Barbarians at the Gate (70 page)

Finn had drawn up a more detailed set of plans for the meeting. Using the installment note loophole to acquire RJR, he projected up to $4 billion in savings on taxes deferred beyond the year 2000. If everything clicked exactly right, Finn figured, First Boston might earn almost $300 million in fees—four times the largest merger-advisory fee ever. But Finn knew Maher was interested in more than fees. “Ancillary benefits,” he noted in his memo, included a “dramatic impact on M&A market share” and “immeasurable public relations/franchise benefits.” In short, Finn suggested, if they pulled this one off, they would never have to hear about Bruce Wasserstein again.

There were, Finn admitted, some unique problems to be ironed out. For one thing, deferring $3.5 billion in taxes—a conservative scenario—was unprecedented. According to Finn’s calculations, this single transaction would boost the annual federal budget deficit by 2 percent. If First Boston proposed it, RJR Nabisco’s board would almost certainly have to take into account the political fallout. “It’s clear,” Finn said, “that Washington would go apeshit.”

But the brash young banker argued that Congress was unlikely to intervene. Legislators had specifically extended the use of installment
notes until year end. And Congress would be in recess during much of the approaching auction. What were the chances of a special session being called to trash an LBO? “They can’t do anything,” Finn stated.

Still open was the question of whether First Boston needed partners to make Finn’s idea work. Some argued for flying solo. Maher wasn’t so sure. A respected partner would add legitimacy, something Maher was acutely aware his team might need.

Maher’s wish was about to come true. As darkness fell outside his window, Leon Kalvaria stepped out to take a call. It was Jerry Seslowe. Jay Pritzker’s former accountant sounded excited. “Leon, we’ve talked it over with Jay. We’re there. Let’s move.”

It was Tuesday morning, just three days before the Friday bid deadline, and Finn and three First Boston colleagues had come to Lazard’s offices to present their proposal in detail. Finn was always surprised how ratty Lazard’s suite seemed. The floors probably hadn’t been carpeted since 1932, he said to himself.

First Boston had pitched its proposal as a restructuring rather than an acquisition. Maher was betting the board might instinctively wish to keep RJR Nabisco independent, and a restructuring, albeit a drastic one, might be an easier pill to swallow than those offered by Kravis or Cohen. First Boston and the Pritzkers were offering to work with the board to sell the food businesses, pass along proceeds to shareholders and leave the tobacco business intact.

As the meeting progressed, Finn sized up the two bankers across the table. Luis Rinaldini of Lazard, Finn knew, was sharp, a good talker, like himself a rising star. John Mullin of Dillon Read impressed Finn as a relic of pre-1970 Wall Street, a stodgy, “white-shoe” banker playing way out of his league in the fast-moving eighties.

“We don’t see this board participating in this kind of complicated transaction,” Rinaldini was saying. “Not with all this risk from Washington.” The Lazard banker was shaking his head. “It’s too risky. It’s not their style. Of course, we don’t want to discourage you in any way.”

The hell you don’t
Finn thought. He realized what was happening.
These guys are offended. They think we’re screwing up their process. They think we’re making a mockery of the whole thing.
Finn suspected he knew what the real problem was.
We’re doing their jobs for them. They should’ve thought of this themselves. They think we’re trying to steal their jobs.

Far from welcoming First Boston’s interest, the special committee seemed to be snubbing it. Finn left the meeting fearing this was going to be far tougher than he had hoped.

The board wasn’t going to allow First Boston a chance for due diligence. If First Boston wanted to bid, it would have to fly blind, its only guide an annual report and a stack of 10-Ks.

It didn’t seem fair. “I don’t know what we’re going to do,” a disappointed Maher told Atkins on Wednesday, two days before the bidding deadline. “I expect we’ll give you something to think about on Friday, which may or may not make your life easier.”

Atkins remained noncommittal. “Do what you want to do.”

At Shearson, Tom Hill had nothing but contempt for the First Boston “offer.”
Maher is so desperate he’ll do anything,
Hill thought. The installment note scheme, he believed, was a gimmick that would never work in a deal this size. Hill considered Seslowe a lightweight, a real amateur. “They’ve got everybody in this deal except Abbott and Costello,” Hill cracked, “and they’re dead.”

Hill and the Salomon Sausages saw the wide girth of Ira Harris behind Jay Pritzker’s sudden interest in RJR Nabisco. Harris, now advising the board, was so close to Pritzker that Hill called them “blood brothers.” Pritzker’s entry into the fray was no accident, Hill decided; the special committee needed a stalking horse to replace Forstmann Little, so Harris came up with Pritzker. At Nine West, John Martin took to ranting how
“Fat Ira” was bent on mucking up their deal. In fact, Harris had spoken to Pritzker that Monday and had risen at the special committee meeting to urge listening to what First Boston and the Pritzkers had to say. But even his backing didn’t persuade Atkins to give the new group any information.

As the deadline neared, Johnson’s malaise lifted a bit. He began to grow worried what effect the onslaught of stinging publicity might be having on the board. Wednesday he called Hugel.

“Charlie,” he said, “if you’re going to run this, I want your word that, if we give our best bid, you’re not going to play games and try to negotiate us all over the place.”

“You’ve got my word.”

“Are you going to be opening the bids? I don’t want any funny business.”

“I’ll be right there,” Hugel said. “I’ll personally open the bids.”

If you’re worried about the publicity, Hugel continued, why don’t you call the directors and explain yourself? Johnson began calling directors the next day. His approach was always the same.

“My conscience is clear,” he told each director. “I can sleep at night, because I don’t think I’ve done anything wrong…. Whatever happens, the management group has gotten the stock up, and that’s what’s important.” To each he downplayed the management agreement, emphasizing his intention to spread the money around.

In the days leading up to the deadline, Johnson spent long evenings at Jim and Linda Robinson’s apartment, hashing through pricing strategies. Most nights Horrigan, who had a company apartment downstairs, would join them, and Linda would scurry around serving drinks. Johnson was a scotch man; Jim Robinson preferred a glass of wine. Horrigan insisted on hard liquor, what Linda referred to as “grown-up drinks.” Linda herself sipped berry-flavored Perrier.

A night owl, Johnson usually kept the Robinsons up until two or three
A.M.
As it grew late, Linda would lay face down on a living room couch, nibbling popcorn or stroking one of her three dogs. Each was named after an “Amos ‘n’ Andy” character: the King Charles Spaniel was Algonquin J. Calhoun, the two others were Ruby Begonia and Lacy.

When her husband and Johnson disappeared into a back room, Linda knew they were talking about the management agreement. In sharp contrast to its fiery birth, the pact was being gently renegotiated, largely in late-night one-on-ones between Robinson and Johnson. Jim Robinson didn’t need to push hard to obtain the revisions he sought; the publicity on the greed issue had done it for him.

By Wednesday, November 16, when the revised agreement was approved in a meeting in Peter Cohen’s office, Johnson had agreed to cut two points from his group’s stake, to 6.5 percent, and to sharply scale back the incentive bonuses. New, detailed provisions were included for spreading the stock to 15,000 RJR Nabisco workers. Later, members of the management group would defend themselves on the greed issue by pointing to that fact, suggesting Johnson had agreed to trim his share of the bounty.

In fact, he hadn’t. “At that point, Ross was really giving away other people’s money,” says Steve Goldstone. All along, Johnson and Horrigan had each planned to take about a point, or 1 percent, of the equity for themselves. Goldstone valued that point at between $75 million and $100 million over five to seven years. And according to Goldstone, Johnson still planned to take one point under the revised agreement.

Goldstone and Gar Bason jokingly chided Johnson about the talks with Robinson. “Every time you go off with Jim Robinson,” Goldstone told him at one time, “you come back with $50 million less.” When Johnson told his lawyer he planned to spend the weekend of November 19 at the Robinsons’ Connecticut farm, Goldstone groaned. “Don’t go out there,” he said. “This time you’ll come back with nothing.”