Barbarians at the Gate (84 page)

Having missed dinner, Hugel was starved. Shortly after eleven o’clock he left Skadden for his suite at the Regency, where he prowled the lobby looking for a restaurant. Finding none open, he went up to his room and, stomach growling, prepared for bed. Minutes later his phone rang. “Mr. Johnson would like to speak with you,” a secretary’s voice said.

Hugel sat on hold, waiting for Johnson to pick up. As he did, the telephone’s second line glowed red. Putting Johnson’s secretary on hold, he punched the button to take the incoming line. It was Peter Atkins, who
quickly briefed Hugel on Goldstone’s angry call. He warned him that the management group was on the warpath and might contact him. “They’re really pissed,” Atkins said.

So that’s what Johnson wants,
Hugel thought. He noticed the red light showing Johnson’s call had gone off. Hugel hung up and dialed back Nine West.

When Johnson came on the line, Hugel could tell he was upset. But the first thing out of Johnson’s mouth had nothing to do with losing the largest takeover in history.

“We’ve heard they’re going to cancel the golden parachutes,” Johnson said. “Is that true?”
*

Hugel was surprised. Could he have heard Johnson right? Golden parachutes? With the fate of his company hanging in the balance, Johnson was fretting about his severance benefits? Hugel suspected Ed Horrigan had put him up to it. It sounded like vintage Horrigan.

“That’s ridiculous,” Hugel said. “What would make you think we’re doing that? Anyway, Ross, I’m not exactly worried about that right now, you know. We’re all a little more concerned about the future of the company.”

“Well,” Johnson asked, instinctively avoiding controversy. “What’s going on? I understand our people have been told to go home. Would you like to embellish that a little?”

Hugel chuckled. “Well, remember our phone conversation this morning?”

“Yeah.”

“Well, they bid.”

“You mean a blockbuster bid?”

“Yes.”

“Well, how much of a blockbuster?”

“I really can’t tell you.” Just talking to Johnson, they both knew, amounted to a breach of the auction process.

“Are we talking in the neighborhood of five dollars?” Johnson asked.

“Yes.”

“You mean one-oh-six?”

“You hit it.”

There was a snort of disbelief from Johnson.

“Well, okay. We’re out of it,” he said. “That’s the end. God bless ’em.”

Johnson, alone in Horrigan’s office with Jim Robinson, put down the phone. There was a moment of silence as he digested the news. Finally, he said, “It’s over.”

Together the two men walked into Horrigan’s anteroom, where Horrigan, Linda Robinson, and the others were waiting impatiently.

“Well, what’s the news?” someone asked. “What did he say?”

“Look, it’s over,” Johnson said quietly. “Let’s just say this is where it ended.”

A cacophony of voices assaulted Johnson.
What do you mean? What do you mean? What did he say? How much did they bid?

In no time Horrigan was raging at the board, at Kravis, at everything. Everyone in the room wanted to know what Hugel had said, what had happened.

“Listen, I can’t tell you,” Johnson said. “I gotta respect Charlie’s confidence. But,” he added, “the spread is substantial.”

A few minutes later Johnson called Peter Cohen and the group at Willkie Farr. Jack Nusbaum put him on a speaker phone in his conference room.

“It’s all over,” Johnson said. “KKR won.”

An uproar engulfed the conference room as Johnson was again assaulted by angry questioners in a virtual replay of the Horrigan group’s reaction.

“What do you mean they won?” Cohen asked. “What are the terms? Do we know what they bid? What happened?”

“I can’t tell you,” Johnson said. “But I know the price is substantially above ours.”

Outraged, Cohen and the others pressed Johnson for more information. “I can’t tell you much,” Johnson said, finally. “But I believe there’s a four- or five-dollar spread. I can tell you, you’re not going to beat a five-dollar difference. They really brought in the heavy artillery.”

“Look, Steve, I’ve discussed your views with our group,” Atkins said. “All I can tell you is, your views of fairness in this auction process are misplaced. The fact that your clients were high in the first round doesn’t remove their obligation to bid high now. There is no question of fairness.” And, Atkins made clear, no question of reopening the auction.

“I can’t say this strongly enough,” Goldstone replied calmly. “You have a legal obligation to hear our second bid. The directors are obligated to do it. They simply can’t turn their backs on us now. We want to bid again.”

Goldstone was right, in one regard. There were no rules governing the bidding process. What exists is a constantly changing body of law developed during a series of takeover battles in the mid-1980s. The cases, most decided by the Delaware Chancery Court, say volumes about the obligations of directors to run fair auctions. What they don’t say is how to end one. During the late 1980s board after board unsuccessfully grappled with the question. The $6 billion auction of Federated Department Stores in early 1988 stretched on for weeks, despite determined attempts to conclude it. In the end, most auctions closed when bidding got too high for all but one party.

Atkins and Goldstone talked for nearly an hour, batting the same, tired arguments back and forth like tennis balls. The irony, of course, was that Goldstone had no idea whether Shearson and Salomon were willing to bid again. Johnson certainly wasn’t. Even so, Goldstone knew they wouldn’t have the opportunity if he couldn’t succeed in reopening the auction.

Minutes after Johnson’s call he hit the phones, calling reporters and anyone else he could think of that might have information about Kravis’s bid. He wanted to fight, but first he had to know what he was up against. Immediately he picked up rumors about the composition of Kravis’s bid. Apparently Kravis had boosted his number by offering more securities than Shearson and less cash.

At first Cohen couldn’t understand it. All along, Johnson, quoting Hugel, had repeated the same theme: “Cash is king.” If Kravis had
crammed his bid with securities, Cohen figured, then somehow the rules had changed.
Again!

The idea of increasing the “paper” portion of a bid struck him. If Kravis could do it, why couldn’t Shearson? Cohen got on the phone with his aide, Andrea Farace, and ordered up a new set of computer runs, boosting the paper and lowering the cash. It was too early to seriously consider a new bid. That would come later, if at all. But to Cohen it was clear they had to look at every option.

Another thing was clear: Their decision to withdraw was premature. Cohen called Johnson and asked to hold off on any press release.

“It’s too late,” Johnson said. “It’s already out.”

“Look, it’s kind of like an election night thing,” Cohen said. “We don’t know enough to concede yet. We probably did lose, but let’s wait until we know more about it.”

“Shit, Peter, the goddamn deal is done,” Johnson said, the irritation clear in his voice. “Why the hell do you want to put out a new release?”

“Well, no,” Cohen said. “It looks like we could bid again.”

“How the hell can you bid again?”

“Listen, we can bid as long as we want.”

“Well, what do you want to bid?”

Cohen had no idea; he simply wanted to keep his options open. Johnson was flummoxed. He couldn’t understand how Shearson could possibly jump start the bidding at this late hour. He certainly had no desire to.

Johnson called Goldstone, who returned to his timeworn theme. “Ross, it’s their money,” the lawyer said. “If they want to bid, you have to let them…. At this stage, unless you think you don’t want to run the company, you have to let them bid.”

“But it’s over…”

“Ross, you can’t say that. You’ve got to hold on. They’ve got to bid something tonight. There is no tomorrow.”

Johnson thought the whole thing was ludicrous. It had the same dreamlike quality so much of the last six weeks had had. Reluctantly, he gave the okay to issue a new press release. At one-thirty an annoyed Linda Robinson began redialing reporters to rescind their early release. Some were already asleep. Only a handful of papers, including
The New York Times,
were able to shoehorn the news into their latest editions.

As Johnson pondered this latest twist, Frank Benevento came hustling in, waving a new computer run. Benevento was excited. If the group cut
the cash component of its bid, he said, it could drastically increase the securities portion. It could, in effect, increase the face value of its bid without increasing its risk.

Johnson was skeptical. Replacing cash with securities of questionable value made no sense to him. “Frank, how the hell can you evaluate it like that?”

“You can’t,” Benevento said. “But obviously, they are.”

“That’s horseshit,” Johnson said. “That makes no sense at all. All along Charlie’s been telling us cash is king. Who in their right mind would see the world that way?”

Around three o’clock Johnson left for his apartment, wanting nothing more to do with a buyout he half-wished he’d never thought of. As he walked out he gave little thought to the Cohens and Beneventos who wanted to resurrect the bidding. It was just the kind of talk you would expect from tired, frustrated men running on too much energy and too little sleep.

As far as Johnson was concerned, the snake was dead. Only its tail was still flipping around.