthy glow in the mirror. He wore a white-collared, blue pin-striped shirt and a sharp tie. Wallace Boreman. Falcon recognized the man’s picture from the inside cover of NASO’s annual report.
Boreman nodded at Falcon in the mirror, almost imperceptibly, but said nothing. His face remained impassive as he moved to the sink next to the one in which Falcon was washing his hands. Boreman rolled his shirtsleeves above his elbows, then moved his hands beneath the running water.
Falcon glanced casually in the mirror at Boreman’s left hand to see if he wore a wedding band. He knew Boreman was married, but you could tell a great deal about a man by his wedding band, and a great deal more if he didn’t wear it. But before Falcon’s gaze reached Boreman’s hand, he noticed something peculiar on Boreman’s inner right forearms. It appeared to be a small mole at first. Andrew looked more closely. It wasn’t a mole. Too well defined and not raised off the skin. Something else. A brand? Suddenly Falcon noticed that Boreman was staring at him in the mirror. Falcon’s gaze dropped quickly to the bottom of the sink. And somewhere deep in the recesses of his brain a small, faraway voice began to murmur as yet unintelligible words.
The Takeover Page 11
