Barbarians at the Gate (21 page)

Ranked one of the country’s thirty top courses, Castle Pines was designed by Jack Nicklaus, and the Golden Bear made the ninth hole among his toughest: a 458-yard par four, a tough driving hole with water on the right, trouble left, and a blind uphill second shot to a mean green. Back in the pines off the left side of the fairway is a cluster of three-story villas. RJR Nabisco owned one as a corporate retreat, and it was there, on the weekend of August 21, that Johnson threw one of the most memorable parties of his career.

That weekend Castle Pines played host to a professional golf tournament, the International, and Johnson had invited a pack of his best pals to help him enjoy it. Peter Ueberroth and Roger Penske were there, as was Roone Arledge, up from the Republican convention in New Orleans. Jack Meyers, the retired publisher of
Time
magazine, showed up, as well as Johnson’s three Buffaloes, including Floyd Hall, president of the Grand Union supermarket chain. Charlie Hugel and Ira Harris also arrived, as did Martin Emmett.

It was the kind of weekend Johnson lived for. He could play golf in the morning, watch the pros in the afternoon, and enjoy world-class schmoozing at night. The RJR Air Force stood by if needed, whisking Harris off to a Chicago wedding at one point. Saturday night a pair of Team Nabisco pros, Fuzzy Zoeller and Raymond Floyd, joined the group for dinner, as did Ben Crenshaw, who was in the thick of contention in the International.

That evening Johnson had an after-dinner surprise for his guests at the villa. Had they heard about Reynolds’s new smokeless cigarette? he asked. Most had. Ed Horrigan rolled out a videotape that showed how Premier worked. After an hour of explaining its science, Johnson broke out packs of Premier and passed them around. Tell us what you think of everything, Johnson invited: the taste, the packs, the marketing, the pitfalls.

He had kept the affair casual, but Johnson was eager to hear what his VIP friends had to say about Premier. He and Horrigan watched intently as Ueberroth and the others began inspecting the cigarettes closely, eyeing the little holes in its carbon tip, feeling how its hard casing compared with that of a normal cigarette. Slowly they began lighting up. The odor was unmistakable and unpleasant.

“Smells like burning lettuce,” someone cracked.

“Boy, this is hard to draw on,” said someone else.

They take some getting used to, Johnson conceded. “We’re saying in the ads to try them for a week,” he said.

“I don’t know if I could get through a pack,” someone said.

Looking for something positive to say, Penske praised the technology. Arledge wondered who the spokesperson would be on television news shows; Premier was bound to create a splash when introduced. Johnson admitted he hadn’t given the matter much thought. You’d better, Ueberroth interjected. The media is going to be very interested in this and will be asking tough questions. Like: “If this is a safer cigarette, aren’t you admitting that your others are unsafe?”

“That’s a problem,” Johnson admitted. “It is a safer cigarette, but you can’t really say it.”

As the session stretched on, Johnson could tell Premier had bigger problems than he had feared. No one liked the taste—Johnson at least expected them to enjoy the menthol brand—and they puckered like prunes trying to inhale its smoke. He and Horrigan had remained optimistic through all the poor test results. If only 5 percent of smokers found Premier palatable, Johnson figured, it would still be a big hit. He simply couldn’t believe it wouldn’t do great things.

But as he listened to Ueberroth, Arledge, and the others, Johnson realized that his own staff’s conservative projections were accurate: Premier would need years, rather than months, before it could be considered a success. Any chance of an overnight hit evaporated in the pithy comments of his high-profile friends—and with it Johnson’s last, best hope for revving up his stock.

The International ended the next day, and the RJR Air Force spirited Johnson’s friends to all points of the compass. Johnson stayed on to play golf, but scheduled a meeting of senior aides the following Monday to discuss the Premier situation. Horrigan, Henderson, and Martin all came, as did a bevy of tobacco strategists and outsiders, including Stanley Katz,
head of a Reynolds ad agency, FCB Leber/Katz, and Herb Schmertz, Mobil Oil’s ex-public relations chief.

Rather than address the key problems of taste and smell, the group tackled the issue of how to package Premier for the press. Who, for instance, would be their primary spokesman? Horrigan favored Johnson. Others demurred. He may have been chief executive of America’s second largest cigarette company, but Johnson was no cigarette expert, and he was apt to say whatever popped into his head. “Christ,” he liked to say, “you get more carbon monoxide from a New York bus going by you than from a cigarette.” The consensus selection was Dick Kampe, who was heading the Premier development team. Horrigan and Martin got into an argument about the best way to prep Kampe for his appearance on “Nightline.”

The meeting ended by midafternoon, and all but Horrigan and Henderson left. The next morning Johnson and Horrigan sprawled in easy chairs in one of the villa’s living rooms. Their tee time was at ten o’clock; Henderson was already out taking practice swings.

“Ed, I’ve got to tell you what I think,” Johnson said, returning to the problem of Premier. “We may have the p.r. squared away now, but I think this is going to be one long haul. We’re going to stay with it. We’re going to hold its hand. But I have a feeling those test markets are going to give us trouble.”

What really bothered him, Johnson went on, wasn’t Premier’s progress so much as its inability to move the stock. “Here we are,” said Johnson, “sitting with food assets that are right through the bloody roof—Del Monte worth eighteen times earnings, Nabisco another twenty-two to twenty-five times, and it doesn’t make a bit of difference. We’re still going to trade at nine times. We’re still a tobacco company. Now it looks like Premier isn’t going to have any effect. If anything, it’s going to be negative in the short run.” Life as a tobacco company, they agreed, was unfair. No matter what they did, Wall Street gave them no credit. The stock stayed down. “Where the hell do we go?” Johnson asked.

In the middle of Johnson’s soliloquy, Henderson walked in from the practice tee. “Ross, the market is never going to give it its due,” said Henderson, picking up his old theme. “This should be a private company.”

“Well,” Johnson said, “what are the mechanics from a legal standpoint? How would you go about exploring an LBO?”

Henderson outlined the basics, as best he could. After management proposed a buyout, a special committee of board members was formed to consider it. At some point, they would have to make the offer public. And when they did, other companies, even Wall Street raiders, would be free to top it. Therein lay the risk.

“What are the practical realities of operating under an LBO structure?” Johnson asked.

Henderson posed his answers as questions. First, could you raise the kind of money it would take to buy RJR Nabisco? At a glance, it was clear it would be the largest LBO, the largest takeover, ever attempted. How many businesses would have to be sold to pay down debt? Could they keep the Atlanta headquarters, or would they be forced to move back to Winston-Salem to save money? Could they afford to bring out Premier?

If they were at all interested in an LBO, Henderson went on, they would need help. He mentioned some Wall Street lawyers he knew. “Okay,” Johnson said, “maybe we’d better seriously see what Shearson’s got for us, too.”

It’ll never happen,
Horrigan thought as they headed for the links. He had seen too many of Johnson’s “ideas of the week” come and go to generate any real enthusiasm for an LBO. Henderson, too, doubted Johnson was serious. He thought an LBO demanded too much attention to detail for Johnson’s tastes.

For his part, Johnson remained ambivalent. Life was good, as the past two weeks had reminded him. A company home on a great golf course. A raft of adoring VIP friends. A jet awaiting his next command. Yet the siren song of action beckoned. “Sure I could have taken the idea of the LBO, stuck it in my lower left-hand drawer, and gone on my merry way,” he would later say. “But I would have known it was there.” The itch was there, and Johnson couldn’t help but scratch it.

A few days later Johnson called Andy Sage at his Wyoming ranch and asked him to stop by Castle Pines on his way east. As they strolled the fairway one afternoon, Johnson brought up his latest idea. “Everything we thought we’d try, nothing happened, nothing happened, nothing happened; the stock just sits there,” he said. “Andy, I’m trying to figure out an alternative structure that will serve everybody’s interests.”

Sage wasn’t at all sure an LBO was the solution to RJR Nabisco’s problems, and as a general matter, he didn’t enjoy seeing America’s great companies replace good, old-fashioned shareholder equity with bank debt.
One of American industry’s great strengths, Sage and men of his generation felt, was its capital base. At a time when the country faced stiff competition in world markets, he hated to watch that advantage being squandered. Business, he felt, should be creating jobs and new products, things it couldn’t do if it was focused on paying back debt. More to the point, he wasn’t at all certain Johnson’s free-spending style could be reconciled with the rigorous demands and cost cuts demanded by high levels of debt. Still, he kept his doubts to himself.

Johnson told Sage to call Shearson and light a fire under Project Stretch. Hill’s team had already begun the arduous task of cataloging the values of RJR Nabisco’s businesses; Johnson wanted the homework done by mid-September so they could quickly begin looking at the possibility of an LBO. Sage called Benevento and directed him to pull out the old LBO studies again. Still, Sage, like Horrigan, tried not to dwell on their new tack. Johnson’s mind, like the New York weather, was susceptible to change at the slightest notice.

Later that week, Johnson called Charlie Hugel, mentioning the Shearson study almost offhandedly. “Incidentally,” Johnson said, “we’re having them take a look at whether there’s any merit in an LBO. I don’t know how much an LBO is worth, but they’re doing it. What do you think?”

Frankly, Hugel said, not much. At sixty, Hugel was three years older than Johnson, but a world apart in outlook. Hugel was old line, a man who had risen through the ranks at AT&T before leaving five years earlier to head Combustion Engineering. He was a believer in business fundamentals, and didn’t put much stead in faddish Wall Street inventions such as the LBO. At Combustion, Hugel was a hands-on executive working hard to open new markets abroad. Set down in Moscow’s notoriously spartan hotels, he mopped the floors himself. It amused him when Johnson, traveling to Moscow for trade ceremonies, tried to order a suite.

“Ross, why do you want to do that?” he asked. “You haven’t really completed everything you’ve been working on. Why would you want to abandon that now?”

“Well, I find it hard to be enthusiastic” about running the company, Johnson admitted. He reiterated everything he’d tried to improve the stock. Hugel himself had confronted far tougher problems than a low stock price, and to him, proposing an LBO was like shooting someone to rid them of a hangnail.

“Ross,” he said, deciding to hit Johnson where he lived, “you might
have to cut back on the jets, the headquarters, the whole way you live. Do you really want to do that?” They spoke a while longer, and by the time he hung up, Hugel thought he had talked Johnson out of pursuing an LBO.

When Johnson returned to Atlanta after Labor Day, it was only for a day. The next morning he headed to London, where he and John Martin had a whirlwind schedule set up: a General Electric board meeting, a powwow with the international tobacco people, and a tête-à-tête with David Montagu of Rothmans International, a British tobacco company interested in buying pieces of international tobacco. On the flight over, Johnson mentioned the LBO idea to Martin. He wanted to get some sleep, he said, but they could talk about it in the morning.

They never got the chance. As Johnson dozed over the North Atlantic a few minutes before two o’clock Wednesday morning, September 7, a policeman in suburban Westchester County, New York, pulled off the Saw Mill River Parkway. He had spotted a 1987 Nissan, crushed and overturned, about 300 feet from the road. The car had apparently hit a traffic sign before skidding out of control and flipping. Nearby, authorities found the bleeding body of Johnson’s twenty-six-year-old son, Bruce. Unconscious, he was rushed to a nearby hospital.