Barbarians at the Gate (15 page)

Johnson, a man with almost no roots, couldn’t fathom the emotions he had unleashed. “Jesus Christ,” he said, “Exxon takes seven thousand jobs out of New York and nobody bats an eyelash. I move a few hundred jobs out of there and I’m Attila the Hun.”

His reaction said a lot about Johnson, a man who felt aides didn’t have a job but an assignment, who felt the moment he established an organization it started to decay, that standing still was a sucker’s play. Why, he wondered, couldn’t Winston-Salem see the plodder’s day was past? The world was changing; you had to keep moving, or you were passed by. “Ross is addicted to action, to a constant dynamism,” said O. C. Adams, a Connecticut psychologist who consulted with Johnson on personnel matters. “He can’t always see what effect that has on others.”

The backlash made no difference. The meetings with Winston-Salem’s mayor and North Carolina’s governor did nothing to change Johnson’s mind. Even before the move was officially announced, he and Laurie had picked out a new million-dollar home in Atlanta. The only sign of real trouble came when Sticht changed his mind about the move. Few in Winston-Salem knew how Johnson had come to replace Wilson, but most suspected it had somehow been orchestrated by Sticht. When news of the Atlanta move broke, Sticht was suddenly called to account and forced to field tough questions about the man he had supposedly chosen to run Reynolds. Sticht had voted in favor of the move, but under mounting pressure, walked into Johnson’s office with Albert Butler and tried to stop it.

Johnson held his ground, but the incident gave him pause to reconsider Sticht’s power, especially among his fellow board members. He had seen what Sticht and his allies had done to Wilson and was determined to avoid the same fate. No, Johnson told himself, Sticht had to be made an ally. After all the grants and raises he had lavished on Sticht, Johnson decided to do something more: He would name him chairman of RJR Nabisco. It would be a largely ceremonial position—Johnson would retain real power as president and chief executive—but the move would thrill Sticht.

“Don’t do it; he’ll only cause you trouble,” Ed Horrigan said.

“Don’t do it; you don’t need him,” Charlie Hugel said.

“You’re kidding me,” said Wilson, when Johnson replaced him with Sticht. “It’s your company, so you do whatever the hell you like. But it’s a sham, and you’ll regret it.” Weeks later Sticht was named chairman, and Wilson was right: Johnson came to regret it.

When the move to Atlanta was officially announced in mid-January 1987, Johnson put the best face on it. Only the corporate headquarters was moving. Some of the thousand staffers would be offered jobs in Atlanta. Some would be transferred to tobacco. The 12,000-plus people at RJ Reynolds Tobacco would stay put, and only a few hundred jobs in Winston-Salem would be lost. (That, in fact, was how it worked out.) Johnson made one final gesture to soothe Winston-Salem’s pain, donating the Glass Menagerie to Wake Forest.

Atlanta awaited, its throngs of boosterish businessmen thrilled to welcome a major
Fortune
500 company to their ranks. But if the city thought it was getting a warm corporate benefactor eager to put down roots, it soon discovered the truth about restless Ross Johnson. Johnson took over eleven floors in an unremarkable glass tower at a suburban shopping center named The Galleria. In his maiden public speech, he suggested that his skeletal headquarters staff should not be reckoned as a dispenser of corporate largess. “I told them I can’t support every organization from the United Way to the Seven Jolly Girls Athletic Club Beanbag competition,” Johnson later said to an interviewer. “If it pisses them off, I can’t help that.”

It was hardly the attitude city fathers had hoped for. “Don’t worry, Winston-Salem,” said the
Atlanta Constitution
headline the following day. “RJR move here was no great loss.”

The announcement, in fact, signaled a change in Johnson’s corporate focus. As takeovers swept Corporate America during the 1980s, Wall Street investment bankers had long salivated at Reynolds’s massive cash flow; it begged to be put to use in acquisitions. But they had never gotten to first base with Wilson, who relied for financial advice on solid, conservative Dillon Read. When Merrill Lynch bankers suggested looking at an
LBO, Wilson’s chief financial officer, Gwain Gillespie, sent them packing.

But Johnson was another matter. Here was a man the Wall Streeters could talk deals with. Big deals. Exotic deals. The companies Johnson ran were in a state of constant flux, buying, selling, and reshaping their parts in tried-and-true Pesketteer fashion. His door had always been open to discuss possibilities, whether the caller was Tylee Wilson, Bob Schaeberle, or a Wall Streeter with a briefcase full of ideas. The move to Atlanta brought investment bankers streaming south like june bugs to a light on a hot Georgia night. To Horrigan, the growing tide of Wall Street callers resembled “a steady stream of salesmen calling on the boss. It was because Ross was so open to it. It just got his juices flowing.”

Sometimes it got to be a bit much: Of the forty or so phone messages Johnson accumulated on an average day, more than half would be from investment bankers. Johnson had always had his share of harebrained schemes, but now friends joked that Johnson and the bankers formed an “idea of the week” club. His Monday Night Wrecking Crew long since broken up, Johnson enjoyed “bullshitting” with the bankers. He regarded their constant flow of ideas as free advice. “Why have a dog and bark for yourself?” he would ask.

The limited partnership idea had come from one of Johnson’s most determined pursuers, a wild-eyed Wall Street dealmaker named Jeffrey Beck. Beck worked for Drexel Burnham Lambert, the sharp-elbowed investment house whose Beverly Hills-based junk-bond chief, Michael Milken, almost single-handedly transformed the takeover business in the mid-1980s.
*
On Wall Street they called Beck “Mad Dog.” Although he sported a bow tie and horn-rim glasses, Beck more closely resembled a cross between a stand-up comedian and an assassin.

A true character, Beck styled himself the ultimate wheeler-dealer, a rock-’em-sock-’em, behind-the-scenes operator, one of Wall Street’s top
seven dealmakers—he could name the other six—a bit of hubris not terribly far from the truth. “Rock and roll!” he would shout to greet good news, “lock and load” before entering a tense meeting. Beck served as informal adviser on the movie
Wall Street
and even took a cameo role, delivering an angry, improvised speech as an investment banker readying his troops for a hostile takeover.

While other bankers specialized in analysis or combat tactics, Beck made a career out of fast talking and histrionics. When one of his biggest deals, the LBO of a Chicago food company named Esmark, was topped by another bidder, Beck pleaded with Esmark’s chairman, Donald Kelly, to pay him for setting events in motion.

“You got to do something for me; you got to do something for me,” Beck moaned, lying spread-eagle on the floor of an Esmark office. Kelly, who intended to give Beck a fee, decided to play a joke on him by pretending to ignore his pleas. “He’ll go crazy,” Kelly told an aide. “It’ll be fun to watch.” Beck was called into Kelly’s office and given the bad news. “Oh my God; oh my God; you can’t do this to me,” moaned Mad Dog, who proceeded to open Kelly’s office window. “That’s it! I’m going to jump out the window! I’m going to kill myself.” Kelly, breaking up in laughter, yelled, “Don’t jump!” For his work, and his dramatics, Beck received a $7.5 million fee.

Beck courted Johnson with his usual intensity. When, shortly after their initial meeting, the Johnsons were vacationing in the south of France, Beck sent the couple a bottle of Roederer Cristal and flowers. “Have a good vacation,” the card read, “from the Mad Dog.” Johnson instantly took to Beck’s frat-house mien. At their second meeting, he brought along a box of Milk Bone dog biscuits, a joke on Beck’s nickname. Then, while discussing restructuring plans with the chief of America’s nineteenth largest industrial company, the Mad Dog ate the whole box.

In late 1986, Beck was peddling the notion of a master limited partnership for Reynolds Tobacco. Johnson had long been worried that RJR Nabisco’s stock price was unfairly penalized because of the company’s tobacco operations. He believed investors never factored in Nabisco, choosing only to focus on tobacco’s bleak future. Beck’s partnership idea, code-named Project Alpha, was intended to combat that perception. Holders of common stock typically receive small cash dividends. But by
replacing much of RJR Nabisco’s stock with partnership “units,” a portion of Reynolds’s extraordinary cash flow could flow directly to the unit holders, allowing them to wallow in huge payouts while avoiding the corporate tax on common stock. Beck’s hope was that the sky-high trading values of the partnership units would rub off on RJR Nabisco’s remaining common stock, making everyone richer. Johnson thought the idea was impossibly complicated, but went along when Beck offered to do the work for free. The Mad Dog knew his favor would be paid off in more business later.

Johnson was an idea man, not a details man. As ideas like Beck’s began to pile up, he handed them off to an informal group of advisers he took to calling his “financial R&D department.” Johnson looked to the group, headed by his old friend Andy Sage, to separate the wheat from the chaff and perhaps come up with a few financial tricks of its own.

Sage, who had sat on Johnson-run boards since the Weigl coup, was the son of a Wall Street stock specialist. He had been kicked out of the elite prep school St. Paul’s, and his higher education was a trade school. But Sage had a certain eclectic brilliance that enabled him to fly planes, master the piano, and rise to the top of Lehman Brothers. He became managing partner and then president. But it had been years since he was very active on the Street and, at age sixty, was considered practically a museum piece. He came across as an absentminded professor, given to wearing rumpled old suits.

But Sage was that rarest of Wall Streeters, less interested in selling business than tending to how they ran. Over the years he had been active in the restructuring of International Harvester, an architect of the Alaska pipeline financing, and, as chairman of the American Motors executive committee, helped steer that company through the shoals. He was a peripatetic figure, shuttling between homes in New York, Jackson Hole, and Palm Beach, where he had kept the home he bought from Johnson years before. When Reynolds acquired Nabisco, Sage added Winston-Salem to the list of places he hung his hat. There he would borrow an office and spend hours going through balance sheets and income statements.

To pore over Johnson’s ideas, Sage hired a Washington-based consultant named Frank Benevento, whom Johnson took to calling “Sir Francis.” Benevento was an odd choice. At thirty-nine he had limited Wall Street experience: four years at Lehman Brothers. He had been a Washington
lawyer before that and an energy-industry investor and executive since. Sage was a mentor to Benevento and an occasional investor in his ventures. The two talked for hours about what they called “financial architecture.” Johnson thought the pair was top-notch; when their work surfaced months later, his Wall Street friends would wonder why.

Benevento lived to untangle financial knots, and at Sage’s direction, he plunged into Drexel’s Project Alpha with gusto. Limited partnerships had proven somewhat successful in the oil and gas industry, and in meetings with Johnson and Sage, Benevento would prattle on for hours about new ways to reshape their architecture. He reminded Johnson of a mad scientist.

Still, Project Alpha ultimately died. Benevento wasn’t convinced the idea would help the stock, and Johnson, always wary of bureaucracy, recoiled at the paperwork it would require. “Holy God,” he said when they killed it. “We’d have to get another tower here full of people doing everybody’s tax returns. It’s two hundred dollars of labor to save a dollar of material.” Two months after riling Winston-Salem and Wall Street by mentioning the limited partnership, Johnson announced he was no longer considering it.

Beck was undaunted. He promptly came back to Johnson with reams of computer printouts and another idea. Why not split up the company, spinning off Reynolds to shareholders and allowing management to acquire Nabisco in a leveraged buyout? Johnson passed the idea to Sage, who came up with his own twist. It involved redeeming all of RJR Nabisco’s stock for a package of cash and stock; management could then acquire Nabisco in an LBO valued at around $6 billion. Sage liked the idea enough that he assigned it the code name Project Sadim—
Midas
spelled backward. Benevento, too, got excited and passed his thoughts on to Johnson.