Barbarians at the Gate (47 page)

Kravis shook his head. “Geez,” he said, “the whole world must be upstairs.”

Shearson’s Jim Stern waved as Kravis, Roberts, and Beattie emerged from the elevator. Stern had spent much of the evening updating a team of Salomon investment bankers in a conference room just eight feet from the one where the Forstmanns sat. A pair of locked doors was the best bet the two groups wouldn’t run into each other. Hurrying back to the Salomon people, Stern couldn’t help thinking what a three-ring circus the evening was turning into.

Cohen and a half-dozen others, including Jim Robinson and Tom Hill, paced the room nervously. Among other things, Shearson’s chief was deathly afraid Kravis would somehow run into Ted Forstmann. God only knew what would happen then.

Johnson’s office was, literally and figuratively, a smoke-filled room. A cigarillo hung from Johnson’s lower lip, and Cohen puffed one of his ever-present cigars. A layer of smoke hung low in the stale air. No one seemed to mind. This was, after all, a cigarette company they were trying to buy. On a shelf behind Johnson’s desk was a copy of Sun Tzu’s
The Art of War;
there was no evidence Johnson had ever read it. Windows ran the length of one wall: Outside the view looked south past the darkened RCA building and the red neon letters of PaineWebber to the twinkling lights of lower Manhattan beyond.

Kravis, Roberts, and Beattie were escorted into the executive suite, past Andy Sage’s empty office and rows of burl-paneled cabinets and into Johnson’s office. Pleasantries took several minutes in the crowded room.
Jack Nusbaum ribbed Beattie, who looked as if he had thrown on a jacket over his pajamas: “Dick, you look like you just tucked in for the night.”

The smoky air immediately bothered George Roberts, who instinctively began waving the haze from his face. His eyes stinging, Roberts attempted to make light of his discomfort. “I’m glad you guys don’t make cigars,” he said as he met Ed Horrigan. “Cigar smoke drives me nuts.”

It took a moment for the irony of Roberts’s remark to register. Johnson and Horrigan exchanged astonished looks.
Did he say smoke bothered him?
It seemed an incredible admission from a man looking to buy one of America’s great cigarette companies; Roberts’s faux pas set the tone for what would be a bewildering evening for all concerned.

“If it really bothers you,” Cohen said, motioning to his lit cigar, “I’ll put it out.”

“Yes, it does,” Roberts said.

“This is fucking beautiful,” Horrigan muttered.

Cohen left the room, returning seconds later with an unlit cigar. Holding it in his hand, he moved behind Johnson’s empty desk. Earlier, Cohen and Jim Robinson had agreed that it would best if the American Express chief made himself scarce when Kravis arrived. Cohen knew the Robinsons and Kravises were horseback riding buddies, and he didn’t want Robinson’s judgment blurred in a confrontation with his friend.

Now Robinson and Johnson rose to make their exit. “We’re going to let you banker types talk,” Johnson told the group. “I hope you guys can put something together. It’ll be better for everybody. We’ll be down the hall if you need us.”

“Let’s all keep in mind that a lot of people are watching this process, including Congress,” Robinson said.

“We wouldn’t want to hurt the business that we’ve grown to love and admire,” George Roberts said wryly.

As Robinson and Johnson left, Cohen instinctively knew how he and Hill would handle their opponents. It was the same in every Wall Street negotiation, he felt: The senior partner tended to play the statesman’s role, the “good cop,” while the junior partner inevitably played the enforcer, “the bad cop.” For years Cohen had played Sandy Weill’s bad cop, a role he played so well it became second nature. Tonight Cohen would try out his new role as diplomat.

Still angry about Kravis’s “bribe,” he started out poorly. Standing behind Johnson’s desk, Cohen emphasized that Shearson remained
“open-minded” to a partnership with Kohlberg Kravis. But although his tone was even, Cohen’s combative instincts soon took over. “This is our deal,” he said. “We’re not going to go away. We’re not going to take a subsidiary role, to you or anyone else. We’ve got Ross on our side, and that gives us an obvious advantage.”

As for Kohlberg Kravis’s offer, Cohen went on, “We’re not interested in taking any bribes. You couldn’t pay us twice what you’ve offered. It’s insulting, and it’s arrogant.” (Later, Cohen himself would acknowledge, “No one’s ever going to confuse me with a statesman.”)

George Roberts, sitting on the couch beside Beattie, spoke coolly, his hands never leaving his lap. “Peter, we’ve come here to talk about this in a businesslike manner. Why don’t you give us some idea of a way we can work together? We’d like to explore these possibilities, see what we can work out.”

But Shearson wasn’t done yet. Tom Hill—cool, well tailored, clearly unintimidated—weighed in as the bad cop. “Management has now made the decision to stay with Shearson Lehman,” he began. “We are now entering a realm where, absent a deal between us, we will be competing.”

Hill wanted to make clear the risks facing Kravis in an all-out fight. “Henry, you’re entering uncharted territory. This is unique. You don’t have management on your side. That raises a whole host of questions, chiefly your ability to get at the right numbers.”

Now Hill bore in. “This all raises the question of how you will be perceived, friendly or hostile. This is a hostile bid, and your investors will have reservations about this deal. It also has real implications for how future managements will want to deal with you. In addition, as you know, RJR has its operations in the South and in the Carolinas. These are constituencies where there are some very strong legislators, including Jesse Helms. I’m sure Jesse Helms would take a very active interest in the future of this company and its community.”

The threats were unmistakable. When Hill paused, everyone spoke at once. Kravis was infuriated. “Tom,” he said, “if that’s a threat, that’s ridiculous. I’m not going to sit here and listen to you threaten us.”

“If you want to call Jesse Helms, Tom, go ahead, be our guest,” Roberts said. “It’s a free country.”

Dick Beattie, palms outstretched, tried to head things off. “Tom, that’s not going to get us anywhere.”

Cohen interrupted before anyone built up a head of steam. “Hey. Hey.
This is ridiculous,” he said. “This is not what this meeting is about. We’re here to see how we can go in together.”

Beattie, glad for Cohen’s olive branch, didn’t miss the fact that the Shearson chief had waited until Hill finished to intervene.

“No,” the man said, “no lawyers.”

Wearily, Ted Forstmann and his brother Nick pulled themselves from their seats and followed their guide past darkened rooms into Ed Horrigan’s corner office. Inside sat Johnson, Jim Robinson, and Horrigan. Robinson wore a rumpled tuxedo with the tie pulled down.

“What’s going on?” Forstmann asked.

Jim Robinson spoke. “Ted, I want you to know what’s going on. There’s no other way to tell you but the truth.”

“What’s that?”

“Our side is meeting with Henry Kravis in another conference room.”

Forstmann stared at a spot somewhere above Robinson’s head. It was as if someone had socked him in the stomach. For a moment Forstmann searched for words. He took a seat on a couch beside his brother.

Disappointment wasn’t a strong enough word for Forstmann’s feelings at the moment. It bordered on betrayal. He had so hoped these people had principles. He had wanted so badly to believe they could see through Kravis, as he had. Now, he realized, he had been wrong.

Slowly, a stream of profanity, like some earthy ticker tape, began scrolling through Forstmann’s mind.
Son of a bitch,
he thought.
Son of a fucking bitch. What did I ever come here for? Of all people, they’re talking to that little bastard Kravis.

Forstmann said nothing.

Robinson continued. “Teddy, what we’ve done is the best thing, not the right thing. It’s the smart business thing to do.”

Forstmann remained silent.

“We don’t think it’s going anywhere,” Robinson said.

Johnson piped up. “No, we don’t think it will. It’s not going to go anywhere. Management is not going to go with these guys.”

Forstmann thought,
Then why are you down there talking with them?
Oh, how he hated to hear the lies. He wanted to shout “
You bastards!
” but held his tongue. He had always told his partners that once you lose your temper, you lose the deal.

He looked at Jim Robinson. “Well, it’s none of my business,” Forstmann said, “but I really don’t agree with you.”

He wanted to leave it at that, but knew he couldn’t. “I think that they’re really third-rate people,” he ventured. “They’ve proven themselves over and over again to be third-rate people.”

Again, Forstmann looked at Jim Robinson with imploring eyes. It was an awkward moment. “We’re friends socially, Ted,” Robinson said. “We only know them socially.” He paused. “Anyway, there’s nothing to really worry about, because it’s not going to work out.”

“Jim,” Forstmann said, “whether it works out or not, why are you doing this? I just don’t get it. I mean, how can you do business with these guys when you have us? Our money costs nine percent. You don’t need junk bonds. You don’t need Kravis. I would never have done what they did. I would never have lobbed in ninety dollars. If KKR hadn’t come along, we would have just cheered you on from the sidelines.”

They talked for a while longer, awkwardly passing the minutes talking about tennis and golf. “Well,” Forstmann finally said, “thank you for at least telling me.”

“Yeah,” Johnson said, “you got to give us some credit for at least telling you.”

“Yeah,” Forstmann said. “Thanks.”

Forstmann returned to Boisi and Fraidin a defeated man. “You guys are never going to believe this,” he began.