Barbarians at the Gate (20 page)

They became so close that Martin lived in Johnson’s basement for months before finding a home in Atlanta. When he selected one, only a nine-iron shot down the street, he remained in the basement while Laurie Johnson decorated it. The three were constantly together, playing golf, traveling, and watching televised sports for hours on end. On organizational charts Martin didn’t appear to wield much power, but he had Johnson’s ear, and he began acting as his gatekeeper. Nobody was more jealous of Martin’s rise than Horrigan, who sneered that the well-tanned Martin reminded him of the actor George Hamilton.

Some chuckled that the well-connected Martin was Johnson’s pimp for celebrities. He did bring in new faces. One was Martin’s longtime friend, baseball commissioner Peter Ueberroth. Martin was also a friend of boxer Mike Tyson’s manager, Jimmy Jacobs, and handled the champ’s endorsements in his spare time. It was only a sidelight, but it gave Johnson entrée to the fight game. In June, he invited Atlanta’s business and political elite to watch the Mike Tyson—Michael Spinks fight on television at headquarters. Gold-engraved invitations clasped in red leather boxing gloves were sent to a select 100 people. As guests arrived at the top floor, they were greeted by white-gloved waiters offering Dom Perignon. Sometimes Martin was a bit careless in making introductions. While in England the previous June, he had brought Johnson together with a merry Scotsman who was a gofer for ABC Sports in London. Johnson was quite taken, and invited the fellow to stay in his Atlanta home. Once there, the Scot was offered a job by Johnson as a bodyguard. The man happily accepted, and began living with Johnson; the two men got on famously. But that fall, during his visa review, Johnson and Martin learned the fellow had been part of a gang that blew open safes throughout Scotland. He had served several prison terms, including one for forgery. The merry Scot was hurriedly given a one-way ticket back to Glasgow.

A number of friends thought the dismissal of trusted advisers such as Carbonell underscored some unsettling changes in Johnson. For the first time, he was attracting media attention.
Fortune
profiled him in a puffy cover story that summer as “America’s Toughest Marketing Man.” “He specializes in taking break shots at neatly racked old cultures and replacing them with an organizational mix of turbulence, vigilance and guts,” it gushed. “In three reorganizations, he sent 2,650 corpocrats back to line jobs or out into the wilderness.” Johnson, it went on, “has been shoving
the noses of his managers up against the window of the future.”

Business Week
was less impressed. It noted RJR’s low stock price, its fuzzy long-term outlook, and the tobacco company’s declining performance. The magazine at first looked like it was headed for an even tougher story, spotlighting Johnson’s lavish spending and questioning his operating ability. But the company put on a full-court press to squelch it. Martin told editor-in-chief Stephen Shepard a biased reporter was out to do a hatchet job and threatened to withhold future access to RJR. The story appeared in tamer form, and Johnson was bothered by only one line. It noted that he would routinely press a $50 bill into a wine steward’s hand. “Christ,” said a distressed Johnson, “it’s been years since I tipped that little.”
*

Johnson’s friends came to rue the two pieces: The man was beginning to believe his reviews. “America’s toughest marketing man,” they feared, was really becoming America’s most out-of-touch marketing man. He was fond of bragging that his relations with the grocery trade were worth four or five market share points—hundreds of millions of dollars. But the only supermarket executives he spent much time with these days were a group of three ex-jocks with whom he loved to play golf. Johnson called them “the Buffaloes.”

At the same time the man who had made a science of stroking directors was growingly cavalier about his board meetings. They were fewer and farther between—only one would be held between May and October 1988—and were increasingly sloppy affairs. Staffers would arduously put together slide presentations on the financials, only to see Johnson scrap them. “Screw the slides,” he would say. “We’ll tell them the numbers are good.” Scrapped, too, was Johnson’s habit of rehearsing for the meetings.

As he had at Standard Brands and Nabisco, Johnson seemed to be losing interest in operating the company. More and more he concentrated on only two things: having fun and goosing the stock. A new catch phrase replaced the old “BGO” on Johnson’s lips. “Ah,” he took to saying, “fuck it.”

Shearson was the logical choice to do the study. Johnson was on the American Express board, and he knew both the Shearson chief, Peter Cohen, and the American Express chief, Jim Robinson. “Let’s go to Shearson with every study and piece of crap we’ve got, have them look at all the scenarios, and see what they have to say,” Johnson said. “If somebody wants to buy us, what would they buy us for and what would we do.”

American Express’s July board meeting was breaking up when Johnson first approached Cohen with the plan. “Andy Sage is going to be giving you a call,” he said. “He wants to have a very private conversation with you about the company.” In late July, Andy Sage and several Johnson aides met with Cohen in his lower Manhattan office overlooking the Hudson River. They wanted all options explored: a wide variety of recapitalization plans as well as partial and full buyout proposals. Sage insisted on strictest secrecy. The mere hint of the project’s existence, he knew, could prove a self-fulfilling prophecy. Word a company was worried about a takeover invited speculation, which inevitably drew speculators. Only five Shearson executives, including Cohen and Tom Hill, were cleared to work on the plan. Hill came up with a code name whose irony wouldn’t be clear until months later: Project Stretch.

At the same time, Johnson got the RJR Nabisco board to approve a set of antitakeover provisions Robinson and Henderson had drawn up with the help of a Wall Street law firm, Davis, Polk & Wardwell. The board also approved severance arrangements known as “golden parachutes” for each of the company’s top ten officers. Most large U.S. companies have similar pacts, which are often considered part and parcel of antitakeover contingencies. The only thing unusual about RJR Nabisco’s was their size: all told, they were worth $52.5 million.

One thing puzzled staffers in the company’s treasury department. At Johnson’s direction, money for the parachutes was placed in protective trusts known as “rabbi trusts.” Under the trusts’ terms, if RJR Nabisco changed hands, the new owner couldn’t touch these funds. To the treasury staffers, it almost looked like Johnson was preparing for something.

Soon LBO ideas were arriving, uninvited, over the transom. Dillon Read proposed a partial LBO it called Project Tara. Johnson’s old Standard Brands sidekick, Ruben Gutoff, suggested a scenario his consulting firm called Project Reo. The subject even came up one night when Johnson was sitting with neighbors around a pool. “Gee,” one said, “why don’t you take your company private?”

To each, Johnson replied he wasn’t interested. “No way,” he told a gathering of lieutenants in July. “Why would I want to do something like that? I’ve got a great life; I’ve got a great company just the way it is.” But at least one of the men at lunch that day thought Johnson’s denial rang hollow. Peter Rogers had known The Pope too long. When Johnson thought an idea dumb, he would dismiss it with a withering one-liner. Rogers, walking out with John Greeniaus after lunch, said, “Methinks the lady doth protest too much.”

For the time being, though, Johnson seemed curious about every possible scheme but an LBO. His grandest occurred to him in July. For months he had been trying to interest Philip Morris in combining the two companies’ international businesses into a joint venture. Philip Morris had expressed interest in acquiring RJR Nabisco, but Johnson suggested a joint venture instead. Horrigan, of course, hated the idea. Consort with the enemy? Run up the white flag? But at Johnson’s urging, he had met with his opposite number at Philip Morris. After months of on-again, off-again talks, Johnson had scrapped the idea. Even if they came to terms, he suspected that foreign governments would object to the merger on antitrust grounds.

Now, in late July, Johnson called Philip Morris’s chief executive, Hamish Maxwell, with a new idea. Unlike their predecessors, the two men got along well; Johnson, it seemed, could get along with anyone. They met for dinner at RJR Nabisco’s suite at the Regency Hotel in New York. In deference to his host, Maxwell smoked a Winston while listening closely as Johnson laid out his plan.

“Let’s face it,” Johnson said. “Diversification isn’t working for us, and it isn’t working for Philip Morris. We still both trade as tobacco stocks.”

It was only half true. In their core tobacco businesses, Maxwell was running the
Queen Mary
and Johnson the
African Queen.
Philip Morris’s lead brand, Marlboro, had an ever-widening lead over Reynolds’s brands, fatter profit margins, and cash flow that dwarfed RJR Nabisco’s. Institutional investors—the big pension and mutual funds who could make or break stocks—typically chose just one tobacco stock for their portfolios, and more often than not it was Philip Morris. With their support, Philip Morris stock had risen 25 percent since the beginning of 1987, while RJR Nabisco’s, after spiking up and down, was flat. Portfolio managers liked Philip Morris’s predictability. They thought they knew where Maxwell was going. They
never
knew what Johnson was up to.

As Maxwell listened, Johnson proposed that Philip Morris and RJR Nabisco combine their respective food businesses—Nabisco and General Foods—into a publicly traded joint venture. RJR Nabisco would own 37·5 percent, as would Philip Morris; the remaining 25 percent would be traded publicly. The great value attached to the public stock, Johnson said, advancing Jeff Beck’s old theory, would heat up both parents’ stocks.

“I think we can create an eighteen-billion-dollar company with a lot of zip in it,” said Johnson. Then he laid down the capper. “And I’ll run it for you.”

Once the two food companies were combined, Johnson proposed to resign as chief executive of RJR Nabisco, leaving the remaining tobacco company for Horrigan to manage. It was an outlandish proposal, but Johnson was betting Maxwell might go for it.

“Ross, it’s a brilliant idea,” Maxwell said when Johnson finished, “but joint ventures have problems.” The logistics alone were daunting: so many people being thrown together from so many companies. Even if Johnson and Maxwell got along, he went on, was there any assurance that their successors would? Still, Maxwell told Johnson he would give it some thought.

Two weeks later, in mid-August, Maxwell called back. Sorry, he said, Philip Morris isn’t interested. There were simply too many problems. Johnson tried to shrug it off. It wasn’t as if he had nothing else up his sleeve to boost the stock. There was always Premier. For now, though, he wanted to take a break from the whirlwind of ideas he had stirred up, as
well as from the muggy summer heat draping Atlanta. He boarded a jet for a couple of weeks of work and play in Colorado.