Barbarians at the Gate (39 page)
Read Barbarians at the Gate Online
Authors: Bryan Burrough,John Helyar
Johnson’s attorney, Steve Goldstone, was pulling on a pair of sweatpants at six
A.M.
when the phone rang. The lawyer had recently moved into an apartment at United Nations Plaza. He had taken to using the downstairs gymnasium to work off stress.
“KKR has launched a tender offer,” Tom Hill said matter-of-factly, quickly outlining what few details of the offer were known.
At first Goldstone didn’t understand. “Tell me what it is again?”
Hill repeated what he knew.
“And the price?” Goldstone asked.
“Ninety dollars a share.”
Goldstone was shocked. Never, in all their weeks of preparation, had he heard anything to prepare him for so high a number. Shearson had said it didn’t expect the deal to go for more than $80.
“Say that again? Ninety? Nine-oh?”
“Yes.”
“I’ll come down to your office right away.”
Goldstone numbly slipped off his gym clothes. “That call,” he would remember months later, “literally knocked my socks off.”
The Monday editions of both
The Wall Street Journal
and
The New York Times
carried the news that Kohlberg Kravis was set to launch a $90-a-share tender offer for RJR Nabisco. Dick Beattie’s jaw dropped when he picked up the papers. Somewhere there had been a leak. It was the worst breach of confidence he had witnessed in twenty years on Wall Street. Someone, probably an adviser Kravis was paying millions of dollars, had leaked the biggest move of Kravis’s career. Beattie was still agog when Kravis called around seven o’clock.
“Have you seen this fucking story in
The Times?
” he asked, practically screaming.
“Yeah, I’m damn mad about it.”
“It’s that goddamn Beck!”
“No, Henry….”
“Yes it is!”
Kravis, homing in on a reference to Drexel Burnham in
The Times
story, had instantly fingered Jeff Beck as the culprit. For years he had put up with Beck’s silly high jinks, the dumb jokes, the hysterics. Now Beck would have to pay.
Kravis was still livid when he arrived at his office a half hour later. Whatever reservations he had harbored toward the tender offer were now moot. The leak had forced his hand. He had to go forward with the offer. He directed that the bid be formally announced at eight o’clock.
Trying to set aside his blinding anger at Beck, Kravis scribbled down a list of people to call. It was short, just five names: Charles Hugel, Ross Johnson, Jim Robinson, Peter Cohen, and Ira Harris, now working with the special committee.
The first four Kravis couldn’t immediately reach. At twenty minutes to eight he reached Ira Harris at his Chicago apartment. Harris, who constantly battled a weight problem, was slogging aboard a treadmill when Kravis called.
“Oh my God!” Harris exclaimed when Kravis disclosed the looming tender offer. The Chicago deal maker reminded Kravis that, as an adviser to the board, he was strictly neutral in this takeover. But any bid that boosted the payout to shareholders was bound to be good news to RJR Nabisco’s board.
“Henry,” he said, “that’s great.”
Peter Cohen rose early Monday morning, ducking into his chauffeured limousine by seven-thirty for the drive to Shearson’s downtown headquarters. After dropping off his children at school, Cohen’s car was cruising down Park Avenue when his wife, Karen, rang. “Henry just called looking for you.”
Cohen, who hadn’t yet read the papers that morning, reached Kravis minutes later. In all their conversations—at dinner parties, openings, even on the ski slopes—he had never heard Kravis’s voice so tense.
“Peter, I’m just calling to let you know we knew what you were up to all weekend. Because of it, we’re announcing a tender offer at eight o’clock to buy RJR at ninety dollars a share.”
“Henry,” Cohen said, fighting back his irritation, “what exactly was I up to all weekend?”
“You know, trying to lock up the banks and all that. We knew about that. We know about the board meetings, too.”
“I don’t know where you got that stuff, but nothing remotely like that took place. Those board meetings have been on the calendar for months. Henry, what are you doing? I was going to call you. Have I ever said something and not done it?
“Let me tell you something,” Cohen continued. “You’re making a mistake, Henry, and I think you’re underestimating us.” Cohen made no effort to hide his disgust.
Hanging up, Cohen’s anger quickly gave way to shock, then worry. As the limo whisked him downtown, Cohen tried to figure out what had happened. Something had set Kravis off. He dialed Shearson’s lead attorney, Jack Nusbaum.
“Why are they doing this? I can’t understand it! This is crazy,” Cohen said, his voice rising. “He was supposed to get back to me.”
Neither man could guess what had gone wrong. Nusbaum said there had to be more to it. If it was a tender offer, it wasn’t much of one. For one thing, Kravis couldn’t have arranged $20 billion in financing in three days.
“How on earth can they make a tender offer, Peter?” Nusbaum said. “They’ve got no financing. It’s got to be illusory. And he wouldn’t dare do a hostile deal.”
Ross Johnson was just about to sit down to his normal breakfast of toast, bacon, an English muffin, and a single egg over easy when John Martin burst into the apartment. “The Kravis thing,” Martin said, “we’re getting it from too many sources. It’s true.”
No, Johnson said. No, it couldn’t be true, he stammered. It made no sense. Ninety dollars a share! It was insane!
But it’s true, Martin said.
Johnson immediately thought of Cohen’s meeting with Kravis. Something must have happened Friday night to set him off. Something he wasn’t told about.
“Somebody’s sure pissed off somebody,” Johnson said. “I’m going to get to the bottom of this.”
Other than their abortive meeting a year earlier, Kravis didn’t really know Johnson. He called Eric Gleacher at Morgan Stanley to arrange a telephone conversation.
“Henry,” Gleacher said in mock wonder, “I’m reading about you in the papers.” He laughed, unable to resist taking a shot at Jeff Beck, his competitor. “Can you believe these Drexel guys?”
“Goddamn it,” Kravis fumed, “I’ve never been so mad in my life. Can you believe this? I almost dropped Drexel right out of this deal.”
Chuckling to himself, Gleacher phoned Johnson in Atlanta. Johnson returned the call minutes later from his New York apartment. The Morgan Stanley banker was surprised to find Johnson in his usual high spirits. If Kravis’s offer had thrown him for a loop, Johnson wasn’t letting it show.
“Goddamn, what a price!” Johnson exclaimed. “Boy, this is crazy. But what a great job we’ve all done for shareholders.”
Gleacher didn’t know what to make of Johnson. Did the guy really not care that he was losing his company, maybe his job?
When Johnson called Henry Kravis a few minutes later, Kravis, too, was surprised by the onslaught of cheerfulness from RJR Nabisco’s president. Johnson sounded anything but shaken by news of Kravis’s move.
“My God, Henry!” Johnson said. “I knew you were rich, but I didn’t know you were that rich! That’s one hell of an offer….”
In contrast to Johnson’s inexplicably sunny greeting, Kravis’s tone was calm, businesslike: “Ross, I just wanted to let you know, as a courtesy. We’d like to buy the company. And we’d be happy to sit down and talk with you and see if we can get together. We’d love to have you run this company.”
“Well, let’s see how things work out,” Johnson said. “I’ll get back to you.”
It was over that quickly.
Later that morning, after relaying similar messages to Jim Robinson and Charles Hugel, Kravis phoned and confronted Jeff Beck. If he could have reached through the telephone line and strangled the Drexel banker, he would have.
“I can’t believe you did this to me,” Kravis seethed.
Beck immediately grew panicky. “I didn’t do it. Henry, you gotta believe me. I didn’t do it!”
“These articles sure lead me to believe you did,” Kravis said icily. “I don’t want anyone around that can’t be trusted. I don’t want anyone on
this team who’s out for their own selves. We’ve got no use for that. That’s it, Jeff. I don’t want you at any more meetings.”
Beck became hysterical. He had a multimillion fee, not to mention his reputation, on the line. “Henry, it wasn’t me,” he said. “I didn’t do it! I didn’t do it! You gotta believe me! It was Wasserstein! It had to be Wasserstein!”
Beck pleaded and begged, but Kravis quickly grew tired of the panicked denials.
All that day, every thirty minutes or so, Beck phoned Kravis, but not a single call was returned. Beck pleaded with Paul Raether and the others, swearing his innocence, and even turned to newspaper reporters to back up his story, to no avail. For days Beck would hang in limbo, unable to sleep, unsure of his standing with Kravis.
At one point that day, Beck heard that Eric Gleacher was spreading the story he was behind the leaks. He called Gleacher’s partner, Steve Waters.
“Tell Eric,” Beck said, “that if he says it one more time, I’ll break his fucking neck.”
