Why Should White Guys Have All the Fun? (31 page)

      
Dear Smitty:

         
Thank you very much for your letter. I appreciate very much your comments about the McCall deal. It has been a wonderful transaction for a lot of people, and I would like to share it with the world; however,
I continue to believe quite strongly that maintaining a low profile is the best strategy for achieving good results. I say this for a couple of reasons.

         
First, a critical element, I believe, of success in the investment area is to have a focused point of view—an anchor of beliefs and concepts which, while flexible, is unshakable. Rarely can these concepts and beliefs be communicated accurately through the media. When one reads these articles in the newspapers, they rarely convey the true message, and this tends to both distract from the primary mission and miscommunicate that mission to one’s team. Second, we still live in a world where envy and jealousy are the normal state of affairs.

         
At the same time, some publicity is inevitable and is worthwhile to the extent it encourages friends like you to convey heartfelt and warm feelings.

      
Warm personal regards.

Sincerely,

Reginald F. Lewis

Lewis talked frequently to Carolyn Powell—a classmate from Virginia State and also a close friend who happened to live and work in New York—about the media. “Reg did not like to deal with the media, because Reg wanted to be considered a businessman and he didn’t want a lot of fanfare,” she says. “We used to say that if you’re doing it, you don’t have to talk about it. The limelight was not important to him—he wanted to do well. It’s like, ‘I can do this, a black man can do this, and I don’t have to be like some of the black folks that have to shout about it to the rooftops. Let’s just do business.’”

Consequently, TLC Beatrice wasn’t exactly media friendly under Lewis. Requests for information were cordially received, but seldom granted expeditiously, if at all. And interviews with the chairman were exceedingly rare. Lewis granted just a few requests, usually after numerous inquiries. Which is not to say that Lewis didn’t enjoy acclaim and kudos, because he did. Lewis just never blew his own horn in the press, with the exception of “90-to-1.” And that might never have taken place had Lewis not first seen a story that he felt belittled his achievements.

       
The Biggest Deal of All: The Billion-Dollar LBO of Beatrice

In June 1987, Reginald Lewis had just successfully completed the biggest deal of his life and he was looking forward to some well-deserved rest. Yet even as he was rushing pell-mell toward the finish line on the sale of the McCall Pattern Company, he would come upon another company and another deal, one that would make McCall look tiny by comparison.

Two weeks before the McCall deal closed, John Sheehy of Bear, Stearns called and asked to have lunch. We met at the Harvard Club and we laughed about how astute our equity buyers were to pass up McCall at a third of what I was now selling it for. It was a good lunch, pretty laid back by our standards. There were a lot of laughs about all the capital market screwings and the countless, and I mean countless, scenarios I had considered in an effort to get value out of the McCall assets and cash flow
.

John then mentioned that Kohlberg, Kravis and Roberts was selling Beatrice International through an auction conducted by Morgan Stanley and Salomon Bros. Was I interested? At that point, not really. I felt very tired
.

The last six months had been a real killer and I felt very guilty about neglecting my family. John, knowing my hot buttons pretty
well by now, said something like, “Reg, this thing has business and assets all over the place. You’ve told us of your strong desire to go international and your desire to be diverse, well, this might be it.” I said, okay, I’ll have a look: Do you have the selling brochure? John said, “It’ll be at your office this afternoon.” I told him to send it to the house instead, since I was going back downtown
.

John told me an outfit in Canada, Onex, was interested in Beatrice’s Canadian property. His company was interested in Australia and Asia and he thought he might put together a group to buy those pieces, along with an Australian named Solomon Lew, a real estate player and entrepreneur in Sydney
.

We broke up and I went window shopping, which was depressing because I didn’t see a single thing with the right combination of beauty, elegance, and value to turn me on. I got home around seven, early for me, had dinner, watched some TV and spent a little time with the kids. John’s package had arrived, but I did not open it. I went to bed around midnight
.

I awakened about 4
A.M.
and went into my upstairs study. I opened the writeup on Beatrice International and read the whole thing quite fast. My initial reaction was, “Forget this, life is too short!” But I remembered how quickly I had dismissed some other potential winners and decided to be more neutral for the moment
.

I asked myself, “What’s interesting about this company and what isn’t? How would I manage it? Who’s the competition? What price will this thing fetch? What is the quality of management? Are there hidden assets?” The selling book itself was pretty complete. I decided to list all the things I did not like about the situation and then see if those “dislikes” could actually be disguised benefits
.

High on my list of drawbacks was that the sale would be an auction. This meant the buyer would definitely pay a full price—not good. But it also meant that the market would be “heated” as a result of Morgan Stanley and Salomon’s work to stir up interest. If a buyer planned to sell significant pieces, then an auction had some advantages
.

Next, there was no real synergy among the various companies. This was an advantage if I planned to sell the parts, because what was not sold would be stand-alone business. The idea that the TLC Group would be doing a “billion-dollar deal,” when in fact asset presales
would immediately reduce the price before any capital was at risk—and just maybe sell at higher prices than would be paid to KKR—had great appeal to me. Such a deal could accelerate my plan by five years, I reasoned. And the businesses were all outside of the United States, which was definitely going to see a recession or a slowdown.

I spent about two hours weighing the pros and cons. By 6
A.M.
, I had decided that TLC would bid, win, and close Beatrice International. There was much work to be done
.

As complicated as the effort to acquire McCall had been, it would be dwarfed by that necessary for Beatrice. Now that Lewis had gotten himself invited to the bidding process, he would have to determine a price for Beatrice. The other bidders for Beatrice, including Citibank, had armies of financial experts devoted just to the task of arriving at a price. Incredibly, the TLC Group was comprised of only a few people initially—Lewis, Cleveland Christophe, an old friend and newly hired business partner, and Everett Grant.

On June 15, 1987, Lewis walked into 99 Wall Street, entered his office and checked with his personal secretary, Diedre Wilson, to see if any important telephone calls needed to be returned. Lewis then walked into Christopher’s office and closed the door behind him. He took the deal book and placed it on Christophe’s desk.

“This probably doesn’t make any sense at all, but why don’t you take a look at it overnight and let’s discuss it in the morning,” Lewis instructed his partner. Lewis already knew that he wanted to buy Beatrice, but he needed Christophe’s financial analysis. Christophe went home and stayed up all night going through the Beatrice book, which detailed Beatrice’s far-ranging companies. Christophe began constructing financial models of Beatrice and its operations, to see what a reasonable offering price might be. He calculated it to be $950 million, which is what TLC Group bid for Beatrice the following week.

Ever since the early 1970s, Reginald Lewis and Cleve Christophe had chewed the fat about the two of them joining forces and going into the leveraged buyout business. When Christophe decided to leave
his high-ranking post with Citicorp’s overseas operations in March 1987, Lewis was determined to pull his old buddy into TLC Group. Among other things, Christophe was one of the few people Lewis trusted implicitly, plus Christophe’s business skills might prove useful going forward.

The men enjoyed each other’s company to the extent that their dinners were typically marathon sessions lasting five hours or more. They had closed many a restaurant while talking about business and about their dreams. When closing time interrupted their reverie, they would merely re-establish it in a nearby bar or eatery. Lewis and Christophe were remarkably similar—articulate to the point of glibness, supremely confident, highly intelligent, somewhat elitist, fiercely independent, and vainglorious. Given their similarities, it wouldn’t have been surprising if their personalities had repelled rather than attracted.

To launch his courtship of Christophe, Lewis had chosen a setting that served as home turf—the Harvard Club. With its wood paneling and overstuffed furniture, the establishment fairly reeks of prestige, power, and affluence. Every time Lewis walked into the club, it almost palpably reaffirmed his standing in top-level society. Lewis, who warmly embraced everything the Harvard Club represented, had taken Christophe to dinner there in March 1987.

The men had chatted with an ease that comes naturally to friends of long standing, their facile minds touching a broad range of topics over a short period of time. On that occasion, however, Lewis viewed their small talk as an appetizer for the conversational main course. When they had finished eating and were both feeling relaxed and sanguine, Lewis broached what was really on his mind.

“Cleve, we’ve always talked about being in a position of doing something together,” Lewis ventured. “You know me, you know my personality, you know my organization. I love this business that I’m in—I see a tremendous wealth of opportunity. I think we need to sit down now, given your decision to leave Citicorp, and seriously talk about putting the plan together the way we’ve always discussed.” Lewis paused a moment, letting the gravity of his words sink in before continuing.

“The two of us could be infinitely more powerful than either of us could be individually. I need a partner and I want you to consider being that partner.” Lewis’s piercing gaze briefly took in Christophe’s face, reading the other man’s expression for the slightest hint of enthusiasm
or reluctance. “I’ve got a small infrastructure, I know what you can do and you know what I can do, and we know what each other’s strengths and weaknesses are. And I believe in your integrity.”

Lewis knew Christophe well enough to know that a snap answer to such a major proposition would not be forthcoming, so Lewis wasn’t surprised when Christophe asked for more time to mull over the open-ended offer to form a partnership. Lewis was a man who could sometimes agonize over decisions major and not so major, but he felt at ease with himself after getting home later that night. A partnership between the two men was something he could live with. It brought a degree of closure to his and Christophe’s relationship that felt right.

Lewis felt that Christophe would make a good partner because he could analyze the financials of a situation quickly. Publicly, Lewis held himself out to be totally self-assured and confident, someone who knew precisely how to acquire Beatrice and run it effectively. Privately, he was sometimes prone to tremendous indecision and uncertainty. Lewis was not a timid man and cut a broad swath once he’d chosen a course of action. And after he’d committed to something, his word was his bond. However, selecting a course of action could be a tortuous process for him. Lewis preferred to carefully weigh and analyze his options before making a move. And that didn’t apply just to major decisions, but sometimes to seemingly simple ones.

The result of all that thinking and re-thinking of positions was perceived as procrastination.

At one point in the deliberations over how to bid on the Beatrice transaction, Lewis looked at Christophe and posed a question about some issue. Without pausing a beat, Christophe rattled off an answer.

“Goddamit, you piss me off,” Lewis barked at his startled partner. “I’ve never seen anybody who can take half information and come to a decision faster than you can.” Lewis paused momentarily, a hint of a smile playing at the corners of his lips.

“I’m going to be honest—that’s not really a criticism,” he said quietly. “I’ve been reading recently and some of those readings in the
Harvard Business Review
suggest that great leaders have the ability to reach decisions more readily than others without having a full fact file. I guess what I’m really expressing is a bit of envy. Maybe it’s my legal training, but I always feel that I need to agonize over things before I can come to a conclusion.”

For the most part, Lewis and Christophe were on the same wavelength: they were both tough-minded businessmen trying to push through a precedent-setting deal in a world dominated by white males. The historical ramifications of what they were attempting weren’t lost on either man. “We’ll show ’em,” Lewis told Christophe once. “The SOBs will be quaking in their boots.” Lewis had no doubt that he and Christophe made a formidable team.

But life had taught Lewis to take nothing for granted, not even that a partnership offer extended to one’s best friend would be accepted. The move appeared perfectly logical to Christophe and he was leaning toward accepting the offer. But Lewis left nothing to chance, and over the course of the next month, he used lunches, dinners, and persuasive telephone calls to soften up Christophe.