The last tycoons: the secret history of Lazard Frères & Co (23 page)

Meanwhile, a few weeks before Walsh sent his letter and in keeping with Geneen's strategy of swarming the enemy, a top ITT executive in Washington, Jack Ryan, ran into Kleindienst at a neighborhood cocktail party in suburban McLean, Virginia, where they lived five houses from each other. Ryan asked for and received Kleindienst's consent for ITT to plead its case for antitrust relief directly to him. "The door is open," Ryan said Kleindienst told him. Ryan relayed Kleindienst's invitation up the ITT chain of command. And on April 20, 1971, Felix--at Geneen's request, after hearing from Ryan--went over McLaren's head and met privately with Kleindienst for about an hour to lobby the deputy attorney general of the United States on his client's behalf--remember, Felix was also on the ITT board--about the horrors that were certain to befall ITT if forced to divest the Hartford. Ryan had met Felix at the airport and drove him to the Justice Department. "He is a rather quiet individual," Ryan said of Felix. "He did not say much of anything."

Felix had a lot to say, though, to Kleindienst. Since ITT had been claiming it would suffer immense financial hardship if forced to divest the Hartford, Kleindienst had wanted some "recognized financial figure" to appear on behalf of ITT and "make the case." Felix later testified that he went to see Kleindienst that day "at his invitation, to give him what I felt were the economic arguments pursuant to which we couldn't agree to a divestiture of Hartford Fire." He also testified that he told Kleindienst that as long as ITT could keep the Hartford, ITT would be willing to sell Canteen and Grinnell, which together had about $25 million in earnings. "I made the case as best I knew how to make it," he said. In response, Felix testified later, Kleindienst asked him to "make the case" again to McLaren. Oddly, though, Kleindienst did not invite McLaren to the first meeting, nor did he tell his antitrust chief about what Felix said. When asked if Kleindienst seemed "convinced at all" by his presentation, Felix answered, "I thought he might have seemed impressed, but I might have been flattering myself." For his part, Kleindienst later testified that Felix called him up and introduced himself as a director of ITT, said he was not a lawyer, and wanted "to come to my office to discuss some of the economic consequences" of the Justice Department's view of having ITT divest the Hartford. Without hesitation, Kleindienst agreed to see Felix.

On April 20, when, conveniently, he and Felix were alone--"I believe that for the record that any time that I had any meeting with Mr. Rohatyn only he and I were present," Kleindienst testified--Felix made the case, in dramatic fashion, against what Justice wanted: ITT and the Hartford shareholders "would suffer a loss in excess of $1 billion," stemming from a $500 million tax liability that would cause a liquidity crisis at ITT and "interfere" with the company's ability to complete some $200 million to $300 million of foreign contracts that would, in turn, have a negative impact on the country's balance of payments and thus hinder ITT's competitive position internationally.

Also, Felix confided, should ITT be deprived of its competitive position "it might have additional repercussions so far as the general stock market was concerned." Felix asked Kleindienst if he would "direct" McLaren to meet with him to hear the case for ITT's financial hardship. Kleindienst told Felix he would not "direct" his deputy but ask him if he would meet with Felix. No surprise, McLaren agreed to the meeting.

Who knew it was so easy for a perfect stranger--but key advocate for ITT--to have an audience
alone
with the top Justice Department official leading the antitrust prosecution against ITT? Indeed, Walsh later testified that had he been in Kleindienst's shoes, he would never have met with Felix once, let alone four times. "I probably would have had somebody there from the Antitrust Division," he said. "I would do that just to avoid friction with the Antitrust Division, not because I would think it was in any way improper for me to meet with Mr. Rohatyn."

What Felix did not know was that on April 19, the afternoon before his first private meeting with Kleindienst, the deputy attorney general had received two calls, the first from John Ehrlichman, Nixon's chief domestic adviser, and the other from Nixon himself. Both calls concerned Kleindienst's decision to appeal to the Supreme Court the antitrust ruling that the government had recently lost in Connecticut involving ITT's acquisition of Grinnell. "I informed him [Ehrlichman] that we had determined to make the appeal," Kleindienst said, "and that he should so inform the President. Minutes later, the President called me and, without any discussion, ordered me to drop the appeal." A portion of Nixon's recorded conversation with Kleindienst that afternoon follows:

PRESIDENT: Hi, Dick, how are you?

KLEINDIENST: Good, how are you, sir?

PRESIDENT: Fine, fine. I'm going to talk to John [Mitchell] tomorrow about my general attitude on antitrust--

KLEINDIENST: Yes sir.

PRESIDENT: --and in the meantime, I know that he has left with you, uh, the IT&T thing because apparently he says he had something to do with them once.

KLEINDIENST: [
Laughs
] Yeah. Yeah.

PRESIDENT: Well, I have, I have nothing to do with them, and I want something clearly understood, and, if it is not understood, McLaren's ass is to be out within one hour. The IT&T thing--stay the hell out of it. Is that clear? That's an order.

KLEINDIENST: Well, you mean the order is to--

PRESIDENT: The order is to leave the God damned thing alone. Now, I've said this, Dick, a number of times, and you fellows apparently don't get the me----the message over there. I do not want McLaren to run around prosecuting people, raising hell about conglomerates, stirring things up at this point. Now you keep him the hell out of that. Is that clear?

KLEINDIENST: Well, Mr. President--

PRESIDENT: Or either he resigns. I'd rather have him out anyway. I don't like the son-of-a-bitch.

KLEINDIENST: The, the question then is--

PRESIDENT: The question is, I know, that the jurisdiction--I know all the legal things, Dick, you don't have to spell out the legal--

KLEINDIENST: [
Unintelligible
] the appeal filed.

PRESIDENT: That's right.

KLEINDIENST: That brief has to be filed tomorrow.

PRESIDENT: That's right. Don't file the brief.

KLEINDIENST: Your order is not to file a brief?

PRESIDENT: Your--my order is to drop the God damn thing. Is that clear?

Clearly upset, Kleindienst later testified, "Immediately thereafter, I sent word to the President that if he persisted in that direction, I would be compelled to submit my resignation.... The President changed his mind and the appeal was filed 30 days later in the exact form it would have been filed in one month earlier." Nevertheless, Nixon's message was clear: lay off ITT.

But Kleindienst was nothing if not a shrewd negotiator, and he kept the substance of his conversation with Nixon out of his subsequent discussions with Felix and ITT. On April 29, as suggested, Kleindienst, McLaren, and the Justice team plus two representatives from the Treasury Department held "a rather large" meeting with thirteen people in McLaren's office to hear Felix's one-hour presentation of how the loss of the Hartford would mortally wound ITT and ill serve the public. The meeting had been scheduled to begin at 10:30 a.m. But Felix kept the group waiting fifty-five minutes because he was upstairs in Mitchell's office working through the DuPont Glore rescue mission.

Felix had told Andre about his first two meetings with Kleindienst, but at Kleindienst's specific request thereafter he informed no one at Lazard about the sum or substance of the negotiations. In a follow-up four-page letter, on May 3, to McLaren (with a copy to Kleindienst), Felix wrote on his own letterhead from 44 Wall Street--curiously not on Lazard letterhead--that he wanted to "amplify and augment" several points that had been made the previous Thursday "in the hope that its importance will not be overlooked." To wit: should Justice force ITT to divest the Hartford, "ITT would be placed in a very difficult cash position which would severely impact its ability to compete in markets abroad." He further argued that ITT's borrowing capacity would be diminished by the loss of the Hartford earnings, leading to the potential cash drain. Felix argued that the cash drain would hurt the value of ITT's public debt and equity and hinder its ability to raise capital, especially abroad. In closing, he raised the specter that no less than national security was at risk if ITT were forced to divest the Hartford. "Among the adverse consequences to the nation that would inevitably follow from the requisite contraction by ITT of its foreign operations is loss of market shares to major foreign competitors such as Ericsson, Siemens, Philips, Nippon Electric and Hitachi. Loss of market shares abroad can only result in a diminution of the cash, which ITT would have otherwise repatriated to the United States. It would appear contrary to the national interests of this country to take consciously actions which would have such an adverse impact on the balance of payments." Who knew the stakes were so high?

Felix met privately with Kleindienst again on May 10 to reinforce both his May 3 letter and the April 29 presentation, and first suggested the idea that ITT be permitted to keep the non-fire-protection business of Grinnell. Kleindienst later testified he told Felix at the May 10 meeting that McLaren still had not made up his mind. "Rohatyn said it was a serious matter for ITT," Kleindienst recalled, "and wanted to know what was going on with respect to the financial and economic presentation that his company made on April 29. I told him I didn't know and that was up to McLaren and until he came up with a recommendation I wasn't going to bother myself about it."

On May 13, Nixon and H. R. Haldeman met in the Oval Office, and in the context of a discussion about raising money for the president's 1972 reelection, the topic of ITT's pending antitrust settlement came up. "They give us Grinnell and one other merger they don't need and which they've been kind of sorry they got into, apparently," Nixon said on tape. "Now this is very very hush hush and it has to be engineered very delicately and it'll take six months to do properly."

"Does ITT have money?" Haldeman wondered.

"Oh God, yes," Nixon replied. "That's part of this ball game.... But it should be later. It should not be right now.... Nothing done until the deal is over."

On June 16, Felix received a call directly from Kleindienst's office, asking him to return the call the next morning. It was the rare occasion where Felix, the man whose partners would visibly shudder at the very thought of a call from him, was now put in the position of having to jump as high as Kleindienst said. At precisely 9:30 the next morning, Felix, alone in his Lazard office, called Kleindienst. The deputy attorney general got on the squawk box with McLaren at his side and read the government's new proposal--which he called a "negotiating memorandum"--one that appears to have taken into account Nixon's still-secret directive regarding ITT. Kleindienst told Felix "more or less on a take-it or leave-it basis" that McLaren had recommended that ITT could now
keep
the Hartford if it agreed to divest Avis, Canteen, Grinnell, and Levitt, if it agreed to accept injunctive provisions regarding future acquisitions beyond a certain size, and if it refrained from engaging in reciprocity. In a memo dated the same day as the call with Felix, McLaren had written Kleindienst with his recommendation that he had "come to the reluctant conclusion" that forcing ITT to divest the Hartford would be a mistake. "I say reluctant," he continued, "because ITT's management consummated the Hartford acquisition knowing it violated our antitrust policy; knowing we intended to sue; and, in effect, representing to the court that he needn't issue a preliminary injunction because ITT would hold Hartford separate and thus minimize any divestiture problem if violation were found."

The new proposal, except for the inclusion of the then-struggling Avis, was pretty much exactly what ITT's lawyer Ephraim Jacobs had proposed to McLaren eight months before. Felix concluded the ten-minute call with the Justice Department and called Geneen "within twelve seconds." Both expressed "disappointment and displeasure" with the proposal--with some crocodile tears thrown in for good measure--that now required as many as four divestitures of companies that were never the subject of antitrust suits. But Felix later testified he thought it was a "concrete proposal" that "could be discussed, negotiated and improved upon."

Felix attempted to reach Kleindienst on June 18 to clarify "why all of a sudden we were being faced with four companies" to divest. But he was not able to reach him. On June 29, Felix met again with Kleindienst privately to express disappointment, especially over the demand to divest all of Grinnell, and, according to Kleindienst, "to complain about the rather rigid attitude McLaren was taking with respect to these settlement negotiations, to complain about the rather punitive nature of the settlement negotiations, and the posture of the Government, and that he felt, in his opinion, they were unreasonable." Kleindienst said he told Felix, "I would not inject myself into those settlement negotiations, that that was a problem between the attorneys for ITT and Mr. McLaren and his staff, and that I would do nothing about it." It was another busy day in Washington for Felix. In addition to meeting with Kleindienst, he met with Peter Flanigan, the business liaison at the White House, to talk about matters related to Felix's role in attempting to avert a meltdown among dysfunctional Wall Street firms. But it turned out--according to Flanigan--that Felix also used the meeting to complain some more about the proposed antitrust settlement. "Mr. Rohatyn indicated his belief that the proposal was so tough as to be unacceptable to the company and that the company intended to continue to fight the suits in court," Flanigan said. Flanigan passed Felix's thoughts on to Kleindienst "a couple of days later," and "as I recall his response, it was to the effect that Mr. McLaren had worked out the proposal, and was handling the matter."