3 Altman’s coyness: Background interview with a former Altman colleague.
4 The 1981 article: William Greider, “The Education of David Stockman,” Atlantic, Dec. 1981, 27ff; David Stockman, The Triumph of Politics: Why the Reagan Revolution Failed (New York: Harper & Row, 1986).
5 He was recruited: Schwarzman and Peterson interviews.
6 At the time, Fink: Steve Swartz, “First Boston’s Mortgage Securities Chief Leaves to Join Smaller Blackstone Group,” WSJ, March 4, 1988.
7 They accepted Fink’s explanation: Schwarzman interview.
8 Peterson and Schwarzman offered: Interviews with Schwarzman and background sources.
9 Altman, who might have: Background interviews with three people familiar with the matter.
10 By the spring of 1988: Schwarzman interview. Two investors in the fund later defaulted, reducing the fund’s size to $810 million.
11 There were more than sixteen hundred: Scot J. Paltrow, “Nomura Buys Stake in Fledgling Investment Firm,” Washington Post, July 28, 1988.
12 A Wall Street bank: Carol J. Loomis, “The New J.P. Morgans,” Fortune, Feb. 29, 1988; news accounts.
13 More than anyone else, Wasserstein: Wasserstein, Big Deal, 179ff; Dennis K. Berman, Jeffrey McCracken, and Randall Smith, “Wasserstein Dies, Leaves Deal-Making Legacy,” WSJ, Oct. 16, 2009; Andrew Ross Sorkin and Michael J. de la Merced, “Obituary—Bruce Wasserstein, 61, Corporate Raider,” NYT, Oct. 16, 2009.
14 Wasserstein Perella soon won: Paltrow, “Nomura Buys Stake”; Michael Quint, “Yamaichi-Lodestar Deal Another Sign of the Trend,” NYT, July 28, 1988; background interview with a former Wasserstein Perella partner.
15 Most or all of that money: Background interview with a former Wasserstein Perella partner.
16 The other headline-grabbing: Quint, “Yamaichi-Lodestar Deal”; other news accounts.
17 It had recently amassed: Loomis, “The New J.P. Morgans”; Form S-1, KKR & Co. LP, Oct. 31, 2008, 233. KKR’s 1987 fund had a $5.6 billion first closing. KKR later added another $500 million in commitments to close the fund at $6.1 billion.
18 In May 1988, Henry Kravis: Kohlberg Kravis Roberts & Co. confidential private placement memorandum, late 1990s. The document puts KKR’s gross profit on its $221 million investment in Storer at $658.2 milion. The firm’s partners would have collected 20 percent of that profit, or $131.6 million, as their “carried interest.”
19 Early that year: Michael Puglisi, written response to query; Peterson, Education, 274ff; news accounts.
20 It began when Altman: Donald Hoffman interview, June 30, 2009.
21 Altman, Peterson, and Schwarzman … “We saw probably”: Peterson and Schwarzman interviews; Hoffman interview; David Roderick interview, June 16, 2009.
22 Back in New York: Schwarzman, written response to query.
23 The big concern … “James did a perfect analysis”: Schwarzman interview; Howard Lipson interview, May 29, 2008.
24 “Their mind-set was”: Lipson interview.
25 Schwarzman put out calls … “But he said our offer”: Schwarzman interview; James Lee interview, July 24, 2008.
26 “We really wanted”: Peterson interview.
27 Blackstone got everything: Schwarzman and Lipson (May 29, 2008) interviews.
28 In 1989, in line: Form S-1, Transtar Holdings LP, Apr. 27, 1994.
29 “You could argue”: Background interview with a leveraged-finance banker.
30 It helped establish: Peterson interview.
31 “In every way”: Howard Lipson interview, June 9, 2008.
32 With the prices: Schwarzman interview.
33 “We always thought”: Background interview with a buyout specialist who was active in the 1980s.
34 Schwarzman’s preoccupation: Background interviews with four former Blackstone partners.
35 Schwarzman acknowledges as much: Schwarzman interview.
Chapter 6: Running Off the Rails
1 Stockman was a relentless advocate: Background interviews with a banker and with a deal maker who worked with Stockman, and with two of his former Blackstone colleagues.
2 An early sign of trouble: Background interview with a former Blackstone employee.
3 “What we found”: Stephen Schwarzman interview.
4 “He had a habit”: Background interview with a former Blackstone partner. Two other former colleagues said the same thing.
5 “Right or wrong”: David Batten interview, Oct. 1, 2008.
6 Its profit margins … “It turned out”: Schwarzman interview.
7 “That’s where I saw”: Background interview with a former Blackstone partner.
8 In a phone conversation: Schwarzman interview.
9 He castigated him: Background interviews with three former Blackstone partners.
10 Anything from misspelling: Background interview with a former Blackstone employee.
11 In the early years: Howard Lipson interview, May 29, 2008.
12 “After Bruce did that deal”: Schwarzman interview.
13 Instead of taking a straight: Schwarzman and Michael Puglisi interviews.
14 Mergers had rebounded: Puglisi interview.
15 McVeigh’s résumé: Randall Smith, “Blackstone Group Leaving Arbitrage as Deals Dwindle,” WSJ, Jan. 29, 1990.
16 Ten months after McVeigh: Puglisi and Batten interviews.
17 But it’s safe to say: Background interviews with two former Blackstone partners; Stewart, “Party.”
18 Winograd and McVeigh: Background interviews with three former Blackstone partners.
19 “He was a terrific manager”: Background interview with a former Blackstone partner.
20 Junior staff members: Background interview with a former Blackstone employee.
21 “Steve was a very tough boss”: Henry Silverman interview, May 13, 2008.
22 Realizing that a second … “Had we not had Edgcomb”: Schwarzman interview.
Chapter 7: Presenting the Steve Schwarzman Show
1 “I was extremely active”: Peter Peterson interview.
2 Starting with essays: Peter G. Peterson, “The Morning After,” Atlantic, Oct. 1987.
3 Newsday columnist: Allan Sloan, “LBO Ends Up on Scrap Heap,” Newsday, Sept. 9, 1990.
4 An article in Barron’s: Joe Queenan, “The Cadillac Cassandra—Peter Peterson’s Quixotic Quest for Fame and Fortune,” Barron’s, Jan. 16, 1989.
5 During investment: Jonathan Colby interview, Dec. 14, 2008; background interviews with two former colleagues of Peterson’s.
6 Peterson rarely deigned: Background interviews with three former Blackstone employees.
7 “He was absolutely a presence”: Lawrence Guffey interview.
8 In a revealing anecdote: Stewart, “Party.”
9 “I saw the business”: Stephen Schwarzman interview.
10 “He could fly, man!” Bobby Bryant interview, Feb. 19, 2009.
11 He was a solid A and B student … Schwarzman also won: Jeffrey Rosen interview, May 28, 2008; Schwarzman interview; Stewart, “Party.”
12 Fresh out of Yale … Donaldson, Schwarzman says: Schwarzman interviews.
13 Donaldson says: William Donaldson interview, Feb. 12, 2010.
14 When the bank’s president: Schwarzman interview.
15 “He would often call”: James Lee interview, July 24, 2008.
16 Former partner Bret Pearlman: Bret Pearlman interview, Oct. 22, 2008.
17 “When I worked”: Background interview with a former Blackstone partner.
18 A banker recalls: Background interview with a leveraged-finance banker.
19 The head of another: Background interview with the head of a private equity firm.
20 He took pains: Howard Lipson interview, May 29, 2008.
21 When Steven Fenster: Rosen interview; background interview with a Blackstone partner.
22 On the eve: Pearlman interview.
23 “I just remember”: Mario Giannini interview, Feb. 13, 2009.
24 Schwarzman had an “unfiltered” quality: Background interview with the head of a private equity firm; personal observation.
25 “Steve is not the sort”: Simon Lonergan interview, Jan. 22, 2009.
26 In 1990 he told: Randall Smith, “Fast Talk, Connections Help Make Blackstone a Wall Street Success,” WSJ, Oct. 24, 1990.
27 At Blackstone’s annual meeting: Peter Lattman, “Steve Schwarzman’s Take on the Subprime Mess,” WSJ Blog, May 8, 2008; background interview with a Blackstone limited partner.
28 Schwarzman “always has”: Background interview with a Blackstone limited partner.
Chapter 8: End of an Era, Beginning of an Image Problem
1 Another fountain of fees: Form S-1, BFM Holdings, Inc., May 19, 1992.
2 Immediately after catching wind: Background interview with a former DLJ executive.
3 UP’s chairman: Peter Peterson interview.
4 DLJ found itself: Background interviews with two former DLJ executives.
5 So it was … “He was gracious”: Schwarzman and Hamilton James interviews; background interview with a former DLJ executive; IPO Prospectus, Chicago and North Western Holdings Corp., March 31, 1992, 9ff.
6 It had everything: Burrough and Helyar, Barbarians; Wasserstein, Big Deal, 113–16; background interview with a KKR partner.
7 “The firm’s partners”: James Sterngold, “Buyout Specialist Bids $20.3 Billion for RJR Nabisco,” NYT, Oct. 25, 1988.
8 But KKR ended: Anders, Merchants, 255; RJR financial filings, 1990.
9 By the spring: Ibid., 263.
10 The rip-roaring bestseller: Burrough and Helyar, Barbarians.
11 Years later: Background interview with a person familiar with the investment.
12 Investors in KKR’s: Form S-1, KKR & Co. LP, Oct. 31, 2008, 233.
13 A devastating front-page story: Susan Faludi, “The Reckoning: Safeway LBO Yields Vast Profits but Exacts a Heavy Human Toll,” WSJ, May 16, 1990.
14 The true consequences … By 1989, three years: Anders, Merchants, 115–18, 166–68, 184–85, 206–12, 228–29; Baker and Smith, Capitalists, 92–95, 107–113; Government Accounting Office, Case Studies of Selected Leveraged Buyouts—No. 91–107, 1991; “LBOs: The Good, the Bad and the Ugly,” BusinessWeek online, Dec. 3, 2007, http://images.businessweek.com/ss/07/12/1203_lbo/index_01.htm (slide 7) (based on Standard & Poor’s RatingsDirect report); company reports.
15 KKR made more: KKR confidential private placement memorandum, late 1990s.
16 Spurred by new business: interview with Rand Garbacz, former managing director at Deloitte Consulting and corporate strategy and restructuring officer, Nov. 14, 2009.
17 “These people were”: Robert Bruner interview, Dec. 2, 2009.
Chapter 9: Fresh Faces
1 In 1990, just $1.4 billion: Securities Data Corporation, cited by Michael Siconolfi, “Year-End Review of Bond Markets: Merrill Retains Underwriting Crown in Shaky Market,” WSJ, Jan. 2, 1991.
2 Federal regulators seized: Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review, Dec. 2000, 2.
3 Schwarzman embellishes: Stephen Schwarzman interview.
4 Carlyle notched: Confidential report to Carlyle’s limited partners, June 2000.
5 From its quick flip: Thomas Hicks interview, Nov. 1992.
6 When the economy revived: Davan Maharaj, John-Thor Dahlberg, staff writers, “Tycoon Has Law Hot on His Heels: California Accuses Francois Pinault and Others of Illegally Acquiring an Insurer’s Assets,” Los Angeles Times, July 6, 2000. Black and his financial backers later sold part of the Executive Life bond portfolio to Francois Pinault, the “tycoon” in the headline. Apollo and Pinault together made a $2.5 billion profit on the deal, the paper reported. Black and Apollo were never charged in the scandal involving Pinault.
7 Apollo Advisors: Form S-1, Apollo Global Management LLC, Aug. 12, 2008, 187.
8 Bass would turn: Background interview with a person familiar with the American Savings Bank and Continental Airlines deals.
9 Four years before: Norm Clarke, “Money Man Really Means Business When He Celebrates His Birthday,” Las Vegas Review-Journal, Nov. 13, 2002; “$7 Million Birthday Bash,” New York Post, Nov. 13, 2002.
10 The following year: Leslie Wayne, “The R.T.C.’s Point Man in Distressed Real Estate,” NYT, Mar. 10, 1991.
11 Batten, who had been charged … Robertson wasn’t fired: David Batten interview, Oct. 1, 2008.
12 The apartment’s buyer: Michael Gross, “Where the Boldface Bunk,” NYT, March 11, 2004.
13 Moreover, Blackstone: Henry Silverman interview, Jan. 20, 2010.
14 “Our reservation volume” … Schwarzman was so relieved: Schwarzman interview; Henry Silverman interview, May 13, 2008.
15 The IPO price: IPO Prospectus, Chicago and North Western Holdings Corp., Mar. 31, 1992; CNW’s cash flow (its earnings before interest, taxes, depreciation, and amortization, known as EBITDA) in a given year can be computed by adding the company’s depreciation and amortization expense, on p. F-4 of the prospectus, to its operating income, on p. F-2.
16 “CNW didn’t hit one”: Howard Lipson interview, June 9, 2008.
17 “When Henry joined us”: Schwarzman interview.
18 “Because of the people”: Silverman interview, May 13, 2008.
19 Rounding up pledges wasn’t easy: Kenneth Whitney interview.
Chapter 10: The Divorces and a Battle of the Minds
1 On the op-ed page: Peter G. Peterson, “The Budget: From Comedy to Tragedy,” NYT, Sept. 16, 1990.
2 In a glossy “Men’s Fashions”: “Store Styling,” in “Men’s Fashions of the Times,” NYT, Sept. 16, 1990.
3 To some people’s eyes: Background interview with a former Blackstone partner.
4 “Steve and Pete were very close”: Jonathan Colby interview, Dec. 14, 2008.
5 Over time, however: Background interviews with three people who know Peterson and Schwarzman.
6 “I felt it was fair”: Peter Peterson in an e-mail.
7 “With Pete, it wasn’t the money”: Background interview with a friend of Peterson’s.
8 “Pete doesn’t believe the point”: Background interview with a person who knows Peterson and Schwarzman.
9 Schwarzman very much liked: Stephen Schwarzman interview.
10 “Pru felt it would be”: Gary Trabka interview, Oct. 2, 2008.
11 Prudential’s Blair Communications: Henry Silverman interview, Jan. 20, 2010.
12 Altman had paid dearly … For years Altman: Background interviews with three former Blackstone partners.
13 Peterson, Altman’s mentor: Austin Beutner interview, Oct. 9, 2008.
14 Schwarzman was less forgiving … For a high-level Treasury: Background interviews with three former Blackstone partners.
15 When Altman returned: Background interview with a friend of Altman’s.
16 “That he wasn’t asked back”: Background interview with a former Blackstone partner.
17 By early 1992, BFM’s assets: Form S-1, BFM Holdings Inc., May 19, 1992.
18 But Fink and Schwarzman soon … finally relented: Background interviews with former Blackstone partners.
19 In June 1994, the business: PNC press release, June 16, 1994.
20 Blackstone’s partners made out well: Background interviews with three former Blackstone partners.
21 Though the size: Leah N. Spiro and Kathleen Morris, “Blackstone: Nice Is for Suckers—Its Good Cop–Bad Cop Team Grabs the No. 2 spot in LBOs,” BusinessWeek, Apr. 13, 1998.
22 Schwarzman would later freely admit: For instance, during a Jan. 10, 2008, conference call with analysts and reporters to discuss Blackstone’s acquisition of GSO Capital Partners, Schwarzman said: “One regret we have is that we sold BlackRock too early.”
23 Blackstone partner Chinh Chu: Chinh Chu interview.
24 At an investment committee … “Exactly!” said Lipson: Backgroun
d interview with a person who sat in on the meeting.
25 “James’s IQ” … As a result, Mossman: Recollections and quotes concerning Mossman, his face-offs with Stockman, his work habits, and his influence within Blackstone came from interviews with J. Tomilson Hill III, Kenneth Whitney, Chu, and Simon Lonergan (Jan. 22, 2009), and background interviews with several former Blackstone partners and others Mossman worked with.
Chapter 11: Hanging Out New Shingles
1 “I told him I had no interest” … In his place, Schreiber: John Schreiber and Stephen Schwarzman interviews.
2 The firm tried in 1991: Kenneth Whitney and Schwarzman interviews.
3 Through his long-standing ties: Case study of the DeBartolo deal in the PPM for BCP V.
4 From the moment Altman left: Blackstone press release, Nov. 18, 1993.
5 Merger activity: U.S. M&A activity rose from $153 billion in 1992 to $451 billion in 1995 according to Securities Data Corporation.
6 “The animosity between Michael and Steve”: Background interview with a former Blackstone partner.
7 “I thought we did well”: Michael Hoffman interview, May 20, 2009.
Chapter 12: Back in Business
1 CD&R claims: November 2006 speech by CD&R president and CEO Donald J. Gogel at the Astoria Private Equity Investment Forum; a transcript is posted on CD&R’s website: http://www.cdr-inc.com/news/perspectives/private_equity_a_force.php.
2 “David Stockman came up”: Howard Lipson interview, June 9, 2008.
3 “I told him it made sense”: Peter Peterson interview.
4 “The only way we’re going to talk” … With Chemical in its corner: James Lee interview, July 24, 2008.
5 By the late 1990s: Ellen Moody, “King of corporate debt moves into equities,” Bloomberg News, Oct. 4, 1999.
6 Says Lipson: Lipson interview.
7 In an April 1998 interview: Leah N. Spiro and Kathleen Morris, “Blackstone: Nice Is for Suckers,” BusinessWeek, Apr. 13, 1998.
8 “We preserved capital”: Lipson interview.
9 “These were all medium-sized”: Stephen Schwarzman interview.
10 When oil prices rose: Background interview with a former Blackstone partner.
11 “I’m thinking”: Background interview with a banker.
King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone Page 38
