“Now I have a question for you, Marvin,” Jason Stockmeyer interrupted. “If I understand Mr. Andersen correctly, he has said the inside shareholders will never sell. Does that mean he won’t even take Jeffrey’s offer to the Board of Directors?”
Yates was not about to allow his client to be set up for future litigation. “Oh no, Jason. Jeffrey’s offer will be given every consideration by the AFC Board, you can rest assured of that. In fact, the Board is meeting later this morning and I think you can assume these discussions will be on the agenda.”
“Do you have any questions, Flemming?” Yates asked. The Chairman shook his head no. “Bill? Laurance?” Silently, they indicated they did not have questions either.
“I have only one more thing to say,” Gruen added. “We really are serious about starting a tender right away, if we have to do that. So we need to know what the thinking of the AFC Board is. You’ve got a Board meeting today, you said. Can I get some sense of whether the Board’s approach will be friendly or hostile to us? That’s something I’d like to know by, say, noon tomorrow. And let me just add that our offer will be a serious one, and I hope it will be received in the friendly spirit in which it is going to be made.”
It was clear to the lawyers, if not necessarily to their clients, that it would be best to break up the meeting after Gruen’s ultimatum; further comments and questions would exacerbate a situation that could only become more tense. All shook hands politely and correctly, but with no humorous asides or small talk, and the AFC group headed en masse toward the elevators, discreetly holding their tongues until they were off Jeffrey Gruen’s premises.
Bringing up the rear of the procession, Reuben Frost silently pondered what he had just seen and heard. Jeffrey Gruen had been supremely confident of his ability to take over AFC. But how could he be, given the holdings of the family, management and the Foundation? What did he know that made him so confident? Frost searched his mind in vain for an answer. The only thing that seemed apparent to him was that there was some lurking disloyalty within the family—and that Jeffrey Gruen knew about it.
THE BOARD
7
The procession of AFC executives and lawyers that went down Park Avenue from Jeffrey Gruen’s office to AFC headquarters must have seemed odd indeed to onlookers. Walking three across, the men were deep in animated conversation about their meeting with the raider, oblivious to the approaching passersby they brushed with their swinging briefcases or forced off the sidewalk into the street.
The group gathered in Flemming Andersen’s office, where the Chairman outlined the agenda he thought the meeting of the Board of Directors, which was due to begin in ten minutes, should follow.
“I want all three of you lawyers there,” Andersen said. “And Jack Hilliard and his bunch from Hughes & Company when they arrive. What I plan to do is tell the Board what’s happened and then leave it to you, Mr. Yates, to explain to the directors what their responsibilities are, after which we’ll hear from Hilliard. And then we’ll vote Gruen’s goddam proposal down. Okay?”
“Just one amendment,” Ernest Crowder said. “I know how you feel about Gruen’s offer, Flemming, but just to keep the record straight, I think you should emphasize that the directors are free to act as they choose—and even to sleep on it overnight if they want to. After all, we don’t have to say anything to Gruen until noon tomorrow.”
“I agree with you, Ernest,” Yates said. “It’s very important, if we get into a cat fight in court, to show that the Board acted prudently and deliberately.”
“Reuben, do you agree with all that?” the Chairman asked Frost. “Can’t I just tell the directors to reject Gruen’s offer or get the hell off the Board?”
Frost did not know whether Andersen was joking or not. But he took no chances and rejected any such behavior.
“My colleagues are right, Flemming. Even I know about the Van Gorkum case,” Frost said, referring to an important recent court decision in which the directors of a corporation were found too willing to bless management’s handling of a takeover proposal.
“All right, gentlemen,” Andersen said, with a deep sigh. “I’ll try to behave. Let’s go.”
The Andersen Foods boardroom was austere by comparison with the conference room at Gruen & Company. Its windows looked out on Park Avenue, but only at the correspondingly low floor of the building across the street. The principal ornament in the room was a huge wooden table, unscratched and polished to a high sheen. (The directors did not know that a self-important secretary in the adjoining executive offices had made it part of her life’s work to save the directors’ table from the depredations of lesser mortals. When others used the room, she saw to it, by scolding and surprise inspections, that no food or coffee cups desecrated the table. Not knowing of her devoted if misguided efforts on their behalf, the directors were never properly grateful to the woman, who was universally hated by her fellow employees.)
The first person Frost saw on entering the directors’ room was Marlene Vaughan. Mrs. Vaughan seemed to be at first meeting a flighty Southern belle with no powers of concentration and probably very little gray matter to concentrate with, an image reinforced by her characteristically bright red lipstick and nail polish. This was a very wrong impression, as Reuben had learned from past experience. Not only was Mrs. Vaughan a well-known nutritionist at Emory University in Atlanta, but she had shrewd and tough-minded business instincts as well.
“Well, Reuben, is the fox going to take over the hen-house?” she asked, as Frost approached her and kissed her on the cheek.
“I don’t think so, Marlene. But we will see,” Frost answered, then greeted the distinguished-looking Weston Greene standing by the windows next to Mrs. Vaughan. Greene, a former United States Senator from Minnesota, had come to New York to work for a management consulting firm after an upset defeat four years earlier. Frost rather liked the man, though during his time in Washington some cynics said that he had been elected only because he looked like a Senator, with his slim, lanky frame and a full head of gray hair. Frost gave the voters of Greene’s home state more credit than that, though the former legislator’s position on the Board represented nothing more than obeisance by Flemming Andersen to AFC’s historic ties to the North Star State.
Nearby was Harry Knight, the retired Chairman of the Board of First Fiduciary Bank. If Greene looked like a Senator, Knight looked like a banker—tall, filling out but not overflowing a double-breasted suit, a rough-hewn face projecting solidity and (if necessary) sternness and discipline, those essential virtues of the commercial banker. He was conversing somewhat uneasily with short and squirrelly Andrew Fordyce, the editor-in-chief of View Magazine.
Fordyce had started his career, and gained his public reputation, as an outspoken left-wing journalist. Even today his manner was that of the gadfly and the agitator, though ideologically he had long since become an arch-conservative. His horizontal shift to the right on the political continuum had coincided almost precisely with his vertical movement upward on the corporate ladder at Foresight Publications, Inc., the publisher of View; he had become an enrolled Republican the year he was elected a director of Foresight. As a director, he displayed a talent for boardroom politics and, when word of that talent spread, he found himself almost in as much demand for corporate directorships as highly qualified women and blacks. Having a real, live journalist on one’s board—and one who understood the trials and tribulations of the Free Enterprise System at that—was considered a plus by, at the moment, eight corporations in addition to AFC. (How much time this left for editing View was uncertain.)
Under normal circumstances, the outside directors of AFC made up a majority of the Board. Today, however, the fifth outsider, Leonard Snyder, President of a Chicago corporation with strong holdings in agricultural real estate, was traveling in Europe and could not be reached. So present were four outsiders—Vaughan, Greene, Knight and Fordyce—and the four insiders—Flemming and Laurance Andersen, Billy O’Neal and C
asper Robbins.
None of the Chase & Ward lawyers was a director of AFC, reflecting the wisdom of Charles Chase, one of the partnership’s founders, that the firm’s lawyers could not be truly objective in advising clients if they were also directors of those clients. Reuben Frost, when he had been the Executive Partner of the firm before his retirement, had staunchly defended Chase’s rule; indeed, he had carried it to the point, as he did now, of refraining where possible from sitting at a board meeting at the same table with the directors. He, along with Crowder and Yates, sat in chairs placed against the wall. There was no harm, in Frost’s mind, from keeping ever so slight a distance from one’s client (not so great a distance as to allow an aggressive competitor to come between lawyer and client, but enough to make one’s independence clear). Frost would never, as many lawyers did and as Marvin Yates had done the day before, refer to his client and himself collectively as “we.”
While they were waiting, the receptionist announced that the “delegation” from Hughes & Company had arrived. Delegation it was—John Foster Hilliard, the Hughes partner in charge of the AFC account, and five others, together with two more lawyers from Hughes’s regular law firm, Rudenstine, Fried & D’Arms.
Frost sighed, he hoped not noticeably, when Hilliard came through the double doors of the directors’ room. John Foster Hilliard was personable, white, Protestant, Anglo-Saxon—and smarmy and monumentally stupid; he was a perfect customer’s man, never saying no to a client, no matter how absurd the idea being put forward or the request being made (negative answers only came later, from others in the Hughes organization).
The other bankers were introduced, and Frost had hopes that they would be more alert than Hilliard. Frost had heard of two of them, Frederick Stacey and Vincent McDonnell, billed as experts on M&A and “capital markets,” respectively. He did not know the other three, a young woman named Jeanne Lowell in a dressed-for-success suit and bow tie; a thirty-ish black, Darryl Gillson, wearing the best approved preppy raiment; and a baby-faced youngster named Edmund Halleck. Halleck promptly took off his jacket (thus signifying his willingness to get down to hard work) and by so doing revealed his full range of yuppie accessories: yellow pastel shirt with white collar and cuffs, red silk paisley suspenders and a blue Hermès tie. He was also wearing a warning beeper, a device Frost had heretofore associated with busy surgeons and, based on what he had read in the newspapers, street-corner dope sellers. Frost also observed that all the bankers, save Ms. Lowell, were wearing black loafers with tassels, recalling the observation of one of his partners that investment bankers favored this style because they couldn’t tie their shoes.
With the full cast now assembled, Flemming Andersen opened the meeting by describing the sequence of events that had begun with Jeffrey Gruen’s Saturday-night telephone call. He tried to do so calmly, but there was a tone of indignation in his voice that was not quite suppressed, though he managed to hold himself in check. His account finished, he noted that a “full complement” of lawyers was present—“our regular counsel, Ernest Crowder, I guess what you might call our counsel emeritus—though he’s the same age as I am—Reuben Frost, and Mr. Marvin Yates, Chase & Ward’s chief takeover expert.” He then asked Yates to “read the directors their rights.”
Yates, moving from his chair at the wall, stood at the end of the table where he could be seen and, in effect, repeated the lecture he had given on the Company plane the day before, emphasizing the duty the directors had to consider Gruen’s proposal within the standards of the Business Judgment Rule.
“Does all this mean the outside directors should have their own legal counsel?” Senator Greene asked, when Yates had finished.
A little learning is a dangerous thing, Frost thought to himself at the side of the room. Greene had obviously heard the buzzword “independent counsel” as applied to outside directors, but didn’t quite know what that meant.
“I would think not, Senator,” Yates responded. “At least not yet. As of now, there’s no dispute between the outside directors and the inside directors. Nothing’s been voted on. If you and the insiders come to a parting of the ways, that would be the time to consider getting your own lawyer.” Yates had answered respectfully, concealing whatever impatience with the question he shared with Frost.
Andrew Fordyce then spoke up. “I can’t tell you how this whole thing appalls me,” he began, fingering his small bow tie. “Here is one of the best-run companies in America being threatened by a little parvenu. Of course, we won’t sell out to him. I don’t care if he goes to fifty-five or sixty dollars, I’ll never approve. AFC has too bright a future for that.”
“Mr. Fordyce, you may well be right,” Yates said. “But I think, frankly, we’ve got to proceed a little more deliberately in answering the question of whether we turn Gruen down.”
Frost noted disapprovingly that his former partner was again using the word “we” to include both AFC and himself.
“One of the reasons Mr. Hilliard and his colleagues are here is to give you their assessment of Gruen’s offer and whether it truly reflects the value of the Company,” Yates explained.
“Should we hear from them now?” the Chairman asked.
“Yes,” Yates answered.
After the obligatory introductory pleasantries by John Foster Hilliard—Hughes & Company was “deeply honored” to be of service to AFC, he said—Frederick Stacey was asked to evaluate Gruen’s offer.
“You all must realize we’ve had very, very little time to consider Jeffrey Gruen’s proposal,” he began. “But we of course have known AFC for many years, so I think we’re in a position to give you at least our tentative thinking.
“AFC’s stock price is now thirty. There’s no doubt in our mind that the Company’s undervalued at that price—and would be undervalued at thirty-eight or forty.”
Stacey went on to explain why he and his colleagues thought AFC was worth more on a long-term basis: the exponential growth of the beer business, probable long-term stability in commodity prices, the new but very real entrenchment of the SUPERBOWL and HEART O’GOLD products.
The Chairman began talking when Stacey had finished, speaking in measured and even tones. “Mr. Yates, I want to thank you for your very clear presentation to this Board of its duties and obligations regarding Mr. Gruen’s offer. And, Mr. Stacey, I want to thank you for your very lucid—not to say flattering—analysis of AFC and its future. Based on the conversations we’ve all had in the past few hours, either in person or by telephone, I’m sure my position is clear. I am unalterably opposed to having Jeffrey Gruen take over this Company. My father, my grandfather, my son, my nephew, we’ve all worked too hard to build AFC to have it fall into the hands of a manipulator like Gruen. But my decision is not controlling. As Mr. Yates has told you, it is a decision all of us, sitting as a Board, have to make.
“So there it is, my friends. What’s your best business judgment, as Counselor Yates would say?”
There was silence as Flemming concluded his remarks, thoughtful looks on the faces of those around the table as they mentally blocked out their individual positions.
Andrew Fordyce again was the first to speak, this time saying that nothing he had heard had changed his mind about voting to turn Gruen down. Mrs. Vaughan added a ringing endorsement of Flemming’s leadership of the Company and in short order the four outside directors all agreed that the proper course for AFC—and its stockholders—was an independent future, free of Jeffrey Gruen’s machinations. Without taking a formal vote, and subject to a supporting Hughes report, all the directors agreed that a Gruen offer at forty dollars should be rejected.
“Mr. Gruen has asked for an answer by tomorrow noon,” Flemming Andersen said. “I don’t propose to give him the satisfaction of telling him anything a minute before that. But meanwhile, I think we’ve got to consider the alternatives if he tries to fight us—as he almost certainly will. One proposal we kicked around very tentatively yesterday with Mr. Yates would be a countero
ffer, so that AFC could buy back enough shares to keep majority control out of Gruen’s hands. When you count the numbers, my family, Billy O’Neal and his wife, the Andersen Foundation and management own forty-seven percent of the stock. None of those shares will, I am positive, ever be sold to Jeffrey Gruen. That means a buyback of as little as three percent of the stock could keep Gruen out forever. Subject to you bankers telling me otherwise, I think it will work, however much Arab or Japanese or Mafia money Mr. Gruen can throw into the fight.”
“You sure you can get the money to do it?” Harry Knight asked.
“Good Lord, Harry, I assumed that First Fiduciary would be good for it all by itself,” Andersen replied, as the group laughed nervously. “We don’t have much debt, after all, so we certainly ought to be able to raise three hundred, four hundred million with no trouble. What do the bankers say?”
Vincent McDonnell, Hughes’s capital-markets expert, took the floor. “We haven’t had much time to explore this, as you know, but on the basis of some recent experience, I’m sure the money can be raised,” he said. “It really comes down to a question of what kind of financing you want and how much you want to pay for it.”
The banker recited the various alternatives—long-term borrowings from insurance companies or pension funds, or borrowings on a short-term basis from commercial banks.
“Given your timing,” McDonnell said, “I suspect you’ll want to borrow from the banks—they certainly can act faster than the insurance companies—or at least some of them can. Then you could roll your borrowings out later with the institutions, when you’ll have more time to work out an acceptable deal.”
As McDonnell continued talking, young Halleck’s beeping device began sounding. He struggled to turn it off, as everyone in the room turned to watch. It apparently was a false alarm, as he did not leave the meeting to find a telephone. “Sorry about that,” he said, turning to McDonnell. The latter resumed his explanation of other esoterica of the proposed loan: whether the money should be borrowed domestically, or overseas in the Eurodollar market. Whether an attempt should be made to get a quote for a fixed rate of interest or the interest rate should “float” above the so-called prime rate charged by the banks. Whether the loan should be collateralized with AFC assets or be unsecured.
Murders & Acquisitions Page 7
