Read Barbarians at the Gate Online
Authors: Bryan Burrough,John Helyar
Barbarians at the Gate (61 page)
Late Friday afternoon Peter Cohen sat in the back of a limousine cruising home. It had been a long, frustrating week, but despite breakdown of the peace talks, he still held out hope he could get Johnson and Kravis together. No permanent enmity existed between the two sides, and the clash between Drexel and Salomon seemed too silly to keep them apart.
When he heard of the developing
Times
story, Cohen instantly realized the repercussions. If the pact had leaked, it could only have come from one place. Cohen immediately called Dick Beattie.
“What the hell happened?” Cohen demanded.
“I don’t know, Peter,” Beattie said. “I have an idea how it happened. But it didn’t come from me.”
“You leaked that agreement to Sterngold!”
*
“Peter, I didn’t. I couldn’t have. It’s right here in my briefcase.” The briefcase lay open at Beattie’s feet. “Peter, I’m not in control of everything,” Beattie said. “Henry hands out everything to everybody.”
In fact, Kravis had convened a meeting of his investment bankers Thursday afternoon, where terms of the agreement were aired in detail. Kravis hadn’t trusted his advisers to keep their mouths shut for a moment. The management agreement, though, seemed like just the kind of thing they ought to know about. Any one of a dozen advisers, Beattie knew, could have been the leak’s source.
Cohen hung up, incensed. The battle for RJR Nabisco was escalating. The winds were changing, and they were beginning to blow hard in Peter Cohen’s face.
By Friday Ted Forstmann’s bidding group was ready to surface. At first, Hugel’s special committee, wary about giving sensitive financial information to the company’s toughest competitors, had balked at welcoming Forstmann’s group. But Geoff Boisi’s persistence had won the day. Boisi had agreed to a difficult due diligence process, in which each document
the group received was to be color coded for review by only certain members.
What broke the logjam, though, was Hugel’s realization that Forstmann Little represented a fallback position in case Johnson and Kravis teamed up. Hugel was certain the two would join forces: It made too much sense. If so, Forstmann’s presence would keep the bidding alive.
Forstmann, of course, ensured it would be a difficult birth. Friday he spent the day at Lazard’s Rockefeller Center offices negotiating a press release announcing his group’s formation. He insisted that the release note that his group had been “invited” to bid; it was vital if Forstmann were to wear the white hat. Peter Atkins refused. The board, after all, was supposed to be neutral. No matter how much it wanted Forstmann in the bidding, it couldn’t be seen as playing favorites.
But Forstmann was adamant. “I have to be invited. Don’t you understand?” he told the Lazard advisers. “Either it’s there or I’m not.”
All afternoon they argued. Then, with Forstmann on the verge of storming out, Atkins finally relented. How about
welcomed?
the lawyer suggested. The board would
welcome
Forstmann’s interest. Forstmann agreed.
During a break, Forstmann contacted his office and discovered a message from Jim Robinson. Minutes later he called and heard Robinson’s soft Georgia drawl come on the line.
“Teddy, you know the respect I have for you,” Robinson began. “You run your business, and I run mine. Now, I’m not telling you how to run your business. But I want you to know that the rumor down here is that you and Geoff Boisi are trying to put something together. I want you to know our guys are jumping up and down stiff-legged about this.”
Forstmann wasn’t familiar with the phrase, but got the message that Cohen was irate. “They feel,” Robinson continued, “they had a statement from you that if you didn’t do something with us, you wouldn’t do anything at all. They said you had agreed to sit on the sidelines.”
Forstmann took a deep breath. “Jimmy, this is very tough. I know you know I’m an honest guy.” He told Robinson how he had stressed to Cohen that Forstmann Little had three options: joining forces with Shearson, going it alone, or dropping out. “Quite frankly, the last alternative was my preference—I just wanted to forget it. Now I’m not sure what we’ll do.”
“I know that,” Robinson said. “But you said yourself you’d sit on the sidelines.”
Forstmann attempted to explain what he meant by the sidelines remark. He could tell it was no use. “Listen, Jim, we don’t know what we’re going to do yet. When we do, you’ll be the first to know.”
Two hours later, Forstmann called Robinson again. He read the American Express chief the press release announcing formation of the new bidding group.
Robinson laughed. “Gosh, my phone call sure had some impact.” Forstmann hadn’t given Robinson’s earlier objection a second thought.
“Good luck to you guys,” Forstmann said.
“And you,” said Jim Robinson.
Johnson slept late Saturday morning at his Atlanta home. Padding downstairs he picked up the
The New York Times.
Scanning the business section, his eyes were immediately drawn to a story at the bottom left-hand corner.
“
NABISCO EXECUTIVES TO TAKE HUGE GAINS IN THEIR BUYOUT,
” the headline read.
Johnson, who never viewed the management agreement as the symbol of greed others did, thought the story was so wild it wouldn’t have any credibility. It suggested the pact might be worth as much as $2 billion, a figure Johnson considered absurd. Only if every incentive was reached might they have reaped that much, but now, with bids pushing into the low nineties, that would never happen. Besides, everyone knew the agreement was to be renegotiated.
“This is absolutely fucking ridiculous,” he said aloud. No one would believe this. Would they?
He reached Jim and Linda Robinson in Connecticut. “No reasonable person is going to believe this shit,” he told them. “This is goddamn asinine.”
Linda Robinson didn’t think the story was so far off the mark, but didn’t tell Johnson that. “Ross, it’s not a p.r. problem you’re dealing with,” she said. She had to make Johnson grasp the scope of the dilemma they now faced. “It’s a factual problem. You don’t understand. You can’t just tough this out. You’re going to get killed on this thing.”
Johnson’s phone rang off the hook that day. One of the first to call was
Andy Sage, the architect of the management agreement. Sage had read
The Times
story and, remarkably, hadn’t thought much of it. “Oh, that thing,” Sage said. “That’s all conjecture; nobody’s going to take that seriously.”
Sage wanted to talk about the bank situation. He was concerned that Shearson wasn’t making progress toward assembling bank financing. “I can only beat their heads so long,” Sage said. “I just don’t think they’re doing the job.”
It was all Johnson needed to hear. Coming on top of everything else, he was beginning to realize the limitations of his partners, Shearson and Salomon. “Having watched and listened to George and Henry,” he told Sage, “I would say we’re a little overmatched here.”
Charlie Hugel, who read
The Times
story that morning at his Connecticut home, was also getting calls. His were from angry directors, demanding an explanation from Johnson. If
The Times
report were true, the board risked looking like fools for not knowing about the agreement. Hugel himself was also curious, although he was too contemptuous of the press to grant it any accuracy. He called Johnson in Atlanta.
“Oh, Charlie, listen,” Johnson said. “It’s horseshit. Don’t believe a word of it.”
The two men discussed the article’s alleged inaccuracies for some time. “Listen,” Hugel finally said, “will you get me a letter on it, because I’m getting some calls.”
Sure, Johnson said. The next day Goldstone authored a letter to Hugel, which Johnson signed. “Saturday’s
New York Times
incorrectly implied that I and a few other members of management could earn excessive amounts under our group’s buyout proposal,” it began. “This simply is not the case, and I would like to set the record straight.”
Johnson went on to suggest that his group’s compensation arrangements were typical of LBOs. Furthermore, he wrote, much of the equity the group would receive would be distributed to large numbers of employees. “When we reached agreement with our financial partners on the allocation of equity,” Johnson wrote, “I asked our lawyers in New York and Winston-Salem to analyze ways in which this stock could be distributed to our employees, and they are actively engaged in this analysis.”
Charlie Hugel read Johnson’s letter carefully. In three weeks of conversations
with Johnson—including the talk in which Johnson offered him a share of the purse—it was the first time Hugel had heard any mention of employees receiving stock. Not even the day before, when Johnson had
The Times
story in hand, had he mentioned anything about this.
Hugel thought Ross Johnson was lying.
