Due Diligence: A Thriller

by Jonathan Rush

  “See! Did you give them that line about the hand and the glove?” Wilson slapped his thigh. “I knew they’d love that. Brits love that stuff. Gloves, scarves.”

  “I think we can do the heads, Mike.”

  “Good,” said Wilson. “That’s what I want to hear.” The thing most likely to kill a friendly deal, Wilson knew, isn’t a shareholder revolt or a counterbid, but failure to agree on who gets the top five or six posts. Executives who are happy to cut thousands of jobs as part of a deal are usually less happy to include themselves on the list.

  “You were right about their finance guy,” said Gelb. “Oliver Trewin. He’s sixty-seven. He’ll take the golden handshake.”

  “See, Ly? No competition. You stay CFO.”

  “They liked the idea of the joint counsels. As for the chief operating officers, theirs becomes operations director for UK and Europe, ours for the U.S. and Rest of World.”

  “Everyone’s a winner!” said Wilson, smiling broadly.

  “As for Bassett, Mike, that’s something you’ll have to deal with.”

  “Sure,” said Wilson. Andrew Bassett was the CEO of BritEnergy. From what he knew, Mike Wilson didn’t rate him. Bassett was fifty-nine and probably just wanted a knighthood to cap off his career, like every other British CEO Wilson had ever met. “I’ve told you how we’ll do it. We tell Bassett he gets to be CEO in two years. Until then, Ed Leary stays chairman, I’m CEO, and Bassett’s chief operating officer. In two years I become chairman and Bassett gets to be CEO, with a view to succeeding me as chairman in another few years. Right? That’s what we tell him. But you know that won’t happen, Ly.”

  Gelb looked at him silently.

  “In two years, it’s going to be my board. I give up the CEO job and become chairman. But the board doesn’t appoint Bassett.” Wilson shrugged. “Nothing I can do about it. You know what? They appoint you. At that point, we say good-bye to Mr. Bassett, give him a big golden handshake, and send him comfortably on his way.”

  Gelb didn’t reply. He wasn’t comfortable with such naked deception, and Wilson knew it. Lyall was a genuinely religious man. Every Sunday, he and his family took their seats in church. Wilson found a kind of pleasure in seeing the other man’s discomfort. Mike Wilson didn’t have a religious bone in his body. To him, it was a kind of softness.

  “Will he fall for that?” asked Gelb quietly.

  “Just tell me why he won’t.”

  Lyall didn’t say anything. He had seen enough of Mike Wilson to respect his judgment of character. It was something to be feared.

  “You’ll have to discuss that with Bassett yourself,” said Lyall eventually. “That’s not my place.”

  “Sure,” said Wilson. “What else?”

  “I’m concerned about what Stan’s going to say.”

  Wilson considered that. Stan Murdoch was the chief operating officer of Louisiana Light. The plan called for him to become operations director, excluding UK and Europe, reporting to Bassett, who would be COO of the merged group. Stan wasn’t going to like that. Eastern Europe was where a whole clutch of Louisiana Light’s international plants were situated. Murdoch was going to have to give them up, leaving him with the South American assets of Louisiana Light and the Far Eastern and Australian plants that belonged to BritEnergy. Pound for pound, it was just about a fair trade, and the Eastern European plants were by far the least efficient and dirtiest in the portfolio. Some guys would have been glad to be rid of them, but not Stan. Getting those plants up to standard was a matter of pride for him and the job wasn’t done. And Wilson had a hunch Stan wasn’t going to like being told he would be reporting to someone he had never met.

  That was the main reason Wilson hadn’t told Murdoch about the deal yet. At this point, only four people in the company knew about it. Mike Wilson and Lyall Gelb, Doug Earl, the general counsel, and one of Gelb’s analysts named Dave Sagger, who’d been doing the grunt work on the deal. They had put Sagger into a hired office off-site to quarantine him, and every couple of days Lyall went out there to look over the numbers he was producing. Sagger was something of a loner, the perfect guy for the task. Everyone else on Gelb’s team had been told he’d been given compassionate leave because of a death in the family.

  “Leave Stan to me,” said Wilson at last. “What else?”

  “Nothing,” said Gelb. “Except they want to know a price.”

  Wilson grinned. “You don’t say?”

  “They knew I wasn’t there for that. But this is all smoke, Mike, until we’ve got a price. They know that as well as we do.”

  Mike Wilson nodded.

  “There’s no point having any more discussions until we get that on the table,” said Lyall. “If they like the price, they’ll set up a data room and we can go ahead with due diligence as quickly as we want.”

  “They said that?”

  “Yes. That’s where we’re at. We’ve got to put up or shut up.”

  Mike Wilson stood. He walked to the window. Below him, the lights of a couple of barges drifted downriver. “What will they say to eleven-point-five?”

  “Eleven-point-five of what?” said Lyall. “Eleven-point-five billion in cash, they’d probably jump at it.”

  “Three to one, stock and cash, just like we said.” Wilson watched the barges. One was moving out of sight.

  “I have no idea what they’d say to that,” replied Lyall. “Genuinely, I don’t.”

  “You think we should offer twelve?”

  “That’s above the top of the Dyson Whitney range.”

  Wilson shrugged. “Three in cash, nine in stock.” The barge had gone now. The other one followed. Wilson turned around. “I don’t want to get into a price negotiation, Lyall. I want to bid, I want them to take it. I want it to be so sweet they don’t even think about saying no. That’s what we need. Maybe we go over twelve. Maybe we go higher.”

  “Higher?”

  “I told you, I want to bid, I want them to take it.”

  Gelb was silent.

  “Lyall, you know what their balance sheet looks like.”

  “Of course I know what their balance sheet looks like! Jiminy Creeper, Mike, I know it backwards.”

  “Then you tell me, how much debt are they carrying? Twenty, twenty-five percent?”

  “Twenty-two.”

  “Twenty-two percent debt.” Wilson laughed incredulously. “Any company with that kind of leverage deserves to get eaten. It can carry, what? Sixty? Sixty-five? There’s your three billion right there.” Wilson paused. “And that leaves us room for more, right?”

  Gelb didn’t reply. He knew all that, better than Wilson.

  “Lyall, we’ll get the cash. We’ll have every banker on Wall Street lining up to lend against a balance sheet like that. Hell, Lyall, you couldn’t ask for a sweeter deal. We borrow the money to buy them against the strength of their own balance sheet.”

  “You said you wanted to bid higher.”

  “We can get more.”

  “I don’t know what our board’s going to say.”

  “Our board’ll do what they’re told to,” said Wilson brusquely. Then he laughed. “Hell, Lyall, they want us to do this deal. That’s why we got new contracts, right?”

  Both Wilson and Gelb had recently had their contracts renegotiated, and Wilson had made sure that large incentives were included to execute a major acquisition in Europe. The bonus Wilson stood to earn was considerably larger than Gelb’s, but Lyall’s wasn’t trivial.

  “I’ve been talking to Stanzy and his debt guy,” said Wilson. “Name of John Golansky. You know him?”

  Gelb shook his head.

  “Time you did. Time you started speaking to both of them. I’ll bring you in on the next conversation. They’re going to get us a bridge loan to cover the deal, then they’ll sell down the loan after it’s done. They’re thinking of going to Citi for the bridge. They asked if I wanted to use Merrill, throw them a bone.” Wilson laughed again.

  “What’s their prem
ium on the bridge?” said Gelb.

  “They figure four percent. I’ll leave the details to you when you talk to them.”

  Gelb was silent. Wilson could see him running the numbers in his head.

  “We’ll get the cash, Lyall. Remember what I told you? I could have got Stanzy to do this for twenty bips. You would have, wouldn’t you? Well, you would have been wrong. For twenty bips, Lyall, I would have gotten Stanzy’s brain. For thirty, I might have gotten his heart. For forty bips, I have his soul.” Wilson cupped his hand, as if holding Stanzy’s soul in his palm. “Pete Stanzy would sell his own mother to do this deal. He would put her on the block and auction her off himself.”

  Lyall Gelb looked up. Sometimes Mike Wilson scared him.

  Wilson closed his fist. “If we’re going to get this done, that’s what we’re gonna need.”

  “What about BritEnergy?” asked Gelb quietly.

  “What about BritEnergy?”

  “You don’t think they’re going to figure this out? You don’t think they’ll realize we’re going to load their balance sheet with the same debt we raise to buy them?”

  “Nothing illegal in that.”

  “What happens when they figure it out?”

  “When they figure it out? Hell, Lyall, why the hell do you think I’m so confident we can get them to do this thing? A fifth-grader could figure it out.”

  Gelb didn’t get it.

  Mike Wilson smiled pointedly. “They’re still talking to us, aren’t they?”

  Gelb watched him. He was right.

  “This is a deal, Ly.” Wilson leaned forward. His tone became quieter, conspiratorial, even though there was no one else who could possibly hear them. “As long as everyone’s a winner—us, them, the bankers—the deal goes through.”

  Wilson gazed at Gelb with curiosity. How could someone who was so brilliant at weaving his way through webs of financial regulations—genuinely, frighteningly brilliant—understand so little about the realities of a negotiation? Or maybe that’s what he should have expected. Cutting a deal is like bare-knuckle fighting. Structuring finances is like tuning a piano. Bare-knuckle fighters and piano tuners don’t have too much in common.

  “Bassett’s still talking to us, right? What does that mean? All he’s worried about is what he gets out of this thing, and right now, he thinks he’s going to get enough. ‘Sir Andrew!’ He’s a winner. And don’t worry about where the cash is coming from. The bankers will deal with that. All you have to do is give me the stock price. Just keep it up for me, Ly.”

  Their eyes met. The company’s next filing, for their third-quarter results, was due at the end of the following week. Since Mike Wilson aimed to use Louisiana Light stock to pay for the majority of BritEnergy, the level of the Louisiana Light stock price was critical. If the stock price fell, he’d have to offer more. And even if he did, against the background of a falling stock price, they might well walk away.

  “Let’s give the market something to smile about.”

  “I’m squeezing all I can, Mike.”

  Wilson smiled. “Just as long as you’re not doing anything illegal.”

  Lyall winced. He hated it when Wilson said things like that.

  “There’s nothing left after this,” said Lyall quietly. “I want you to understand that, Mike. The cupboard’s bare.”

  Wilson shrugged. There was always more from somewhere. Gelb had never let him down.

  “I’m serious, Mike. After this, there’s nothing else. The filing after this, I don’t know what happens. There’ll be nothing to show.”

  “Just give me this one. Keep the picture pretty.”

  “And then?”

  “We do the deal.”

  “Before the next filing?” said Lyall disbelievingly. “In under three months?”

  Wilson nodded. “This is the last time Louisiana Light files as a single entity. Doug says we can do it. He’s looked into the UK regulations. He says we can get it all done in ten weeks if everything goes right.”

  “If everything goes right? Jiminy Creeper, Mike! Do you know how many things can go wrong? Have you even—”

  “We’d better make sure everything goes right then, hadn’t we?”

  Gelb stared at him.

  “Just keep the numbers up next week,” said Wilson. “We’ll get out of this, Lyall. Trust me. Give me this one last filing. Let’s not make it ridiculous, but let’s make it pretty.”

  * * *

  Gelb didn’t leave right away. After two days out of the office he had things to do. Later, one of the company drivers took him home. On the corner of North Street, St. Joseph’s Catholic Cathedral with its tall spire loomed pale in the moonlight.

  Lyall worshiped as an Episcopalian, but he had been brought up a Catholic. In Baltimore, his mother had been active in the church and the family was at Mass every Sunday. It was a deeply traditional congregation with an old Irish priest, Father Ahern, who raved about sin and damnation. Lyall remembered the crust of white spittle Father Ahern always had in the corners of his mouth. Lyall was sent to a Catholic school, along with his brother and three sisters, and there was Sunday school as well, with Father Ahern drumming the catechism into them. Sometime in his teens, however, Lyall started to question his faith. In college, far from his mother’s gaze, it lapsed altogether. It was his wife, Margaret, who brought him back to religion. She was from a strong Episcopalian family in Memphis. When Lyall got together with her, he realized how much he missed that spiritual component in his life, how important it was to him. The spirituality, the faith, not the Catholic ritual. And definitely not old Father Ahern with his fire and brimstone. He settled comfortably into Margaret’s Episcopalianism. It caused trouble with his family. Or with his mother. Still did, sometimes.

  Lyall gazed at the cathedral as the driver waited for the traffic light to change. He had never been in there. Twice a day, morning and night, he passed it, yet he had never been inside in all of the six years he had worked at Louisiana Light.

  The kids were in bed when he got home. Margaret greeted him with an embrace. It was good to feel her in his arms.

  Margaret laughed, disengaging herself.

  “Tired, honey?” she said.

  Lyall nodded.

  “How was London?”

  “It was okay.”

  “Everything go well?”

  “Yeah,” said Lyall. “It went fine.”

  “What is it?” Margaret frowned. “Is something wrong?”

  “No.” He sat down. “Come here.”

  He pulled her to him. She put her arm around his shoulders.

  “I’m sorry I had to be away,” he said.

  “That’s okay, Lyall. I understand.”

  “No, I’m sorry, honey. I’m really sorry.”

  Margaret didn’t say anything. She knew Lyall hated to be away from the family. She knew he kept his business trips to a minimum. She was grateful for it. He didn’t need to apologize.

  “How are the kids?” said Lyall.

  “They wanted to see you tonight.”

  “I know. I’m sorry. I had stuff to do. We’re filing next week, and there’s … you know…”

  “You still can’t tell me what’s going on?”

  “I can’t, honey. I’m sorry.” He hadn’t told Margaret about the deal, even though he trusted Margaret to keep confidentiality even more than he trusted himself. Confidentiality wasn’t the reason. Recently, Lyall had avoided saying anything about work at home. It was like polluting the one thing in his life that was still pure.

  Margaret watched him. She knew Lyall trusted her. If he couldn’t tell her what was happening at work, it wasn’t as if he would have told someone else. She just hoped nothing was wrong.

  “Sorry,” said Lyall again.

  “It’s okay. Becky had a bellyache today.”

  Lyall looked at her in alarm. “Bad?”

  “She came home from school with it.”

  “And?”

  “She didn’t eat
much. She went to bed early. I went up a little while ago and she was asleep.”

  “I’ll go look at her.”

  They got up and headed for the stairs.

  Their other two children, Deborah and Josh, were asleep in their rooms. Becky was awake. She lay on her bed, wide eyes watching from her pillow.

  “How’s my baby?” said Lyall, and he sat down on the edge of the bed and leaned down to hug her.

  Becky winced.

  Lyall stopped. “Becky?”

  “It hurts,” she whimpered.

  Lyall looked around at Margaret. She came forward anxiously. “Becky?”

  Becky grabbed Lyall’s hand. She squeezed. “It hurts, Daddy.”

  “Where?”

  “In my tummy. Bad.”

  Lyall and Margaret glanced at each other.

  “Has she seen a doctor?” said Lyall.

  Margaret shook her head, fear showing in her eyes. “It wasn’t this bad.”

  12

  Rob stared at the number. Then he started to smile.

  “We’ve got a typo here,” he said. “Pretty important one.”

  Behind him, Phil Menendez and Sammy looked around. Cynthia continued working at her computer.

  “Where?” said Sammy.

  Rob slid the document across. Sammy had asked him to proof it. It was an early draft of the discussion document that Mike Wilson was going to take with him when he flew to London to meet Andrew Bassett. The meeting was on Monday. Wilson was flying out Sunday. It was now Saturday afternoon, which gave them twenty-four hours to get it right.

  “Where’s this typo?” said Sammy.

  Rob pointed. “Twelve-point-five billion. That should be eleven-point-five, right?”

  “No,” said Sammy. “Twelve-point-five billion. That’s the offer.”

  Menendez had already turned back to whatever they had been looking at on Sammy’s computer.

  “But we ranged it. Eleven-point-two-five to eleven-point-seven-five.”

  “Yeah. Leopard’s offering twelve-point-five.”

  “That’s over the top of the range.”

  Menendez turned. “It’s over the top of your range. So what? You think your range is so great? Suddenly it’s the Bible?”