Barbarians at the Gate (79 page)

Brian Finn turned to Hank Handelsman and asked, smiling, “Do these people have any idea what they’re doing?”

“No,” Handelsman said. “Not really. Why?”

“Well, it’s important, I would think. I mean, they’re going to commit $125 million. Why should they do it?”

Handelsman stared at Finn as if it was the silliest question he’d ever heard.

“Jay asked them to.”

There was much to do in the final thirty-six hours before bids were due. Everyone had heard the worrisome rumors about Kravis. If that weren’t bad enough, ominous noises were beginning to emanate from First Boston as well. No longer could they be certain that either group would bid tomorrow.

Now, more than ever, they had to examine the feasibility of a restructuring. Luis Rinaldini had worked long hours formulating the plan and
was convinced it would work. Others, including Rohatyn, had their doubts. What happened to the company after that? And, most important, who would run it? “How do you run a recap without management?” Rohatyn asked rhetorically.

Johnson would have smiled had he known the only candidate to step forward and offer to assume that leadership. It was John Macomber—the same Macomber who as a special committee member now sat in judgment of Johnson and who, on at least two prior occasions, had been involved in aborted attempts to head RJR Nabisco. When the subject of a restructuring had come up weeks earlier, Macomber had approached Hugel and volunteered to run the company if Johnson was thrown out. It was no coincidence that Macomber was also the biggest supporter of the recap among the five committee members.
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The advisers decided to take a risk. If they were certain the recap could be valued at $100 a share, why not let the bidders know it? That way they could set a bidding floor, hinting pointedly that the board stood ready to reject anything less. It was a bluff, more or less. And while directed mainly at the management group, fairness dictated the same message be passed to all three. Therein lay the gamble: laying a $100 floor might be enough to scare off at least one of the other bidders.

To the board bankers, Hill seemed unbelievably cocky. He had fallen hook, line, and sinker for Kravis’s disappearing act, and First Boston, he said, was a joke, “an air ball.” In a sidebar conversation with his golfing buddy Rinaldini, Hill put his fists together and pumped them up and down, mimicking a bellows, as if to suggest the board had been pumping up another player to roll out against Kravis and Johnson. “Hill was his usual arrogant self,” recalled one of the committee bankers. “Only worse.”

Dillon and Lazard brought several messages for Hill’s group. One, firm up your securities. Unlike the Kravis securities, Shearson’s had no “reset” mechanisms that, in effect, guaranteed a security would trade at a certain
number over time. Shearson’s junk bonds could float up or down at will, leaving the buyer open to the vagaries of the market. The board advisers also rolled out the $100 recap plan. Anything less, they suggested, would be rejected as inadequate.

Rather than thanking them, Hill fought every suggestion. There was nothing wrong with their securities, he said. And the recap? A bluff. That day Hill was a man who thought he held all the cards. The bankers wasted little time arguing: If Hill chose to ignore them, it was his funeral.

Monday afternoon Felix Rohatyn passed on similar messages to Jim Robinson and Henry Kravis, who had returned to New York Sunday evening. “I’m not sure what we’re going to do,” Kravis told Rohatyn. “I don’t know if I’m going to bid at all. I’ve just had all this bad publicity…”

Rohatyn encouraged Kravis to bid. “Winning will only help your public posture, Henry. You’ve been hurt as much as you’re going to be. I can’t imagine your public posture would be any worse if you won than if you just dropped out.”

That evening Kravis hosted a dinner for Roberts, Raether, and a dozen others from the firm. Gathered beneath the Marquis of Londonderry’s stern gaze, they talked about what a victory would mean for the firm. For the most part eschewing financial details, they worried about the repercussions from Washington, life in the media spotlight, and the practical difficulties of swallowing a company the size of RJR Nabisco. The firm only had fifteen deal makers. Did it want to buy a company that would require the attention of eight or nine?

To Raether’s consternation, Roberts remained downbeat.

“Let’s just not bid,” Roberts urged at one point.

“No, George, come on,” Raether said. “We can’t do that. If we don’t want to bid, let’s at least reaffirm our earlier position.”

They talked for a time about what bothered each of them, but the issue of their bid remained unresolved. Tomorrow would tell.

Skadden Arps, always edgy about the issue of preselling, okayed Seslowe’s plan, but with a caveat. To attend the meeting Seslowe’s people would have to sign a confidentiality agreement. No sooner had Seslowe faxed a copy of the agreement to each of the investors than objections came flying back.

Among its clauses was one limiting the sale of RJR stock. Nearly all Seslowe’s backers were active stock players and had accumulated large RJR positions. Men like Martin Gruss, the New York investor, pointed out to Seslowe that signing the agreement would lock them into their positions, leaving them vulnerable to massive losses should the inflated stock somehow collapse. One by one, Seslowe’s investors began backing out.

“No…no…” Seslowe moaned as the impact sank in. “This is complete bullshit! This is a catch-22. They won’t invest until they meet with First Boston. This is a disaster!”

Skadden Arps refused to budge on the agreements. Seslowe did the only thing he could; he panicked. All Monday and into Tuesday, he scrambled for commitments: Not all his investors held stock. Maher and the Pritzkers looked on warily, hoping Seslowe could come up with the money by five o’clock.

At least the bank situation had firmed up. Against all odds, First Boston’s bank team was nearing success. It hadn’t been easy. Every major U.S. bank was committed to helping Kravis or the Shearson group. None was enthusiastic about fielding a third team to help First Boston’s iffy bid. The Japanese banks had their own problems. “We’d love to work with you,” one Tokyo banker told First Boston’s Dave Batten, “but we’re
already working with two other groups, and we’ve run out of people who speak English.”

Somehow Greg Malcolm had managed to gain multibillion-dollar pledges from Credit Suisse and a French bank for the tobacco half of their plan. All that remained was for Chase Manhattan to finish work on the monetization proposal.

Monday afternoon Malcolm took a call from David Maletta, First Boston’s liaison to the banks on the monetization project. With any luck, Malcolm thought, Chase Manhattan had finally signed off.

“We’ve got a big fucking problem,” Maletta said.

“What’s the problem?”

“Chase won’t do it.”

Malcolm’s heart sank. “You’re kidding.”

“No, I’m not.”

“What happened?”

First Boston had crawled upward through layer after layer of bureaucracy, Maletta explained, only to be tomahawked by Chase Manhattan’s senior credit officer. Malcolm was stunned. When Jim Maher heard the news, he closed his eyes. “We’re in big trouble.”