Read Barbarians at the Gate Online
Authors: Bryan Burrough,John Helyar
Barbarians at the Gate (88 page)
Raether and Ted Ammon came up with the extra $2 a share—an extra dollar in PIK paper and an extension in the redemption period of their debentures. It was financial hocus-pocus, they knew, but the board didn’t have time to argue. If Kravis said it was worth $2, the board would believe him. At five minutes past two Atkins was summoned.
“Peter,” Kravis said, “we’re not going to accept your offer.”
The lawyer wore his Buddha’s face: no reaction there. “Do you want to do anything with your bid?” Atkins asked.
Kravis explained how they proposed to boost the bid to $108 from $106. When Atkins left, Kravis and Roberts expected a decision from the board within minutes.
Atkins and the board advisers were stunned; they had been convinced that Kravis would jump at their offer.
Now what?
At ten minutes past two, Hugel brought the board meeting back to order. “KKR just came in with its latest proposal,” Atkins announced: eighty dollars a share in cash, eighteen a share in preferred stock, and ten a share in debentures securities.
Dennis Block noticed something.
“Any time restrictions?” he asked.
Atkins thought for a moment. “No…”
It was a stroke of luck. Kravis and Roberts had forgotten to lay down a new deadline. Lazard and Dillon would need several hours to evaluate the securities in the management group bid. Thanks to Kravis’s oversight, they now had them.
But first there was the question of the merger agreement. If the management group was to be taken seriously, the board needed assurances Cohen would consent to the same agreement, including the so-called Schedule Two items, that Kravis had. A letter of agreement was drafted for Nusbaum to sign. “If they don’t sign the letter,” Hugel said, “we go with KKR. If they do sign, we have to get advice about what to do.”
Mike Gizang carried the message down to Nusbaum on the thirty-second floor. It was scrawled in twenty-one lines on a yellow legal pad. Nusbaum read it, then called Cohen, who arranged a conference call with Gutfreund and Strauss at Salomon Brothers. The agreement was quickly agreed to, and after making a few minor changes, Nusbaum handed it back to Gizang.
Not only was Kravis’s perch well suited for monitoring traffic into the boardroom, it lay astride the shortest route to the men’s room. Throughout the day, whenever a director would walk past, Kravis would dispatch an associate to stand beside him at the urinals and strike up a conversation. The “urinal patrol” finally paid off when Roberts cut off Hugel and Vernon Jordan en route to the facilities.
It was past three o’clock and Kravis and Roberts had been waiting for nearly an hour. “What the hell is going on?” Roberts asked.
The board hasn’t begun deliberating on your bid, Hugel said.
“What do you mean?” Roberts was stunned.
Roberts was so angry he followed the two board members into the bathroom and, as Hugel and Jordan attended to matters at hand, continued to badger them. “If the board hasn’t been meeting, what the hell have you been doing in there?” he asked.
Hugel was vague, mumbling something about legal delays. Moments later he and Jordan emerged, Roberts a step behind. Kravis was waiting for them.
“What the hell is going on?” he demanded.
Double-teamed, Hugel paused. “Come on, guys,” he said, “just give us some more time.”
“This has gone on long enough,” Kravis said.
“We’ll get it resolved,” Hugel said. “It’s going to be done.”
“How long is this going to be?” Kravis asked.
“I need two hours. Just give me two hours. We’ll get it done.”
Hugel smiled, and motioned at Jordan, who at well over six feet towered over the diminutive financiers. “I got a big guy here in case Ross gets out of hand,” Hugel said, smiling.
Down on the thirty-second floor, Johnson and the remaining members of the management group spent the afternoon cracking jokes and trying to keep abreast of the events hurtling past them. As the hours passed, they found themselves marveling at the ways of Wall Street which had led their great adventure so far astray.
Of particular interest to Johnson were the many uses the bidders had found for the strain of junk bonds known as pay-in-kind securities, or PIK. The management group’s decision to “pile on the PIK” in place of cash still boggled his mind.
“Hey,” Johnson said, “why don’t we start a new company and it’ll be all PIK? I wonder if I could pay all the advertisers, or buy space in
Time.
Think we could do it in PIK?
“I mean,” Johnson went on, “we have found something that’s better than the U.S. printing press. And they’ve got it all down here on Wall Street. And nobody knows it’s going on. I wonder if the World Bank knows about it. You could solve the third world debt crisis with this stuff. It’s a brand new currency…”
Johnson was in hysterics by now. He mimicked a printing press. “
Chuck-oon, chuck-oon, chuck-oon.
Just print it and let her fly.”
They could devise a charter for their new company, Johnson said. Call it PIK Associates. And it would include what Johnson dubbed the three rules of Wall Street: “Never play by the rules. Never pay in cash. And never tell the truth.”
In the boardroom Hugel and the directors now pondered the question of valuing the management group’s securities. No one looked forward to lengthy negotiations. Dennis Block had a suggestion. Cohen had already agreed to duplicate Kohlberg Kravis’s merger agreement. Why not see if they would agree to duplicate its securities, as well? Block wrote a letter on a yellow note pad and Bob Lovejoy of Lazard ran it down to Nusbaum. After a few minutes, Lovejoy reentered the boardroom.
No deal.
The board was in a quandary. Three hours earlier it had been on the verge of giving RJR Nabisco to Kravis and Roberts. Even with Johnson at $112, it was clear that every director in the room still wanted to go with Kravis. The only problem was the scoreboard: Johnson 112, Kravis 108.
“If they say it’s worth one-twelve, until you test it you can’t take the one-oh-eight,” Mike Mitchell insisted. “You simply can’t take one-oh-eight in the middle of the afternoon, even if everyone wants to. We have to go back to the management group and find out if it’s really worth one-twelve.”
The pressure was intense, and it affected each director differently. Charlie Hugel’s gout flared up, causing him to limp about like a cripple. He’d forgotten to take his gout pills. Albert Butler, who hadn’t had a cigarette since heart surgery eight years before, reached for the pack John Medlin was smoking. “For God’s sake, give me one of those,” Butler growled. The two North Carolinians soon finished off the pack and began bumming smokes from others.
In the end, they had no choice but to negotiate with Cohen’s people. At ten minutes to four, Luis Rinaldini of Lazard reluctantly led a team of investment bankers downstairs to begin discussing the management group’s securities.
Restless, Kravis and Roberts went for a walk. Together they left the building, strode south down Park Avenue, then turned right and headed back to Nine West. As they strolled, Roberts tried to see what cigarette brands passersby were smoking. A few were puffing Winstons or Salems, but twice as many seemed to prefer Marlboros. “Well, one out of three isn’t bad,” he quipped.
Returning to his forty-second-floor office, Kravis returned some phone calls, including one from Jim Maher at First Boston.
“I had called to congratulate you,” Maher said when he came onto the line.
“I came back to the office because I couldn’t deal with it any longer over there,” Kravis said.
Kravis was tired but gracious. “Listen,” he said, “without you guys, we wouldn’t be in there. Thank you very much.”
“Just remember that,” Maher said.
Kravis and Roberts returned to Skadden Arps around five o’clock. Dick Beattie, his lower back aching from an old football injury, was sprawled out on the floor, asleep. Paul Raether had tried to read
The Wall Street Journal,
but was forced to move to another room to escape Beattie’s snoring.
“Have you seen anybody, heard anything?” Kravis asked.
“Not a thing,” Raether said.
Roberts rousted Beattie and sent him on another scouting mission. “Goddamn it, Dick, go find Peter Atkins,” he said. “This is ridiculous.”
Minutes later, Beattie managed to collar Atkins in a hallway.
“Peter, these guys are going to leave,” he said. “I’m not kidding you. They’ll walk out of the bidding. They will.”
“Dick,” Atkins said, “tell them to remain patient.”
Beattie resumed his post outside the boardroom. A steady stream of investment bankers was hustling between its double doors and the nearby staircase. It dawned on Beattie that the board must be negotiating with Cohen and Johnson. When Kravis and Roberts heard that, they came to see for themselves.
