Due Diligence: A Thriller

by Jonathan Rush

  “All right,” said Stanzy. Mike Wilson was still a potential client, even though he had just gotten him to come all the way down to Baton Rouge for what was turning out to be a monumental waste of his time, and Stanzy was trying to be patient. But his irritation was getting the better of him. “What is this, Mike? You want advice from me on this thing? You want me to tell you what I think?”

  “I don’t need you to tell me what you think. I know what to think.”

  “Then what do you want?”

  “I told you what I want, Pete. I want to buy BritEnergy.”

  “Then let’s cut to the chase. Are you looking for a pitch here? Is this going to be a beauty parade? Who else are you talking to? Merrill? Goldman? Morgan Stan—”

  “What I’m looking for,” said Wilson, cutting across him, “is to do this deal very quickly and very quietly, in exactly the way I want it done.”

  Stanzy’s eyes narrowed. It was beginning to dawn on him that this might not be a monumental waste of time at all. Suddenly, it seemed as if Mike Wilson might actually be talking about something very real, very immediate. And very big.

  All at once, Stanzy was powerfully alert. He just hoped he hadn’t rubbed Wilson the wrong way by being so brusque with him.

  “How quickly?” he asked.

  “Quickly. Can you do it? I want the best team you can field.”

  “You’re not talking to anyone else?”

  “I don’t have time for a beauty parade.”

  No time for a beauty parade? Pete Stanzy didn’t quite believe that. For a deal this size, every bank on Wall Street would scramble. Wilson could have Goldman Sachs, Merrill Lynch, Citibank, Morgan Stanley, all of them strutting their stuff inside forty-eight hours.

  “Mike,” said Stanzy carefully, still looking for the catch, “you’ve got a relationship with Merrill Lynch, right?”

  “That’s right,” said Wilson.

  “And you’re telling me you’re not even talking to them?”

  “My relationship with Merrill Lynch didn’t stop you coming down here and pitching me all kinds of chickenshit like Florida G and L.”

  “But I didn’t pitch you this one.”

  “You want me to go to Merrill? Is that what you’re saying, Pete? Are you telling me Dyson Whitney can’t handle a deal this size?”

  “No,” said Stanzy hastily. “We can handle it. Absolutely.”

  “Then I would have thought you’d kind of want the business.” Wilson raised an eyebrow meaningfully, watching him.

  Stanzy frowned. “They know you’re interested? BritEnergy, I mean.”

  “I want to have the whole thing agreed in a month,” replied Wilson, which wasn’t exactly an answer to the question.

  Pete Stanzy looked at him skeptically. In a month?

  “I told you. I wasn’t joking when I said I want it done quick. And quiet. All right, Pete, let’s cut to the chase, as you said. How much?”

  Stanzy’s mind raced, running the angles. The whole scenario was highly unusual, to say the least. By any standards, this was a big deal—by Dyson Whitney’s standards, a huge one. For a deal of that size, you’d normally expect to offer a discount on the fee. Twenty basis points, 0.2 percent of the price paid for the target, was what you’d probably get as an advisory fee. Maybe only fifteen. You might start by asking for thirty basis points and let the client beat you down to twenty. Maybe he should start low right away to make sure he got it. But who was he competing with? For whatever reason, Wilson was offering him the deal on a platter. No beauty parade, no competitive pitch. He was almost begging him to take it. So maybe he should start high. Thirty-five? Maybe even forty? But Wilson might get pissed. And however much Wilson wanted Stanzy to handle this deal, he couldn’t possibly want to give it to him as much as Pete Stanzy wanted to have it. He had to have it. So go low. But why should he? Wilson wanted him to have it.

  “Pete?”

  “Forty basis points,” said Stanzy impulsively, almost wincing even before the words had come out.

  There was silence.

  Stanzy wished he could take those words back, make it thirty. Jesus, why hadn’t he made it thirty? Or twenty?

  “Done,” said Mike Wilson.

  Pete stared at him in disbelief.

  “But nothing if we don’t win,” said Wilson. “You got that? Don’t give me any of that retainer shit, Pete. I don’t care how many shareholder votes we get—if we don’t get to the takeover threshold, there’s nothing in it for you.”

  Oh, we’ll win, thought Stanzy. And he would be a legend. The man who got forty basis points on an eleven-billion-dollar deal. He did the math. In about a second. Forty-four million in fees.

  “I’ll send you a draft letter of engagement tomorrow,” said Stanzy. “In the meantime, we’ll get right on it. It’s Thursday today … you’ll have a first cut of the valuation on Monday. That soon enough? We’ll meet.”

  Wilson nodded. “I’m running down to Colombia tomorrow to check out our operation down there. I try to get down there once a quarter. Probably run over into Saturday. Monday’s good. Set up a time with Stella.”

  “Okay. Mike, what are your thoughts on how you’re going to finance the deal?”

  “Stock and cash,” said Wilson. “Say three-fourths and one-fourth as a starting position.”

  “That’s one-fourth cash?”

  “That’s right.”

  “You got that or are you going to have to raise it?”

  Wilson didn’t bother answering that question.

  “So how you gonna raise that? Debt or equity?”

  “Debt.”

  Stanzy nodded. One-fourth cash. Say 2.8 billion. He did the math. Say fifty basis points arranging fee on the debt. That was another fourteen million in fees right there.

  Stanzy pulled out a notebook. “Who do we talk to?”

  Mike Wilson didn’t reply.

  “Who’s on your team? Finance guy? Head of strategy? Who do my guys talk to?”

  “No one,” said Wilson. “Me. You talk to me.”

  “But my guys are going to need someone to—”

  “Your guys talk to me. If you need to talk to someone else, ask me.”

  “But you must have had people working on this,” said Stanzy.

  “I don’t think you understand, Pete. I said I wanted this done quietly, exactly the way I tell you to.”

  “Okay. I understand, Mike.”

  “Do you?” Wilson watched him carefully.

  Pete Stanzy put his notebook away. For forty basis points, he’d do it blindfolded and standing on his head if he had to. “We’ll talk to you, Mike,” he said. “No one else.”

  3

  His cell phone was in his pocket, but Pete Stanzy resisted the temptation to take it out. He kept his face blank. Never say a word in front of a company driver, he knew. Never give a hint of what you’re feeling. And never, ever, ever pull out your cell phone. Do that, and before you know it you’re wrapped up in the conversation and you’ve forgotten there’s anyone listening in the front seat.

  Instead, he sat in silence as he was driven back to the airport, running the numbers in his mind. Savoring them. Forty bips on the advisory fee, on a price of 11 billion. That was 44 million. Another 14 million for selling the bonds that would provide the debt. Fifty-eight million. And they’d need a bridge loan while the bond sale was arranged. Dyson Whitney didn’t have the capital to provide a bridge of 2.8 billion, or anything like it. They’d have to go to one of the majors for that. The usual premium on a bridge loan was 4 percent. Say Dyson Whitney got a 25 percent cut of that. Say the loan was paid out in six months. That was another 14 million. Add that to the fifty-eight, and the total fee to Dyson Whitney was 72 million. Say a round 70. Seventy million for the firm—of which around 6 million would go straight into his own bank account as bonus out of the fee.

  Pete forgot the eyes of the driver watching in the rearview mirror for a moment, and smiled. Not bad for a morning’s work.


  These were big numbers. The kind of numbers you’d deal with at a Morgan Stanley, at a Goldman Sachs, not at a third-tier bank like Dyson Whitney. On the scale of acquisitions, it wasn’t exactly an AOL and Time Warner, but it wasn’t chicken feed. In any given year—in a good year—there might be a total of a couple of hundred deals of this size worldwide. Right now there were probably half that number or less, and the first-tier banks got just about all of them. Stanzy couldn’t wait to see John Deeming’s face when he heard about this. He forgot himself and smiled again. Good-bye, Dyson Whitney. Do a deal like this, and who knew which bank might not come looking for him?

  Already, the desperation he had been feeling that morning seemed far in the past. Had that really been him, scheming to muscle in on some chickenshit Florida deal? Eight hundred million? What was $800 million to a guy who’d just pulled down an eleven-billion-dollar play?

  He ran through the numbers again, for the sheer pleasure they gave him.

  On that half-hour drive to the airport, Pete Stanzy did once or twice ponder the strangeness of the way it had happened. There were all kinds of things that might have given him pause. But it wasn’t too hard to think of reasons to explain them. Mike Wilson had probably had a dispute with Merrill. That happened with clients all the time. And suddenly, just when he needed an investment bank in a hurry, he found himself without one. And if he called for a beauty parade to find a replacement, with a half-dozen banks all strutting their wares, you could just about guarantee there’d be a leak from one of them. And Wilson must have been impressed when Pete pitched to him back in the spring, so why not go straight to him? Why not? It was possible.

  And the forty bips was unusual. More than unusual. But there were probably all kinds of good reasons Wilson had agreed to that as well.

  Besides, Stanzy wasn’t committing irrevocably to anything yet, not until the letter of engagement was signed by Mike Wilson and approved by Dyson Whitney’s own mandates committee. That wouldn’t happen until next week. He would have plenty of time to check out Louisiana Light when he got back to New York. Ask around, do a little digging, find out whether there were any problems with Louisiana Light that he should know about before he took Mike Wilson’s forty bips.

  And what? Not take them? Pete shook his head, amusing himself with the absurdity of the thought. Forty bips … he ran through the numbers, turning them around and around in his mind, like things so precious and beautiful you can hardly believe they really exist, and if they do, they might shatter before you can get ahold of them.

  That was what he started to think about now, the long, twisting, obstacle-laden path that lay between him and that prize. Any deal, even the most apparently straightforward and mutually agreeable, can break down over any number of potential points of dispute. It isn’t done until the ink’s on the page. A deal of this size, with the added complication of the transatlantic dimension, would be as fragile as any. Stanzy began to plan. He pulled out his notebook and started to jot down some points.

  At last, in the airport, he pulled out his phone and called one of the vice presidents at the bank.

  “Menendez!” he said. “We need a team.”

  “What’s going on?”

  “I’ll fill you in when I get back. Just get hold of a team. Two associates and an analyst.”

  “Associates are tight, Pete. We got rid of so many. Every time I talk to Fischer, he’s fucking telling me he’s got no one.”

  “We need a top team, Menendez. Tell Fischer. I don’t care what he has to do. Tell him I need the best we’ve got. Tell him I want Sammy Weiss. You got that? Tell him to get us Sammy Weiss. This is big, Phil. Tell Fischer this is big.”

  “What’s happening, Pete? You got a deal? You big swinging dick! You’ve got a deal, haven’t you?”

  Stanzy grinned. “I got something, that’s for sure. Get a war room, Phil. The lot. This is ultraconfidential. I’ll be back at eight. I’ll fill you in then.”

  “What’s going on, Pete? What? Tell me now.”

  “I’m in Baton Rouge. Figure it out. And Phil, when you talk to Fischer, see if you can get someone on the team who’s a Brit.”

  4

  Bernard Fischer had the worst job at Dyson Whitney. That was saying something, considering all the other jobs he’d had at the bank. Over eight years, he had worked up from analyst, through associate, to vice president, which was one rung on the hierarchy below managing director. The problem was that he wasn’t just any VP. For the period of one year, he had been tapped to be VP in charge of staff allocation.

  Being VP of staff allocation had a downside. You got lied to, threatened, yelled at, and generally abused by anyone at VP level and above. The upside? Bernard Fischer was still waiting to find one.

  Allocating staff at Dyson Whitney meant distributing the analysts and associates among the various projects in the bank, trying to balance the near-hysterical demands of table-thumping MDs and VPs against the limited realities of the available pool. Analysts were the lowest grade in the bank and did the worst of the grunt work. After about three years, if they survived that long—and about half of them didn’t—they were promoted to associate. Associates would serve about three years before having the chance to become a VP. When it came to analysts and associates, the only thing anyone cared about was whether they were going to deliver the work they were told to do. Every MD and VP had favorites. Everyone thought they knew who were the big producers and who were the losers. Everyone wanted experienced associates who could be told what to do and left to get on with it. Bernard Fischer found himself struggling to satisfy demands out of an unusually shallow pool of associates that had been left after a round of layoffs earlier in the year. No one seemed to ask themselves how the green first-year analysts who had just been recruited would turn into the experienced associates to replace them if no one was prepared to staff them on their teams and teach them the trade. Before he had become the staffing VP, Bernard Fischer wouldn’t have asked it, either. By now he had worked out the answer. Only no one else much wanted to hear it.

  And now he had Phil Menendez on the phone, shouting in his ear. Phil was the loudest, most foul-mouthed VP in the bank, which wouldn’t have been so bad if only he had a vocabulary of more than about three expletives that he continually repeated.

  “Phil, I cannot give you Vince Cozzi,” Bernard said for the fifth time. “Why don’t you understand? He’s in the middle of a deal.”

  “I don’t give a fuck!” shouted Phil.

  “Obviously. But Bob Waite does. You want Vince Cozzi, Phil, you’re going to have to talk to Bob.”

  Bob Waite was an MD. He hated Phil Menendez, who hated him back. Phil didn’t have a snowball’s chance in hell of getting an associate off one of his teams.

  “Get Pete Stanzy to talk to him,” said Bernard.

  “I gotta get this team today!” yelled Phil.

  Bernard sighed. “Phil, I’ve given you Sammy Weiss. Sammy’s a great associate, a top producer. You wanted Sammy, right? You asked for him. Okay, I’ve pulled him off something he was doing for Dale Bronson. You understand what I already had to go through with Dale for that? You want to thank me?”

  “Yeah, right.”

  “And I’ve given you Cynthia Holloway.”

  “She’s crap! We should fire her ass.”

  “You wanted her, Phil.”

  “I wanted a Brit. Don’t we have another Brit?”

  “She’s the only one.”

  “Jesus Christ! I told you, she’s crap. I wouldn’t let her give me a blow job.”

  Unlikely to be an issue, thought Bernard. He had a printout of the staffing sheet on the desk in front of him. He ran his eyes down the sheet, mentally evaluating the ones who were free. Phil had knocked back just about every other name he had suggested. “Jeez, Phil. Two out of three you wanted, I’ve got for you. The third one, I can only tell you what I’ve got left. I offered you Nick Bromgrove and you won’t take him because he didn’t perform on the Alphaguard d
eal—”

  “He’s a jerkoff! Didn’t we fire him already?”

  “What about Steve Pippos? What did you say? He couldn’t find the severance terms on some guy down in Florida—”

  “We should fire him as well! What a useless fuck!”

  Bernard shook his head. There was no point going through the names again, Phil had something against them all. “Well, all I’ve got left for you is Rob Holding and Ben Levi.”

  “Who are they?”

  “They’re analysts, Phil.”

  “What kind of analysts?”

  “Analysts,” said Bernard cautiously. “Dyson Whitney analysts.”

  There was silence for a moment. Bernard winced. It would take about two seconds more for Phil to realize why Bernard hadn’t mentioned them before.

  “You’re selling me rookies!” yelled Phil. “You’re selling me fucking rookies!”

  “Phil, I’m telling you what I’ve got—”

  “Do you know what kind of a deal I’ve got here?” demanded Phil, who had no idea yet himself. “Do you know what this deal is gonna mean for the bank?”

  “How can I know that, Phil? You won’t tell me anything about it.”

  “I can’t. Do you know how confidential I have to keep this?”

  “Look, you’re going to have to choose,” said Bernard. “Otherwise, you’re going to have to take it all the way up to the Captain. I bow out.”

  Phil was silent. The chief executive of Dyson Whitney, or the Captain, as he was known, hated getting involved in staffing disputes. Pete Stanzy wasn’t going to thank him if he got the Captain involved.

  “Choose, Phil,” said Bernard.

  “What were their names?” growled Menendez.

  Bernard glanced at the staffing sheet on the desk in front of him. “Rob Holding and Ben Levi.”

  “What are they like?”

  “How would I know? They’re rookies, Phil. Joined a few weeks ago. We must have thought they were good enough to work here.”

  “Oh, that’s great.”

  “You can have either of them. They’ve been given stuff to keep them busy. Nothing that anyone needs.”