Barbarians at the Gate (49 page)

Inside, Forstmann tried to keep calm, but as usual, did a poor job of it. Before they went any further, before they could even consider being “partners,” he had to make Cohen understand what Forstmann Little was about. He had to make them understand the fundamental differences between Forstmann Little and Kohlberg Kravis.

“You can’t mention Forstmann Little and Kohlberg Kravis in the same breath,” Forstmann said. “We are not comparable. When I started this business ten years ago, I said I wanted to be the best. I didn’t care about being the biggest. If you think the biggest is the best, go away. You belong with Kravis. Our returns are three and four times the returns they lie about getting.”

Jim Robinson cut him off before he got too far into The Spiel. “We know all that, Ted. We know that’s true. That’s why we’re all here.”

A few minutes later Ross Johnson joined the gathering. Forstmann turned to him. “What I’m saying is, if you have any ambivalence about KKR, you can’t be for me. You just can’t.” It had to be all or nothing, Forstmann said. He wouldn’t be partners with anyone who would even consider joining forces with Kravis.

Geoff Boisi thought he knew what was needed. “We need to hear you guys say that, if we’re going to go forward, you will not deal with these people anymore.” He repeated the same message two or three times so it would sink in.

Boisi looked at Johnson, who slouched down in his chair, his head in his right hand just inches above the tabletop. He appeared exhausted. From time to time Johnson sipped from a glass of clear liquid. Steve Fraidin, who noticed Johnson seemed to be slurring his words, wondered whether the glass held water or vodka.

“Ross,” Boisi continued, “I think what Teddy’s saying is, he wants to be sure you’re through with Kravis. I think he wants you to look him in the eye and tell him you’ve made up your mind. Tell him you’re finished with this other business. If you’re not, we’ll leave right now.”

Forstmann interrupted. “Is it over? ’Cause if it isn’t over,
we’re
over.”

Finally Johnson spoke. “There’s no deal with those guys. That was something we had to do. It had to be done, and now we’re finished. We need your help. We’d like to work with you.”

There was some more talk, about strategy and tactics and how best to deal with a hostile Henry Kravis. And then somebody said it was four in the morning, and didn’t everyone have plenty of work tomorrow? Soon they rose and shook hands and headed for the elevators. As they did, Ted Forstmann couldn’t help thinking that no one had apologized for letting him sit in a room alone for more than three hours.

The cool morning breeze blew hard against their faces as the Forstmann group emerged from Nine West. For a few moments, the four men stood in silence on Fifty-seventh Street, each lost in his own thoughts.

Boisi broke the silence. “Are you sure you want to do something with these guys?” he asked Forstmann.

“Geoff,” Forstmann said, “it’s where the management is. It’s where we should start. We need to at least try to work with them. Don’t you agree?”

“Speaking as an adviser, and I’m an adviser now,” Boisi said, “I have
a thought. I want you to tell them that you’re upset. I mean it. We need to tell them we didn’t like what happened in there.”

It was clear where Boisi stood. He wanted nothing to do with Peter Cohen. But then Boisi had his own agenda. Several of Goldman’s best clients, including Procter & Gamble, were chomping at the bit to get a piece of this deal. “Teddy, don’t you feel you have an alternative?” Boisi wondered. “I mean, why don’t you do something with us?” With Goldman Sachs.

“Geoff,” Forstmann said. “I have three alternatives. I can join up with these guys. I can go team up with you. That’s certainly doable. Or I could do nothing.”

Fraidin laughed, as if to say the idea of doing nothing in Wall Street’s fee-driven atmosphere was something only Ted Forstmann could imagine.

“Geoff, you do take me seriously, don’t you?” Forstmann said. “About doing nothing? I mean, if there’s nothing there, I won’t do anything.”

“I think you ought to tell Cohen that,” Boisi said.

“That’s the type of thing an adviser should do,” Forstmann replied. “I want as little as possible to do with this Cohen guy.”

Not only had Shearson been badly outmaneuvered, it now found itself outmatched by the financial sophistication of Kohlberg Kravis and its advisers, Drexel and Merrill Lynch. Kravis’s introduction into the bidding of PIK preferred stock, which represented a full $11 a share, or nearly $2.5 billion, of his $90 bid, was a masterstroke Shearson couldn’t easily equal. Two years of backing Dan Good’s corporate raiders had left Cohen’s junk-bond department sadly lacking in the expertise it now needed. The worldwide market for PIK stock, which is convertible into junk bonds, then stood about $2.5 billion; Kravis’s offer would easily double its size. That kind of confidence didn’t come overnight. As hard as he tried, Tom Hill couldn’t see how the market could absorb much more than $5 a share; later he would revise that number to $8 a share.

For the moment, Cohen put off dealing with Forstmann. Already Forstmann was pestering him with calls.
We have to move fast! Do you think Kravis is waiting around?
It was impossible to talk with the man without enduring twenty minutes of why Kravis was ruining the world.

Bringing Salomon into the deal as a full partner topped Cohen’s list of priorities Wednesday morning. Johnson slept late that day, then hustled down to Shearson’s offices in Battery Park City to meet with Cohen and the Salomon chieftains, Gutfreund and Strauss. Afterward, Cohen asked Johnson for permission to bring Salomon into the fold.

“I have to rely on you for this.” Johnson asked, “What do they bring to the party?”

“They bring a lot to the party,” Cohen replied, principally $3 billion in capital. The bidding was reaching heights where the equity alone was more than Shearson could safely assemble itself. If Johnson’s team won, Salomon could also prove valuable in the critical sale of bonds to finance the bid.

“Any objections to them coming in?” Cohen asked.

“No, not at all,” Johnson said. “And you need the money.”

Nicky Forstmann, eight years his brother’s junior, movie-star handsome, and well tanned year-round, shared his brother’s distaste for junk bonds and Henry Kravis. He was walking toward Nine West’s glass-enclosed lobby when he spotted Kravis and Roberts inside, coming toward him. Kravis saw Forstmann and smiled; he knew where Nicky was going. As Forstmann entered the revolving doors, Kravis suddenly held them, temporarily trapping the younger man. Kravis wore a wide smile; he loved toying with his rivals.

Released a moment later, a red-faced Forstmann stepped into the lobby. “What are you doing here, Nicky?” Kravis chided him. “What do you want to be involved in this thing for?”

Kravis snickered as he watched Forstmann head for an elevator bank far from the one to Johnson’s floor. Kravis thought he was trying to throw them off. “He should know better than that,” Kravis said, smiling.
*

Johnson was the perfect dinner speaker, cracking jokes and needling Hugel, the man whose committee would determine the future of Johnson’s buyout effort. A number of those involved in the deal were there: John Greeniaus and Jim Welch from RJR Nabisco, Ira Harris of Lazard Freres, Marty Davis of Gulf + Western. “Welcome to the special committee meeting,” Johnson said, opening the dinner.

Afterward, Johnson retired to Jim and Linda Robinson’s apartment, where the two men talked late into the night. Looking down on the city below, Johnson, a drink cradled in his hand, enjoyed a moment of rest. He hadn’t been comfortable bidding in the low eighties; now that they were looking at bids in the low nineties, he was having a hard time generating enthusiasm for the work. At those levels the debt payments would be crushing. Atlanta, Premier, the apartments, the planes—he shuddered to think. If winning meant giving up everything he loved about corporate life, he would rather lose.

“How high is this thing going?” Johnson wondered aloud. “We’re talking serious money here, now. Jimmy, you know, basically, the business can only produce what the business can produce. No matter how good it is, if you pay too much, you’ll lose.”

When Johnson had shared his fears with Steve Goldstone, the lawyer had tried to break the truth about Shearson to him gently. “Ross, it’s their money,” Goldstone said. “If they want to spend it, let them spend it.”

Now, as he sipped his drink and hashed out things with Jim Robinson, Johnson couldn’t shake the feeling he was losing control of his Great Adventure. “Jimmy,” he asked the chairman of American Express, “how much insanity is there?”

As Johnson’s troubled mind wound down, a scene of minor chaos was being played out at RJR Nabisco’s forty-eighth-floor offices. There, investment bankers from Shearson and Salomon met with Nick Forstmann and a Goldman Sachs team led by Geoff Boisi. After a month of work, Tom Hill had definite notions about how to proceed, about what businesses
should be sold, about what Johnson would and wouldn’t do. Boisi, it was clear, had his own ideas. More assets should be sold off, he said, and quicker. Hill bridled. The two bankers’ voices took on edges, and soon sparks were flying.

Nick Forstmann could tell the room wasn’t big enough for both bankers’ egos. Boisi was trying to bully Hill. And Hill was threatened that a competitor was trying to run his deal. Forstmann rose and took Hill aside.

“Look, Tom,” he said, “this thing is not a turf issue, all right? It’s about how we can get this thing done.” Forget the intramural squabbling, Forstmann suggested.

Later, when Forstmann took the elevator down with Boisi, it was clear the Goldman banker was incensed by the
ex parte
conversation with Hill. “What did you do that for?” Boisi demanded. “What did you tell him?”

Forstmann had no patience for investment bankers’ macho mind games. “Geoff, this is not a turf thing,” he repeated. “The idea is to get the deal done.”

Gutfreund’s phone rang. “It’s Henry Kravis,” a secretary said. Before Strauss could take the call, a second line rang. It was Gutfreund himself calling from Europe.

Strauss hollered that he would take Gutfreund’s call first. He picked up the phone expecting to hear the chairman’s gruff voice but instead heard Henry Kravis. Somehow he had picked up the wrong line.

Before Kravis said a word, Strauss knew it would be an unpleasant conversation. The two men had known each other for twenty years, but these days their friendship was strained. In the 1970s Tom and Bonnie Strauss had been close friends of Henry and Hedi Kravis. “When Henry divorced Hedi,” says one of Strauss’s closest friends, “Tom and Bonnie
lived through the whole thing. They stayed close with Hedi. When Henry remarried, there was a break.” As a result, the friend says, “Henry felt betrayed by Tom and Bonnie.”

In hindsight, Strauss acknowledged the breach, saying, “It’s natural for the wives to stay close in these things.” He downplayed its effect on his performance in the RJR Nabisco deal, saying, “I think Henry’s too big for that.”

Friends of both men disagree. The tension between Strauss and Kravis was to have an effect on several of the deal’s key negotiations. “When the deal was over, a lot of broken friendships were mended,” says one observer. “But the relationship between Tom and Henry will never be the same.”

That morning Kravis wanted something from his old friend Tommy Strauss. He was smooth and conciliatory, every inch the old pal.

“Tom, I understand you all are thinking about getting in the middle of this thing,” Kravis began. “I’d appreciate your not doing that. We’re good friends, and I’d sure like it if you didn’t complicate things.”

Strauss couldn’t believe Kravis’s gall. RJR Nabisco represented Salomon’s best chance yet to make the leap into merchant banking. And hadn’t Kravis just hired four separate investment banks for the deal—not one of them Salomon? Strauss’s irritation went beyond RJR Nabisco, of course. “KKR had shit on Salomon for years,” recalled Chaz Phillips. “They’ve given out five hundred million dollars of investment-banking fees, and Salomon’s gotten about one percent of it. And what Salomon got, the others didn’t want.”

Strauss was too much of a gentleman to curse Kravis that morning. “This looks like a transaction that makes a lot of sense for us, Henry,” he said briskly. “It doesn’t preclude our doing something with you.”