Barbarians at the Gate (43 page)

The lawyer was in an awkward situation. His firm, Simpson Thacher & Bartlett, had represented Lehman for forty years and was, along with Jack Nusbaum’s firm, one of Shearson’s two primary law firms. Although Nusbaum was his closest confidant, Cohen also considered Beattie a valued adviser. Cohen had been incensed when he heard Beattie was working with Kravis in the fight for RJR Nabisco and thought that Beattie at least owed him the courtesy to ask approval.

When Cohen came on the line, Beattie tiptoed around the issue, formally alerting the Shearson chief he was representing Kravis but stopping short of seeking Cohen’s approval. “Peter, I’m calling because we’d like to try and keep the channel of communications open, if we can,” Beattie said. “This tender offer doesn’t mean we can’t still work together.”

“Why, if Henry Kravis wants to talk, did he launch the tender offer? He didn’t have to do that. Why didn’t he call? I was going to call him. This is ridiculous.”

Beattie tried to calm Cohen. “Peter, for any number of strategic reasons, it appeared best to do it that way. But we should still talk. This is no reason to close off that option. You ought to talk to Henry.”

Maybe, Cohen said. Before agreeing, he ran the idea past Johnson, who busied himself at Nine West that afternoon returning phone calls, answering mail, and reviewing new computer runs.

“Lookit, Peter,” Johnson said, “this isn’t a cockfight here. This is serious, and Henry is a serious guy. You guys have got to get together, and you’ve got to test how serious he is.”

A meeting between Cohen and Kravis was set for Tuesday morning.

Changes would have to be made, he could see, and not just for the sake of cosmetics. The pact was simply too rich; much of the money promised to Johnson would now have to be channeled into a bid high enough to beat Kravis. As his closest friend on Wall Street, Jim Robinson was the natural choice to carry the difficult message to Johnson.

On Monday night Robinson sat down in Johnson’s office and tried to break the news as gently as possible. “Rawss,” he said in his Atlanta lilt, “we’ve got to reappraise things in a way that is more appropriate, given what’s going on.”

What do you mean? Johnson asked, bridling a little. He remembered Steve Goldstone’s cautionary words about the management agreement: “These guys are going to try and screw you down and down and down….” Johnson trusted Jim Robinson, to a point.

“I hope you’re not here as the advocate of Peter Cohen,” Johnson said, “because they’re not going to take us down and just give it all back to Shearson.”

“No, Rawss, this is how I feel. I’m here as a friend.”

“Totally different, totally different,” Johnson said. “What do you want to do?”

“How many people are going to share in the management agreement?” Robinson asked.

“It could be eight, it could be twenty,” Johnson said. He said he hadn’t given the matter much thought.

“I thought maybe you might want to better define what it is,” Robinson suggested.

“I don’t give a goddamn,” Johnson said. “I’ve always thought that a lot of employees would share it. I want to get it to as broad a group as possible.”

Robinson explained that it might be a good idea to set that idea in motion. Maybe the best thing to do would be to get Davis Polk and Champ Mitchell’s law firm working on an employee stock ownership plan.
Johnson agreed. Later he would say that it had been his intention all along.

Whether or not employees would actually share in Johnson’s riches, of course, was beside the point. What mattered here was cosmetics. Jim Robinson couldn’t throw out the management agreement. But he could make damn sure that, once revealed to directors and a skeptical public, it would be easier to swallow.

He hoped.

Kravis read the article with disgust. Both major papers, the
Journal
and
The New York Times,
reported his Friday meeting with Cohen in detail. Both, Kravis thought, made him out to be the heavy, the overlord of LBOs attempting to smite an upstart competitor. He was especially irked at quotes attributed to him about protecting his
franchise,
a word Kravis would later deny having uttered. Whatever the truth, it was apparent to Kravis that Shearson was using the press to strike at his Achilles’ heel, his public image.

Kravis had to laugh, though, when he read Cohen’s remarks to the
Journal.
Playing the wounded innocent, Cohen complained that Kravis was muscling in on his deal after promising to meet with Shearson. “We ski together and socialize together,” Cohen said of Kravis, “and I thought there was a higher level of conduct called for here.”

Kravis couldn’t believe it. He didn’t consider Cohen his friend. Why, he told friends, he hardly knew the man. They had skied together once—at “some Shearson ski boondoggle” in Vail—and hardly “socialized” outside occasionally bumping into each other at Wall Street functions.
The nerve of the guy….

Cohen arrived first and surveyed the ground. They had chosen a neutral venue, the dining room at the Plaza Hotel. Cohen asked the maître d’ for an isolated table, one where he and Kravis could talk discreetly, and was led into an uncrowded corner of the dining area. Kravis walked in minutes
later and took a seat across from Cohen. After ordering coffee, the two men got straight to business.

“Henry, I said I was going to call you, and I would have called you,” Cohen said. “I believe I’m a person who keeps his word. Now you’ve escalated this thing.”

If Cohen was combative, he was also a realist. A drawn-out battle with Kravis was one Shearson could well lose. He pitched a compromise. “We’re open-minded about this, Henry. We never intended to keep all the equity in the transaction to ourselves. It’s simply too big. We’re looking for a sensible transaction. If we can do a sensible transaction that will help everyone’s objectives, we ought to try. Now, why don’t we try and do something together?”

“Like what?” Kravis asked.

“A split. Fifty-fifty.”

“That’s not going to happen,” Kravis said. Kohlberg Kravis never did fifty-fifty deals. “That’s too much.”

“I don’t think it should be at anything other than fifty-fifty,” Cohen said.

“No, no.” He wouldn’t discuss it further.

Kravis brought up the management agreement. He had been thinking about what Jeff Beck said a month before.
They want control of the board.
If Johnson didn’t want the Kohlberg Kravis kind of buyout, what kind did he want?

“It’s your normal deal,” Cohen said. Nothing special.

“What’s that mean?” Kravis asked. “Is that five, ten, fifteen, thirty percent, what?”

“Yeah, in that range….”

Cohen pointedly failed to mention Johnson’s veto power or the $2 billion management agreement he had demanded and received. “If we do something,” Cohen said, “we’ll obviously make that all available to you.”

As they talked, Kravis attempted to size up Cohen. The man was out of his element, he decided. Kravis knew Cohen had attempted no more than one or two buyouts in his career; Eric Gleacher was calling him “Peter Cohen, Boy Investment Banker.” Yet Cohen seemed to think he was dealing from strength.
He’s feeling pretty good,
Kravis thought.
He thinks he has all the cards because he has management. He thinks the presence of Ross Johnson will stop us.

Well, Boy Investment Banker, Kravis told himself, you’re in for one
hell of a surprise. “What Cohen didn’t know,” Kravis recalled months later, “was that we were charging right through the rice paddies, not stopping for anything and taking no prisoners.”