Barbarians at the Gate (58 page)

“I don’t know,” Johnson said. But then, he wasn’t especially concerned; these finishing-up sessions always took time.

Cohen came in shortly after. He had been working with Strauss and Gutfreund on a way around the bond-offering problem.

“Where do we stand?” Roberts asked.

“We’re still trying to thrash this thing out,” Cohen explained.

In fact, Cohen was getting nowhere. For an hour he had tried to fathom Salomon’s objections to Drexel and searched in vain for a compromise. Cohen hadn’t come from a trading culture like Salomon’s, and sometimes didn’t grasp the fine points of Gutfreund’s arguments. It was taking time, and he was tired.

Months later Tom Strauss acknowledged the central controversy. It lay in the esoteric world of the bond trader. When more than one bank agrees to underwrite a bond offering, a lead bank must be chosen to run the books. The key records of bond sales reside physically at that bank, which generally calls the shots and parcels out bonds over the course of the offering. The lead bank is so noted by placing its name first—on the left side—of the subsequent tombstone advertisements that pack
The Wall Street Journal
and other financial publications. Being “on the left” of the tombstone thus has powerful symbolic significance in the bond world.

Before Kravis’s entry, Strauss and Cohen had agreed that Salomon and Shearson would corun the books. Shearson would be on the left, Salomon on the right. The books would rest physically at Shearson. That arrangement didn’t bother Salomon, Strauss explained, because Salomon’s power in the bond world so overshadowed Shearson’s that everyone would know who had really run the deal.

The same structure, however, would send an entirely different message
with Drexel on the left. While Salomon could tower over Shearson from a position on the right, the same wouldn’t be true of a bond-trading power such as Drexel. “With Drexel on the left,” Strauss said, “
we would have been perceived as an afterthought.
”

In the end, then, perception was the issue. Perception about who was running a set of bond offerings that, to Johnson or any other acquirer, was a detail. For despite its status as a full partner in Johnson’s deal, despite all the high talk about merchant banking, Salomon’s principal mission wasn’t owning Oreos. It was selling bonds. And it was willing to sacrifice Johnson’s interests—indeed, his entire deal—to avoid the perception that it was taking a backseat to its hated rival, Drexel. Through all the machismo, through all the greed, through all the discussion of shareholder values, it all came down to this: John Gutfreund and Tom Strauss were prepared to scrap the largest takeover of all time because their firm’s name would go on the right side, not the left side, of a tombstone advertisement buried among the stock tables at the back of
The Wall Street Journal
and
The New York Times.

But no compromise seemed acceptable to Gutfreund. “In no way will we defer to Drexel,” Salomon’s chairman intoned. “Glad to have ’em as a partner, Peter. But we haven’t gone this far to give this deal up to Drexel.”

Time after time, Cohen attempted to pull his friend Strauss off to the side for a heart-to-heart talk. Each time, Mike Zimmerman or one of the other Salomon bankers would trot out and join the conversation. Cohen began to think of the Salomon executives as sausages, linked together wherever they went. It was impossible to get a moment alone with any one of them.

Only once did Cohen lose his temper. Zimmerman made another of his group’s pronouncements about Salomon’s reputation. “We are Salomon Brothers,” he said. “Who do they think they are to treat us this way?” It was too much for Cohen, who proceeded to jump down the
banker’s throat. “What are you talking about? You guys didn’t exactly blow out the lights on Southland and Revco, you know. They have reason to be concerned. I mean, do you even understand what we’re doing here?”

Cohen tried every alternative he could imagine. Reimbursing Kravis for the extra cost of hiring Salomon. Setting up a trading room at a neutral site where all three firms could manage the offering together. He held his breath whenever he saw movement in the Salomon position. Each time they seemed to be nearing an agreement, a Salomon banker popped off about Drexel. “What are we doing?” one would say. “These guys are crooks. They’re crooks!” And the whole group would set off on a spree of Drexel bashing.

It was as frustrating as anything Cohen had attempted. A man who prided himself on his stamina, Shearson’s chief had to admit he was exhausted. For two weeks he had been fighting nonstop. He needed sleep. Negotiating the most important issues of history’s largest takeover at two in the morning—it made no sense. Why were they here?

As the night wore on, Johnson, who continued to be impressed with Kravis’s financial sophistication, began to lean perceptively toward his position. Why not go with Drexel, Johnson asked, if in fact they were most reliable? “Peter, we should have the best people doing this, I don’t care who they are,” Johnson said. “If it’s a better idea, let’s use the better idea.”

Johnson’s behavior emboldened Kravis. Why don’t you go out there and bang out a compromise yourself, Kravis asked Johnson at one point. After all, wasn’t Johnson the client here? Couldn’t he simply demand that his own investment bankers go along with his wishes? Johnson said he’d give it a try.

He left, then returned twenty minutes later. “Well, I talked to ’em.”

And? Kravis wondered.

“Well, I still don’t know what’s going on.”

“Who the hell is making decisions around here?” Kravis said, his anger growing.

“Well, I don’t know,” Johnson replied. “There’s all these guys from Salomon out there…”

Jim Robinson, who had kept his counsel through most of the evening, thought he saw a solution. Gutfreund, he suggested, hadn’t liked being excluded from their discussions at the Plaza. “I think his feelings are hurt,” Robinson said. “Why don’t you guys sit down and talk with him?”

“Fine,” Kravis said. “Why don’t you go get him.”

Word came back that no one could find Gutfreund. He had vanished. “Where the hell is he?” Johnson asked, stalking out of the room. He checked first with the security guards, who said they thought Gutfreund had gone out for a walk.

If Gutfreund was pouting, Johnson figured, it would probably only make things worse to send a minion after him, so Johnson went to retrieve him himself. He found him on Fifty-seventh Street, smoking a cigar. Gutfreund appeared to be lost in thought.

“Come on, John, you gotta get upstairs and spend some time with Henry,” Johnson said. “This thing seems to be moving along.”

Around three o’clock Kravis and Roberts sat down with Gutfreund in the small anteroom off Johnson’s office. “We’re trying to be reasonable here,” Kravis said. “Now why is it so important that you guys run this deal?”

“Because I think we’re competent,” Gutfreund said. “Because our people have spent a considerable amount of time on this. We are perfectly capable of doing this job, and we should do it…. There are any number of reasons we should do this deal…. Our firm has taken a terrible beating in recent years.” Kravis knew: It was one reason they didn’t want Salomon running the books. “Now I’ve got the most respect for Mike Milken,” Gutfreund continued, “but this is how we at Salomon Brothers want to proceed.”

Gutfreund, it was clear, wasn’t budging, but neither was Kravis. When Gutfreund left the room, Roberts sank into a dark mood. He stood talking with Kravis beside Johnson’s wet bar for several minutes until Dick Beattie walked in.

“Look, this is crazy,” Roberts said. “We’ve spent all night arguing who’s going to be on the left and right of the underwriting tombstone. How are we going to work out agreement on the real issues? How are we going to work with these guys even if we do this deal? Everyone’s interested in everything except doing a business deal. It’s all jockeying for ego and position.”

He was growing more depressed just talking about it. “I came in here thinking we were going to do a deal,” Roberts said. “Now…”

“I believe you, George,” Kravis said, nodding his head in agreement. “You’re absolutely right.”

Beattie shared his clients’ discouragement. “You know, there’s a lot of
issues in the management agreement we put off, too. If we can’t get this behind us, we’ll never get anything behind us.”

“Let’s just go home and get some sleep,” Roberts said. “This is crazy.”

Kravis took Cohen aside and told him they should resume after daylight. As for the bond situation, Roberts and Kravis planned to talk through compromises at a seven o’clock breakfast with Drexel’s Peter Ackerman, the trader stepping into Milken’s shoes. Maybe Ackerman could come up with something Gutfreund could live with.

“Call me at home when you’re ready to reconvene,” Cohen said.

As the Kravis contingent headed for the elevator, Gutfreund came scurrying after them. “Dick, Dick, hold it a second. Let’s talk this over.” Beattie tried to calm the Salomon chairman. “We’re just not making any progress, John.”

Kravis and Roberts paused while Beattie walked back to speak with the Salomon bankers milling about in the fishbowl. A dozen questions pelted the lawyer as he entered. “Why are you guys so protective of Drexel?” someone asked. “They’re big boys. They can take care of themselves.”

“Look,” Beattie said, “all night Peter Cohen has been defending you guys. The Drexel guys are our partners. They’ve been good to us. We’re not going to desert them.”

Beattie didn’t belabor the fact that Salomon had repeatedly bungled its attempts to enter the LBO field. Or that Kravis would sooner have his mother handle this offering than Salomon. Or that Kravis felt Strauss had betrayed him. It was all so complicated.

By the time Kravis and Roberts departed, Johnson had already left. Gar Bason had a memorandum of agreement between the two sides ready to sign, and Johnson initialed it on his way out. The impasse between Kravis and Salomon, he was certain, would be solved by daylight. Frankly, he liked Kravis’s approach better than Shearson’s. But he would be satisfied with whatever approach they chose. These last-minute details were just so tiresome.

Many of the Shearson group stayed and stewed over the night’s events until five
A.M.
Two members of the Salomon contingent, Peter Darrow and Mike Zimmerman, emerged into the dawn to find their cab had been waiting for eight hours. The meter was still running.

“Excuse me, sirs?” the driver said as he dropped the pair off in Brooklyn Heights. “Would you mind initialing this voucher? No one’s going to believe this.”

Dawn was gathering when Cohen dragged himself into his Fifth Avenue apartment. He thought about going to bed, but knew he was too wound up to fall asleep immediately. In the bedroom his wife, Karen, woke up and asked how it went. Rarely had Cohen felt so frustrated. For the first time in his career he hadn’t been able to build a bridge between warring factions. It was an ability he prided himself on. They sat on the bed, husband and wife, for nearly an hour, sorting out the night’s events, slowly unwinding, before quietly falling asleep.