Pete Peterson and Steve Schwarzman had a crackerjack team at Blackstone, and they addressed Columbia’s valuation, including its real estate, from every possible angle. Collaborating with Pete and Steve and Herb Allen beat going to Harvard Business School; they taught me how to be an investment banker. (That was one of Blackstone’s first big deals; it’s now worth about $40 billion.) Pete and Steve digested our data and produced three numbers for Columbia’s total worth—high, intermediate, and low. In the end, the price would be what Morita chose to pay.
* * *
—
When our deal team first visited Sony’s headquarters in Tokyo, I fell in love with Japan. Tokyo’s strangeness—the signs filled with pictographs, the elevated freeways—energized me. Running through litter-free fish markets at 3:00 in the morning, in a country where no one had firearms, I felt completely safe. The trains came on time and the stations were pristine. When Michael Jackson finished performing at a sixty-thousand-seat stadium, the audience stayed quietly in their seats until a man in a yellow jacket dismissed them by sections. I love order, so this was basically my dream country.
One of our hosts asked, “Is there anything special you want to do?”
I said, “We want to learn about the country. We are your students. Teach us.” We accepted every invitation—a tour of the Imperial Palace or a Shinto temple, a side trip to Kyoto. I saw my hotel room only to sleep. Give me a spare hour and I’d peel off to a sushi bar in the Ginza, bow to the chef, and point to what I wanted. Or I’d visit Shibuya, Tokyo’s SoHo, where teens wore Rolling Stones T-shirts and the latest Nikes.
My enthusiasm for the culture seemed to make an impression, but still, our meetings at Sony resembled the scene in Lost in Translation when the ad director carries on for an eternity and then the translator tells Bill Murray, “More intensity.” When Ohga went silent or seemed to doze off as the others talked among themselves, I could only guess at what we were missing.
Only gradually did Sony’s execs let their hair down. It turned out they liked the same things we did—martial arts and electronics, sure, but also golf, tennis, and movies. My half-dozen visits to Tokyo taught me about patience. It took many months to gain the trust of the Japanese. They did not rush decisions. Courtesy trumped candor; yes usually meant no, and no often meant yes. More than once I ran into Americans back from Tokyo who exclaimed, “I had the best meeting ever and we’re going to close!” I told them to get back to me in a year. A year later they’d ruefully call to report that their deal was still pending.
* * *
—
Herb Allen met Mickey Schulhof that fall at Teterboro Airport in New Jersey to hammer out the price. Mickey and I had worked closely all along, and I hoped to help him reach a fair number. Frankly, I thought he’d get eaten alive without help. Herb was a killer negotiator, deft and impossible to read. One-on-one it was a mismatch. But Mickey had the title and the relationship with Ohga, and he chose to fly solo. He either thought Herb and I were too close or he wanted sole credit for fulfilling Morita’s dream. Like Walter, he had ambitions to run the Sony entertainment empire.
Mickey opened with a share offer in the low twenties. Herb countered at thirty-five—a stretch because Columbia had been trading as low as twelve dollars and was slogging through its second straight down year at the box office. It was an auction of one; Coca-Cola would sell to Sony or to nobody. Mickey might have done better to back off for a bit.
Behind closed doors, Herb traded on a rumor of an eleventh-hour bid from Rupert Murdoch—it being perfectly acceptable in deal making to use information or perceived information to better your position. (If Herb had said Rupert had made a firm offer with a term sheet, that would have been improper. Just as it would have been wrong for him to manipulate a reporter to get a story about another offer published, then traded on that—as some bankers have been known to do.) I knew Rupert didn’t need or want Columbia. His sole interest was in their library, and he wasn’t going past fifteen dollars a share. But Herb got Mickey thinking, What if Murdoch moves in fast? Knowing how badly Morita wanted a studio, he couldn’t come back empty-handed.
Without consulting anyone, Mickey placed a midnight call to Ohga. Then he called Herb at home with a bid of twenty-seven dollars a share, far higher than Blackstone’s low-end projection. Herb was delighted to take that number to Coca-Cola’s board, which was delighted to accept it. It came to a $5 billion price tag (including $1.6 billion in debt), the biggest Hollywood deal ever and the largest Japanese acquisition of any kind in the United States.
In July 1989, more than a year after they hired me, Sony’s board approved the Columbia purchase with one condition: a new studio chief.
* * *
—
When our talks began, Walter Yetnikoff had casually remarked that he wanted me to run Columbia after it was sold. Sony’s leaders had a similar idea, though they held off on a formal offer until the deal was nearly closed. I asked Bob Greenhill, the head of Morgan Stanley, to represent me in contract talks. But that was a pose to protect my position in the deal. Part of me—the part that had begun to view CAA as a stepping-stone—did want to run everything eventually. But the agency was humming along on all cylinders then, and I loved the place. I couldn’t see stepping out of our race car to partner with the Japanese. I didn’t speak their language, and Sony’s bureaucracy was like the House of Borgia. Even the most ingratiating American would end up needing a food taster.
In any case, I couldn’t possibly work under Walter. Sure, there was no beating his relationship with Ohga, Morita’s designated successor as Sony’s CEO. But as the deal entered crunch time, Walter vanished. The next time I heard his voice was from a pay phone at Hazelden, the Minnesota rehab center. His setback didn’t hurt his relationship with Ohga, but others at Sony were less forgiving: Walter’s influence was on the wane. Much as I liked him, I’d be hitching my wagon to a star that could go supernova at any moment. (In his memoir, Howling at the Moon, Walter later wrote about his martial-arts fantasy to fight me to the death in Madison Square Garden. He was something of a crazy man, but that would have been a very uneven fight.)
To permit the Japanese to save face, I asked for 20 percent equity and control over Columbia’s board, a deal no public company could accept. When Walter told me he had to look elsewhere, I gladly helped him make a short list of candidates. My first choice was Frank Price, who’d run Columbia. He came out of TV, where story was king, and knew how to read a screenplay and speak the artists’ language (and he’d always been open to CAA’s packages). My second was Frank Wells, Michael Eisner’s number two, a superlative deal guy. But Price shared my wariness of Japanese ownership, and Wells declined to leave Disney.
At that point, Sony’s inexperience began to show. Walter leaned toward Peter Guber and Jon Peters, the production team that was riding high after Tim Burton’s Batman. (They also claimed credit where none was due for Rain Man and The Color Purple.) I thought they were wrong for Sony. While I had a soft spot for Jon, the onetime hairdresser from the Valley, he was too impetuous for the executive suite. And I doubted Peter really wanted the job; he’d done it before and he didn’t need the money.
I expected Peter to charm Ohga and Mickey Schulhof, who were Hollywood rookies. But I was astounded when Sony paid $200 million to buy Guber and Peters out of their company and another half a billion to get them released from their commitment to Time Warner. Had Walter gone to Steve Ross with a modicum of respect, as Mickey and I begged him, Steve might have canceled the contract as a favor. But Walter was always spoiling for a fight, and Steve wiped the floor with him.
My final task on the deal was presiding over a session to sort out any regulatory issues. It took an hour to run through Coca-Cola’s checklist: the Hart-Scott-Rodino Antitrust Improvements Act, SEC concerns, and so forth. Then I turned to Sony and asked about loose ends on their side. A company representative said, “Nothing, it’s a
ll done. The appropriate parties have blessed the deal.” Akio Morita was a keystone member of his keiretsu, an interlocking business association under the aegis of the Japanese government. He made one or two phone calls and the red tape disappeared.
* * *
—
Columbia struggled under its new owners. Jon Peters was forced out in 1991, two years after the deal was signed and a year after Walter Yetnikoff was fired from Sony Music. Peter Guber resigned in 1994, around the time Sony took a $3.4 billion write-off on Columbia, one of the largest losses in the history of the entertainment business. Mickey Schulhof lasted a year longer, before Ohga’s successor let him go. I was happy I’d passed on Walter’s offer.
The Sony-Columbia deal came to symbolize the hazards of investing in Hollywood. But Akio Morita cared less about short-term profits than long-term positioning. He made a mint from CBS Records, and a no-interest loan from the Japanese government softened Sony’s losses on the studio. Though his hardware-software synergy proved a mirage, Sony found redemption for Betamax when its Blu-ray DVD format prevailed as the high-definition standard, in part on the strength of Sony’s movie titles. And Columbia Pictures rebounded in the late 1990s under John Calley and Amy Pascal. While the studio has had its troubles of late, it remains one of the six majors.
For us, the deal was an unqualified success. Columbia was in danger of failing and Coca-Cola was set on divesting. They might have sold the studio off in pieces and wreaked havoc for our clients. Our intervention with Sony kept our biggest buyer intact. The studio didn’t buy any more projects from us afterward than usual, but our broker’s role helped us in subtle ways as we negotiated with their execs. They knew that I could call their bosses in Tokyo and they couldn’t.
We earned $10 million off the deal. Ron appreciated his share of the profits, but I could tell from hints he dropped that he wasn’t crazy about having to keep CAA running smoothly when I was in Japan or engrossed in spreadsheets. Excited by my new relationship with Akio Morita, and with Japan, I didn’t realize that I was jeopardizing a relationship that was much more important.
The Sony experience taught me how much I liked the suspense of the acquisition game, the stakes and strategies, dealing with leaders who supervised empires. I set my sights on building CAA into the McKinsey of the entertainment industry, the indispensable adviser. I couldn’t wait to broker a big transaction of my own.
It didn’t take long.
CHAPTER THIRTEEN
BRINK’S TRUCK
As the Sony deal was wrapping, Sandy Climan ranked the most likely Japanese bidders for the next studio. First on his list was Matsushita, the giant electronics firm that owned JVC and Panasonic (which is now the parent company’s name). They had almost no footprint in the United States—and $12 billion in cash.
In Japan, Matsushita was nicknamed maneshita, or “copycat.” Instead of innovating, they mimicked competitors at a lower price point. Their low-risk strategy had been extremely profitable, but recently it had faltered. Sony was killing them with Trinitron and the Walkman and its new camcorders. After Akio Morita shocked everyone by buying Columbia, Sony owned a big chunk of the material that went into Panasonic video recorders. Companies are like people: when threatened, they get paranoid. What would Morita do next? What if Sony formatted Columbia’s movies to play only on Sony machines? What if other studios followed suit?
The best defense, Matsushita decided, was a studio of its own. Maneshita-style, they reached out to the same people who’d helped Sony. Two weeks after the Columbia deal closed, I got a call from a JVC salaryman named Henry Ishii. He was the company’s L.A. scribe, the operative who reported local goings-on to the home office in Osaka. I had my secretary tell Ishii I was unavailable. Hierarchy was all-important in Japan; when two firms engaged, the top executives sat facing each other while their subordinates fanned out in descending rank. Seeming too eager would have lowered me in Matsushita’s eyes. Ishii called for three weeks before I agreed to receive him in my office. Would I be willing, he asked, to receive a visit from his superior, Seiichiro Niwa, a senior managing director?
Certainly, I said. Niwa was a West-leaning executive who’d partnered with Larry Gordon, the ex-president of 20th Century Fox, in a new movie production company. When he arrived in my office, we bowed from the waist and exchanged business cards with two hands and a slight nod of the head. I presented my gift of a Baccarat crystal ball embossed with stars, a token of Hollywood and our world-famous clientele.
Niwa and I spoke only in the most general way. My guest said it was his view that Matsushita’s future lay in software, in content, but that he was more inclined that way than some others at the company. The next day he sent me a book of sayings of Konosuke Matsushita, the company founder who’d died that spring at ninety-four. Then he asked if I would come to Osaka to meet with senior Matsushita management.
I said, “Who would that be?”
“Masahiko Hirata.”
Good, I thought. At the top of the company sat the chairman, Masaharu Matsushita, the son-in-law of the founder, who’d adopted his wife’s family name. He was a figurehead, like Queen Elizabeth. Next came the president, Akio Tanii, who governed by nemawashi, bottom-up consensus, in lockstep with his executive committee. While Hirata ranked third as the executive vice president and CFO, he ran the company day to day. He could drive a deal until Tanii blessed it pro forma. He was the one I needed to see.
I exacted one concession: that Hirata meet me first for three days in Honolulu, midway between Matsushita and CAA.
I found a Japanese bookstore in Rockefeller Center and bought a dozen volumes by the departed chairman. (He wrote forty-four.) I spent hours in electronics stores eyeballing Matsushita’s product lines. After acquiring the company’s hefty wholesale catalog, I homed in on video and audio equipment. Soon I could tell you to the last pixel how Panasonic’s best big-screen TV stacked up against Sony’s.
CAA’s team and Matsushita’s would meet at the Kahala Hilton, where my family vacationed twice a year. No one from L.A. would think twice if they saw me there. My travel team consisted of my inner circle: Sandy Climan, Ray Kurtzman, and Bob Goldman.
When we arrived at the Kahala just after Thanksgiving, Sandy asked his Matsushita counterpart about their preference for attire. The exec responded that “it is very considerate of you to suggest no ties”—which we hadn’t suggested. The Japanese didn’t want to wear ties in Hawaii any more than we did. In a nod to formality, we wore jackets into the room and quickly doffed them.
The death of Matsushita’s founder enabled its next generation of executives, men in their sixties, to strike a new path. But working with Sony had taught me how slowly deals moved in Japan, and how they didn’t move at all until you established relationships. As I told my colleagues over breakfast, “We are not here to discuss business. We’re going to be in a social staring contest, and we cannot blink. You will want to gag at some of the stuff I’m going to talk about. Hold it in.”
Hirata was about five foot three, reserved but with a healthy sense of humor. For two hours we discussed golf, our children, Japanese art, stereo equipment, my Japanese bronze flower vase collection, baseball, and my love of everything Japanese. Then we had lunch and contemplated the glories of chocolate chip cookies. I passed out a sampling Judy had baked for the occasion. We resumed in the afternoon to ponder the novels of James Clavell and the films of Akira Kurosawa. We considered how Seven Samurai inspired The Magnificent Seven. We talked about Shotokan, or Japanese-style karate.
It was much the same that afternoon and the following two days. At dinner, which we took turns hosting, everyone changed into blue suits and ties. We toasted with scotch, sake, beer, and wine, and conversed about friendships and women. We avoided all reference as to why we were there. It was oblique, maddening, hilarious, tortuous, and absolutely necessary. It was on-the-job training in the Japanese way.
On the
last night we staged a meal to remember, beginning with heaping trays of shellfish on ice. Knowing the Japanese love of steak, I asked the hotel to find the finest chateaubriand in Honolulu and carve it tableside. It was a very Jewish meal, with every course in excess; our new friends seemed overwhelmed. During the final round of toasts, I took stock. Judging by the other side’s bland faces, I concluded, glumly, that this visit had been a mere sniff around.
Then Hirata turned to me and said, “You know, we are interested in learning what it would take to acquire a motion picture studio. We would like to know what you would charge to help us.”
I had had my answer planned for weeks. “We’ll charge you nothing,” I said, “unless the job we do makes you happy. If you’re not happy, we’d like only our expenses—no fees.”
Hirata said, “And if we’re happy?”
“If you’re happy?” I looked him in the eye. “We’d like you to hire a Brink’s truck loaded with gold and send it to our office.”
Hirata beamed and bowed till his head nearly scraped his dessert plate. Then we shook hands. I told him how glad we were to be working together. Then we all bowed and left.
As we drove to the airport, it occurred to me I was out on the longest limb of my life. If the deal fizzled and we didn’t get paid, I’d get pilloried—with my partners at the head of the line. I’d be the Wizard of Oz after the curtain rose and the mic died.
But I was never one to dwell on the downside. CAA had gotten where it was by blazing new trails. Besides, we knew where Matsushita could start shopping.
* * *
—
When we founded CAA, Lew Wasserman’s MCA/Universal was a power in film and dominant in television. Then the inconceivable happened—the last mogul got old. As the cost of making movies soared in the 1980s, in large part due to us, Universal hunkered down. Despite the runaway success of George Lucas’s Star Wars, the studio passed on Raiders of the Lost Ark when Tom Pollock, Lucas’s lawyer, demanded a fifty-fifty split. Paramount scooped it up on those terms and made a killing. Lew and Sid Sheinberg chose to ride out the bubble and pass on deals they deemed inflated. But the bubble lasted fifteen years. After Warner merged with Time Inc. and Sony bought Columbia, MCA began to look outmoded.
Who Is Michael Ovitz? Page 26
