Read Barbarians at the Gate Online
Authors: Bryan Burrough,John Helyar
Barbarians at the Gate (91 page)
Atkins led a cluster of board advisers to the Kravis contingent. In his hands was a copy of the merger agreement. His face betraying no emotion, Atkins opened the agreement and pointed out a tiny clause that needed approval. “Dick, what is this?” Kravis said, unsure what Atkins was up to.
Beattie leaned over and inspected the change. It had to do with severance provisions for RJR Nabisco executives. “Yeah,” he said. “We’ll agree to that.”
Atkins closed the contract and handed it to Kravis. “Here’s your signed contract,” the lawyer intoned. “Congratulations. It’s yours.”
Kravis went numb. He had been fighting for this so long. He had lost eight pounds in the last six weeks. He took the agreement from Atkins and said, “Great.” Roberts said little: All he could think of was how much work was ahead.
There were congratulations all around. After a minute, Kravis turned to Cliff Robbins. “Get all the bankers into a conference room and stay with ’em,” he said. “And don’t let any of them use the phones. Especially Wasserstein.”
Atkins next led his procession three flights down to the Shearson group. When they reached the conference room where Nusbaum, Stern, and the others waited, only Atkins went in. Steve Goldstone was called at the Chinese restaurant and put on a speaker phone. Goldstone’s stomach was in knots as he took the phone.
Atkins’s tone was funereal.
“Steve, this is Peter.”
“Hi.”
“I’m sorry to report the board has signed a merger agreement with KKR. The bids were dead even. But the board decided to sign with KKR for other reasons.”
Goldstone went numb.
“What were those other reasons, if you can tell me?” he asked, mechanically.
Atkins explained that all the facts would be contained in an SEC filing in the next few days. Then he shrugged his shoulders and walked out.
At Scarlatti, Johnson took Goldstone’s call at the maître d’s station. “Hey, Ross,” the lawyer said. “Guess what.” The tone of his voice told Johnson everything.
“Surprise,” Johnson said. His bemusement was gone. He was very tired.
“KKR got the bid.”
“Fine,” Johnson said after a moment. “Let’s get together at Nine West and see the guys.”
Johnson returned to the table a moment later and broke the news. “I don’t much feel like eating,” he said. “Let’s go back and see the troops.”
Amid the backslapping and congratulations Charlie Hugel collared Kravis and guided him into an empty office. “Congratulations, it’s a great company you’re buying,” he said. “You know, you only made one mistake.”
“What was that?” Kravis asked.
“Paul Sticht. Just be careful about that. That got a lot of people on the board upset. You’ve got to understand there’s a history there.”
Kravis nodded.
“Go slow now,” Hugel said. “You’ve got good people down there. I’ll
help you in any way I can during the transition.”
Afterward, Hugel, his gouted foot throbbing, limped down to the lobby, where a security guard tried to sneak him out a back door to avoid the television cameras milling about outside. Hugel barely made it to his car when the crowd spotted him and ran up. Seeing their approach, the security guard slammed shut the car door—right on Hugel’s foot. It hurt so bad he wanted to scream. A fitting conclusion, he would acknowledge, to a painful process.
When the camera crews chased after Hugel, Kravis and Roberts slipped unnoticed out the front door and spent the evening celebrating at Il Nido, a nearby Italian restaurant.
Carolyne Roehm sat by the phone at their Park Avenue apartment all night, waiting for the word. At 10:36—she would never forgot the minute—it finally rang.
“We got it,” Kravis said.
Roehm let out a whoop of joy. “
YEA
!!”
Johnson was gracious in defeat. Arriving at Nine West, the first thing he did was open the bar. Then, scotch in hand, he took time to talk with each of his executives, clapping them on the back and congratulating them for fighting the good fight.
“We’re now going to go the high road,” Johnson told Jim Robinson, who showed up with his wife and Steve Goldstone. “These people have got new owners. We don’t want a lot of acrimony being created. The game is over. We’ve played it into overtime. Whether they gave you an elbow in the eye or crack-blocked your butt end, it doesn’t matter. That’s the score. Let’s get on with our lives.”
Not everyone took defeat as well. As the evening wore on, Ed Horrigan grew bitter and morose. Unlike Johnson, who had bounced from job to job in a long career, Horrigan was a longtime Reynolds man. He was used to being the big wheel in Winston-Salem. Despite Johnson’s warnings, he had never really believed they could lose.
“We got the goddamn shaft,” he complained to Johnson.
“Ed, you know we’ve been getting it for a long time,” Johnson said. “Shit, I’ve been the lightning rod. But we’ve got to get on. We’ve got
to get back, get the businesses in shape.” He went on. “You watch, there’ll be a big social change. It’ll be fine for a while. Then people will be surging over to the new owners. You know, the King is dead, long live the King.”
Horrigan only grew angrier. At one point, Johnson was forced to intervene in a nasty confrontation between Horrigan and John Martin in a hallway. Searching for scapegoats, Horrigan was railing about Martin’s handling of the press. “You’re the most ineffective, immature, son of a bitch that ever walked the face of the earth!” Horrigan shouted.
“Ed,” Martin responded, “you come to your conclusions, and I’ll come to mine.”
Johnson, fearing the two men might come to blows, swiftly broke them up. “Gentlemen, this is no time for this. We’ve been a great team. We’ve done a good job. If anything went wrong, it was me.”
Horrigan and Martin were glaring at each other. “Come on, now,” Johnson said, “shake hands.”
“I’m not going to shake his fucking hand,” Horrigan sputtered.
Well after midnight, everyone had left except Goldstone, the Robinsons, and Ross and Laurie Johnson. The five of them sat around the table in the fishbowl conference room. Linda was helping Johnson with a press release to be issued the next morning.
Goldstone could tell Johnson was starting to wind down. “You remember that time we talked about the price of doing something like this?” Johnson asked the attorney.
Goldstone smiled. He thought about that day on the porch, long ago, it seemed, watching the red Florida sun sink.
Johnson laughed. “It surely was painful. Just like you said. But I’ll tell you the same thing I told you then. I don’t know what else I would’ve done. It was the best thing for shareholders. It was the right thing to do.”
Johnson’s driver, Frank Mancini, was up on the floor, waiting for the group to break up. Johnson rose from the table and said, “Let’s go home.”
On the morning after, Ross Johnson boarded a plane for Atlanta. Before leaving he dictated a press release that, among other things, noted “the best bid” had won. When Linda Robinson ran a copy by Peter Cohen, Cohen grew incensed. He fired off a call to Steve Goldstone. “If this goes out, we’re dead,” Cohen said. “This release will kill us.”
For an instant Goldstone was confused. He thought they
were
dead. The bidding was over. Goldstone hung up and called Johnson aboard the plane racing south. Johnson was irked. For the first time in six weeks he decided to put his foot down. In minutes he was on the phone to Cohen. “It’s over, Peter,” Johnson said. “I’ve had it. What point are we serving now? We’re not serving the company or the shareholders…. It’s over.”
Still, Cohen, Hill, and the other Shearson deal makers spent days thrashing out ways to get back at Kravis. A lawsuit was considered. In the end, of course, they did nothing. Five days after Kravis was crowned the winner, Shearson Lehman Hutton issued a press statement officially closing the battle for RJR Nabisco.
Wednesday night Jim Maher was thinking about heading home early when Kim Fennebresque came bounding into his office. “John Greeniaus is in town,” Fennebresque said, “and he wants to talk to us.” The Nabisco executive was in a downstairs conference room, the banker said. Maher
canceled a meeting and walked downstairs with Fennebresque, who led his boss into the room.
“Surprise!”
Maher was speechless. He had almost forgotten Wednesday was his birthday. The room was filled with balloons and cake and champagne and friends. Fennebresque gave a toast. “I never pass up the opportunity to toast the boss in December,” he said, alluding to Wall Street’s January bonuses. “On behalf of everyone who worked so hard in the last two weeks, we very much appreciate your inspirational leadership.”
Its RJR Nabisco experience proved a boon for Maher’s troops. Despite the doomsayers, First Boston completed more mergers than any other Wall Street firm during the first six months of 1989. Its work with Jay Pritzker paid off in a number of Pritzker-related assignments, culminating in the joint First Boston-Pritzker purchase of American Medical International for $1.6 billion in 1989. In September 1990, Maher was named vice chairman of First Boston.
The morning after winning the greatest victory of his career, Kravis flew to Florida for his mother’s eightieth birthday. The next day he hopped north to Atlanta to inspect his new prize. Johnson, upright in defeat, was waiting for him at the airport.
“Well,” Johnson said, “congratulations to you, pal. You’ve got a hell of a company here.”
Johnson drove them in his Mercedes to the Galleria, where he gave a tour of the headquarters and offered to turn over his office to Kravis on the spot. “I’m here for you to do anything you want,” Johnson said. “The planes are yours, it’s your company.”
“Ross, Ross, go slow,” Kravis said, reminding him the company wouldn’t change hands for months yet. “You just keep running the company as you have in the past.”
That afternoon Kravis flew to Winston-Salem and met with Ed Horrigan. Horrigan was every bit as gracious as Johnson, although, it was soon clear, for different reasons. Kravis, like Johnson before him, needed Horrigan’s tobacco expertise and so, with Kravis’s encouragement, Horrigan agreed to become a tentative member of the Kohlberg Kravis team.
A week later, Kravis took a call from Horrigan in New York. “I just want to tell you, I’m not going to be number two anymore,” Horrigan said. “I have worked for three guys who are now history: Paul Sticht, Tylee
Wilson, and Ross Johnson. I either want to be CEO or I leave.”
Thus began an intricate pas de deux. As each major presentation to bank lenders approached, Horrigan would say he didn’t feel right about appearing if he wasn’t going to be CEO. He didn’t want to mislead the bankers if he wasn’t going to be with the company. Kravis would adroitly side-step, promising to make clear that Horrigan’s future was undecided. By the third round, Kravis had had enough. “I don’t think you should speak,” he said. “Why don’t you just quit?”
In mid-February, Horrigan did. His resignation came with: a sumptuous office in Winston-Salem, with secretary; an option to buy his company apartment in New York and house outside Palm Beach, promptly exercised; and a golden parachute worth $45.7 million. Later, he used some of the proceeds to buy a candy company in Atlanta.
At 8
A.M.
on February 9, 1989, Kravis opened the floodgates for a torrent of money. That morning, Drexel Burnham Lambert delivered $5 billion worth of checks—the bridge loan it had promised. Kohlberg Kravis transferred $2 billion from its own bank account to RJR Nabisco’s. Manufacturers Hanover Trust Co. gathered $11.9 billion from banks throughout the world and deposited the loaned money into an escrow account for Kohlberg Kravis.
It totaled $18.9 billion, the amount needed to pay the cash portion of the buyout. It was the biggest river of money ever to course through the U.S. financial system. The Federal Reserve Bank couldn’t wire money in amounts over $1 billion, so the banks moved it around in increments of $800 million to $950 million. The flow was so big it made U.S. money-supply statistics temporarily bulge as it roared through the system.
A thirtieth-floor conference room at Dick Beattie’s firm, Simpson Thacher & Bartlett, was packed with 200 lawyers and bankers, acting as a financial Corps of Engineers. They carefully monitored the river, seeing that tributaries entered and locks opened at the right times. By 10:45
A.M.
it was over. The money had all changed hands, and so had the ownership of RJR Nabisco.
Johnson officially resigned that day, pulling the chord on his $53 million golden parachute.
*
His fanciest Gulfstream jet yet, ordered before the LBO battle, flew him to Jupiter on its maiden voyage. Johnson
released a final statement before leaving: “The process we commenced last October has benefitted the company’s shareholders and has proven the financial strength of our varied businesses.”
Yet in the world’s greatest concentration of RJR shareholders—Winston-Salem, North Carolina—they weren’t thanking Johnson even as the money gushed into town. No sooner had Kravis won than signs began popping up: “Good-bye Ross, Hello KKR.” Nearly $2 billion of checks arrived there in the late-February mail. Now, more than ever, Winston-Salem was “the city of reluctant millionaires.” The river of money had washed away the last of RJR’s stock. Local brokers and bankers who managed people’s money got calls from distraught clients. “I won’t sell my stock,” more than one sobbed. “Daddy said don’t
ever
sell the RJR stock.” They were patiently told they had to. They were told the world had changed.
No sooner had the checks arrived than out-of-town “financial consultants” descended on Winston-Salem to advise its residents on how best to spend their new riches. In leaflets tucked under windshields in the Reynolds parking lot, in pesky phone calls, in seminars at the Holiday Inn, stockbrokers offered to help people reinvest their windfall in the market. The frequent, incredulous response: “You want me to buy
stock?
”
“You have to understand,” said Nabby Armfield, Jr., a retired stockbroker, “Reynolds wasn’t a stock. It was a religion.” Mr. Armfield even recorded a song to express the community’s frustrations that became an underground hit. Sung to the tune of “Frosty the Snowman,” the chorus went:
F. Rossie the snowman had a triple comma dream,
You can have the skim milk and I’ll make do with cream.
Hey all you bucolics, here’s a deal that’s really sweet.
You take title to the chaff and I’ll haul off the wheat.
In December Johnson sent each director a dozen roses with a note: “Congratulations on a great job. The shareholders won.” He had one more dinner with them before his last board meeting in December, where everyone made polite conversation but made no amends. John Macomber was in an avenging spirit, advancing the idea of scrapping the management team’s 1988 bonuses. Bob Schaeberle was practically in tears as he
talked about the breakup of Nabisco. Marty Davis squelched the idea of paying each special committee member a $250,000 fee.
The Winston-Salem directors took the brunt of public criticism there. A high-society matron was seen elaborately crossing the names of John Medlin and Albert Butler from her Christmas party list. A tobacco employee walked up to Medlin one day and declared: “I wish I had a million dollars in your bank so I could take it out and really hurt you.”
For the other directors, life went on, rather more pleasantly.
USA Today
named Charlie Hugel one of its business heroes of 1988. His Combustion Engineering Co. was bought by a Swedish company the following year, and Hugel accepted a familiar title under the new ownership: non-executive chairman. John Macomber was named chairman of the U.S. Export-Import Bank. Vernon Jordan went on RJR’s reconstituted board, joining Medlin as a holdover.
Paul Sticht swung into his third term as chairman of RJR, and wasted no time causing a commotion by announcing (incorrectly) that headquarters would return to Winston-Salem. Once again he flew around the country in his beloved corporate jets and settled into his old office in the Glass Menagerie. He was pleased to see the end of Ross Johnson—but, he admitted, the price was horrible. “I feel bad,” he told a visitor a few days after his return. “I wish it had never happened.”
Sticht, of course, was a figurehead as RJR’s interim chief executive. Kravis surrounded him with an “operating committee” of partners and trusted RJR executives, to keep him from any mischief. Kravis also stepped up his search for a permanent chief executive.
