Barbarians at the Gate (60 page)
Read Barbarians at the Gate Online
Authors: Bryan Burrough,John Helyar
“We may win or we may lose,” Robinson said, “but if we lose it’ll be with a structure that is best for our company and investors.”
When Robinson’s group left, Kravis erupted, as did George Roberts. “Goddamn it,” Roberts groused, “Ross Johnson didn’t have the balls to come down here and look us in the eye and tell us that himself. I’m glad we didn’t hook up with those guys. It never would have worked out.”
Cohen stepped out of Kravis’s office, picked up a phone in Kohlberg Kravis’s waiting room, and called the group upstairs.
“Go ahead,” he said. Minutes later news of the management group’s $92 bid crossed the Dow Jones News Service.
Kravis wasn’t the only one stunned by the management group’s bid. Johnson was floored. Brooding in his office, Johnson had figured the debate going on in the conference room was theoretical. Despite Goldstone’s warning, he didn’t believe anyone would actually launch a new bid. Not with a deal with Kravis so close. And certainly not without his approval.
“What are we doing?” Johnson railed at Goldstone when he saw the news cross the tape. “This is stupid as hell! This is asinine! If all the negotiations have broken down, what the hell use is there in making an offer? You’re not going to get a merger agreement.” It would only anger Kravis.
Linda Robinson arrived on the forty-eighth floor and talked with Kravis on the phone at noon. He was livid. “I can’t believe they did it!” Kravis raged. “Why didn’t they try harder?” He went on for several minutes, his anger flowing unchecked. Linda Robinson could only listen, irritated and a bit embarrassed at her own side’s behavior.
Johnson remained in his office, shocked at the turn in events. He couldn’t talk to Gutfreund or Cohen; they seemed too pleased at having shown Kravis the price of messing with them. He couldn’t talk to Kravis, who, in Johnson’s words, was “pissing fire.” Just seventeen hours earlier, he had managed to get a peace treaty. He hadn’t wanted to invite Strauss or Cohen or any of the Wall Streeters. The whole thing had fallen apart over greed—pure and simple greed. And now, the
pièce de résistance,
his own partners were launching a $20 billion bid without even bothering to tell him. He felt like the man who entered the casino in a tuxedo one night and emerged the next morning in rags. Far worse, Johnson realized, he had lost all control of his fate.
As Johnson moped, Goldstone reluctantly dialed Peter Atkins to inform him of the group’s new bid. Atkins was pulled from a special committee meeting at Skadden Arps to take the call. Goldstone fought to disguise the displeasure in his voice. After their discussion of a preemptive bid the day before, he was almost ashamed to speak to Atkins. A blockbuster, Goldstone had vowed.
As he broke the news to Atkins, Goldstone thought he could hear the surprise in the lawyer’s voice. He wanted to explain, but knew he didn’t dare. When he finished, there were several moments of awkward silence. He knew Atkins must be struggling with how to deal with the surprise of such a low bid.
“Okay,” Atkins finally said. “I hear you.”
Goldstone wasn’t the only one unhappy with the management group’s $92 bid. In Minneapolis, Hill stepped out of a Pillsbury board meeting to hear the news from Cohen. “I think it’s a mistake,” Hill told his boss. Now they were in an auction, and in an auction the auctioneer has control over all the bidders. “Once we stepped forward with a bid,” Hill recalled months later, “the board knew they had us by the short hairs.”
Afterward, everyone scattered. Cohen spent the afternoon in a New York Stock Exchange board meeting. Strauss and Gutfreund boarded a plane and flew to Palm Beach for a weekend outing with Salomon clients. Johnson simmered in his office. Linda Robinson stopped by Kravis’s suite on her way out of the building.
“We’ve got to do something,” she said. “We’ve got to get it back on track.”
“I don’t see how we can get it back on track,” Kravis said. He was resigned to the fact; it was over. In the middle of negotiations, Peter Cohen had pulled a gun and sprayed the room with bullets. How do you negotiate with people like that?
“You’ve made your bid,” Kravis told Jim Robinson’s wife. “You’re on your own at this point.”
Financial studies were Frank Benevento’s life. As a consultant to Johnson and Sage, Benevento loved to use terms such as
financial engineering
to describe his number crunching. Lately Benevento had been busy studying the fee structures of major Wall Street advisers. On Thursday afternoon he walked into Johnson’s office with the results of his latest study. According to the percentile fees currently prevailing on Wall Street, and in light of the tremendous fees being paid the investment bankers and lawyers in this deal, Benevento said, he had compiled his own bill.
It came to $24 million.
Johnson nearly fainted. Everyone, he reflected, was out to get something for themselves. The directors, with their petty concerns about pensions and auto insurance. Kravis and his investment bankers and their fees. Salomon and its bonds. And now Frank Benevento wanted $24 million.
There was no bloody way Benevento was getting anywhere near $24 million, Johnson thought. He told him to bill the company for whatever
he wished. The matter would be dealt with when things returned to normal.
Depressed, the Johnsons left New York on Friday morning, flying north to a hospital outside Albany. That afternoon Johnson sat in his comatose son’s hospital room for four hours. Bruce Johnson wasn’t doing well. His condition had deteriorated seriously on the trip to Albany from Westchester. The Westchester doctors insisted it would be safe, but their Albany counterparts felt he probably shouldn’t have been moved. Bruce’s temperature soared. Johnson passed the day talking with the doctors, but there was little to say.
Similarly, Kravis spent Friday with his own son. It was Parents Day at the exclusive Middlesex school in Massachusetts, and Kravis drove up for the occasion. Afterward he retired to his country home, hoping to escape the rigors of all-night negotiations and the
rat-a-tat
of press criticism. The media attacks had left him feeling besieged. At his darkest moments, it was enough to make him question how badly he really wanted to own RJR Nabisco. Was it worth the cost of being a pariah?
Friday afternoon Kravis suffered by far the worst blow from the press so far. “
KING HENRY,
” blared the cover of
Business Week,
out that day. The headline inside read, “Why KKR’s Kravis may be headed for a fall—even if he wins the battle for RJR Nabisco.” Carolyne Roehm saw the cover at her Seventh Avenue office and cringed.
Kravis reacted as if he’d been publicly labeled a child molester. He withdrew into himself, morose. All weekend Roehm tried to cheer him up, but it was no use. She tried silliness and teasing and laughing. She joked they should enlarge it to poster size and hang it up. Linda Robinson called and passed on her condolences. Nothing worked. Kravis was stricken.
Then, at his lowest ebb, something happened that should have made him feel better. Kravis didn’t know it, but the tides of public sentiment were about to shift, strongly, in his favor.
For all the debate over its contents, the copy of Johnson’s management agreement that fell into Kravis’s hands hadn’t changed much in two weeks.
Despite Gutfreund’s complaints about its “unseemly” aspects, despite Jim Robinson’s suggestions, and despite the fact that virtually everyone involved agreed it would be renegotiated, so far it hadn’t. Peter Cohen had more important things to worry about. He passed responsibility for it to Jack Nusbaum, who passed it on to an associate at his firm. Negotiations would be messy and time-consuming, and everyone was busy battling Kravis.
Gutfreund, having received assurances it would be cut back, was in no hurry. The keepers of the agreement, Johnson’s attorneys at Davis Polk, were in no hurry. Steve Goldstone, curiously, left it to Johnson to renegotiate the management agreement. “Ross is a grown-up,” Goldstone said later. “He knew he had to give it up. It was up to him.”
Day-to-day responsibility for the agreement remained in the hands of Goldstone’s assistant, Gar Bason. Bason saw his job as looking out for no one’s interests but Johnson’s and was determined to hold the agreement sacrosanct, no matter what Cohen had promised Gutfreund. For a week following Salomon’s entry into the fray, Bason badgered Gutfreund’s aides to approve it. “Have you signed off on it yet?” he asked. “Have you signed off?”
Frustrated, Bason complained to Goldstone. “They’re just fucking us over!” he snapped. Irritated by Bason’s demands, Salomon’s lead attorney, Peter Darrow, also took complaints to Goldstone. “Your guy Bason keeps hammering me on this thing,” Darrow said. “He seems to think there will be no changes. Well, there will be changes.”
Goldstone had no interest in fighting. “Agreed,” he said. It could wait.
Among the few who wanted the agreement changed quickly were Jim and Linda Robinson, the two members of the group most keenly attuned to public relations. Both had recognized the agreement’s potential to explode in Johnson’s face. But Jim Robinson, the one who could have pressed for a change, didn’t. As a result, nothing happened. The agreement simply lay in state, a time bomb ticking away. Friday afternoon it went off.
Linda Robinson took the call. A veteran
New York Times
reporter, James Sterngold, was preparing a story on the management agreement for Saturday’s paper. From what Sterngold told her, it was clear he knew everything: the $2 billion, the free ride, even Salomon’s opposition. Linda Robinson’s first impulse was to come clean and discuss the agreement openly, but she was overruled by a press-wary Goldstone. When she
informed her husband of Sterngold’s call, Corporate America’s secretary of state had a succinct reaction: “Oh, shit.”
