Why Should White Guys Have All the Fun? (43 page)

“He would holler and he would cuss,” Mark Alcott says. “But there was this looming intelligence about it—it was not ranting and raving. He was making points even in his anger that were important points, valid points. I would find myself in the odd position of having someone chew me out and I would be taking notes.”

Ultimately Judge Morris E. Lasker dismissed the suit in Lewis’s favor. The plaintiff “lamely admits it cannot figure out whether any of these parties is responsible, but seeks to keep them in the case in order to make that determination,” Lasker wrote on July 3, 1991. “The Federal Rules (of Civil Procedure) do not permit such pre-emptive tactics.”

Lewis was in the Canary Islands tending to TLC Beatrice business there when the decision was handed down. He placed a happy call to Alcott’s home when he learned of the news. But his pleasure would be short-lived, because another McCall lawsuit would come down the pike shortly.

Suit No. 2 was named
The Travelers Insurance
Co.
and The Travelers Indemnity Co. v. Reginald F. Lewis.
It too was filed in U.S. District Court in the Southern District of New York and was heard by Judge Morris Lasker.

In essence, Travelers alleged that while Lewis ran McCall he put in place a method of financial reporting that didn’t jibe with what Travelers was led to believe was being used. Had Travelers known the true picture, it would never have issued $35 million in debt notes to McCall and its new British owners, Travelers said in court papers.

Travelers claimed that even after Lewis left McCall, he continued to exert influence over CEO Bob Hermann to the point that Lewis’s financial reporting system was still secretly being used after Lewis was gone—a preposterous assertion given the prickly relationship Lewis had with Hermann.

But Hermann appeared to back up Travelers’ assertion in the lawsuit, claiming that Lewis had told him to never reveal the financial reporting method in question to anyone. Lewis responded by filing a libel suit on November 7, 1990:
Reginald
F.
Lewis v. The Travelers Insurance Co., The Travelers Indemnity
Co.
and Robert Lewis Hermann.

The libel suit was also heard by Judge Lasker, who by that time probably was more familiar with McCall and the home sewing pattern business than some of McCall’s own employees.

“We were at war—that was the mindset,” Kevin Wright says. “It was one of the toughest periods during my 12-plus years with him. He would react with more vehemence on issues in the litigation than on almost anything else I can remember. At the end of the day, Reg Lewis the defendant didn’t pay a dime,” Kevin Wright says. “It was a tortuous process, but it got him what he really wanted there—vindication. He didn’t do anything wrong in the McCall transaction.”

Wanting to talk with someone who could empathize with being a deep pocket and a constant target for someone looking to make a quick buck, Lewis called Michael Milken.

“Can you believe this?” he asked Milken. “Can you believe these issues? Can you believe that when you sell a business, you now have to depend on how well the people do after they buy it from you?”

At one point, Lewis talked to Ray LeFlore—the trial lawyer he’d briefly shared office space with at 99 Wall Street—about taking on the case. One afternoon they sat in Lewis’s office analyzing different strategies they could resort to.

“Ray, this is duck soup,” Lewis told his friend. “These guys are trying to take my money. Let me testify on the stand in front of a jury, let me testify. I’m the American Dream! I worked hard and this is real money and I can tell the jury that I did nothing wrong. I can show them that the reason this became a problem once I sold McCall is you had a bunch of guys in there who were like the gang that couldn’t shoot straight. I handed them a beautiful deal and they just put it down the tubes.”

But LeFlore was against the idea of the wealthy Lewis testifying on his own behalf. “You may think you’re the American Dream and if you had different skin, you would be,” LeFlore told Lewis. “From a litigator’s point of view, I have no desire to put you on the stand and explain to a jury how this black guy could make this much money and do it honestly.”

In retrospect, LeFlore says personal wealth “in most other instances is not a prima facie reason for thinking that something was wrong, but in his case it was.”

Both cases were ultimately decided in Lewis’s favor and he received a settlement in the last one, a minor consolation considering the angst and wasted time caused by the suit. Moreover, the McCall legal actions had another adverse side-effect: They strained the long business relationship and friendship that Lewis and Tom Lamia had enjoyed up to that point. “He always looked upon me as his protector, and I was his protector,” says Lamia. “And I think he felt that I should have protected him from these lawsuits, that they should never have been brought. As far as I know, there’s no way to insulate a seller from exposure to lawsuits.” The last year of Lewis’s life, 1992, he stopped calling Lamia and the two men drifted apart.

Again, it bears repeating that Lewis had an extraordinary ability to set priorities and not waver from them one iota. The McCall suits were a tremendous distraction, but Lewis would never allow them to interfere with his business objectives.

By 1989, he’d sold TLC Beatrice operating companies in Latin America, Asia, and Europe, enabling him to raise $867 million or 88% of the purchase cost of the acquisition. Toward year’s end, Lewis met with his top executives in Manhattan. Quite pleased with themselves, they handed Lewis a game plan for 1990 that they believed would bump up operating income by 47 percent.

“No, that’s unacceptable,” answered Lewis, who was set on achieving something better than a 47 percent increase. “Go take another look and come back with something more reasonable.”

The executives’ jaws dropped when the Chairman and CEO of TLC Beatrice told them their plan wasn’t ambitious enough, then they started huffing and puffing about how there was already a lot of stretch in their projections and that anything greater than 47 percent was pretty unlikely.

Ultimately, through dint of his business and management skills, and a weakened U.S. dollar, Lewis met his lofty expectations. TLC Beatrice produced $94.3 million in operating income during 1990, a 56 percent increase over the $60.5 million generated in 1988.

Lewis was rather methodical when conveying his vision to the troops. Before attempting to motivate or inspire anyone, he would first sit down and formulate a yearly plan. If it passed the acid test of being sufficiently aggressive when compared with the preceding year—and if it was realistic—then Lewis would sign off on it.

He would then use his yearly plan as a yardstick and would hold monthly management meetings to ensure that his objectives were being met. Once he’d told his managers in the field what his yearly plan was, the actual results—from the standpoint of capital expenditures, operating results and operating profit—were pretty much in the hands of operating management.

Naturally they could expect regular visits from the Chairman and CEO who made a habit of regularly visiting the different operations.

In 1990, we had a record year. We earned $1.5 billion in sales, close to $100 million in operating income, and $45 million after taxes. So on a buyout, we earned $3.62 a share on our common stock. You have to remember that the common stock had cost $1. In the meantime, we just continued to work on our operating needs. The principal focus of my activities has been running the business since that period. We closed the Chicago office and consolidated some of the functions that they had been performing into New York.

The sales total Lewis mentioned represented a 31 percent increase. By the end of 1990, Beatrice’s debt-to-equity ratio had been sliced to 1.6 to 1, compared with 70 to 1 right after Lewis acquired the company. When the Berlin Wall fell, Lewis saw a business opportunity arise. At his urging, TLC Beatrice’s ice cream operations in Germany expanded into the former East Germany, resulting in a 46 percent increase in sales.

As for shutting down the Chicago office, Lewis felt he wasn’t getting sufficient value from TLC Beatrice’s personnel in the Windy City, so the operations at 2 North LaSalle Street in Chicago were closed and Manhattan became the U.S. headquarters. TLC Beatrice had become a company principally centered in Western Europe, plus the greatest capital markets in the world are in Manhattan, Lewis reasoned. TLC Beatrice’s president, Bill Mowry, decided to cash out his stock equity,
netting him several million dollars. Several other Beatrice executives from Chicago followed suit.

TLC Beatrice subleased office space from RJR Nabisco at 9 W. 57th Street. The utilitarian, shopworn look of 30 Broad Street and 99 Wall Street was not revisited this time. Lewis’s new office, with its Persian rug, bar, refrigerator, inset large-screen TV, executive washroom, and adjoining conference room, was a striking contrast to earlier offices.

But the most striking feature of all was a picturesque view of verdant Central Park 48 stories below. When Lewis looked down on Manhattan from his magnificent perch, it symbolized his unlikely, hard-fought ascent from working-class origins in Baltimore to an executive suite in America’s largest city.

An irony of TLC Beatrice’s strong performance in 1990 is that in the last months of 1989 Lewis had been denied an opportunity to take the company public. The attempt marked the second time that he’d been denied a chance to guide a firm through an initial public offering. And as had been the case with McCall, the financial press again rained on his parade. Only this time, Lewis was personally singled out for disparaging coverage and second-guessing of his motives and scruples.

The TLC Beatrice initial public offering was supposed to accomplish two primary objectives. First of all, Lewis wanted to have his equity publicly traded so he would have what he referred to as “currency to make acquisitions.”

Second, while he owned slightly more than half of TLC Beatrice’s common stock, most of the other half was owned by Drexel executives and Drexel investors. Lewis had negotiated a price with Drexel that would have taken them out of the picture entirely. A successful IPO would have allowed him to execute that plan.

Plus, there may have been a personal side to Lewis’s IPO attempt: He’d always hoped TLC Beatrice would be a New York Stock Exchange company, according to his boyhood friend Ellis Goodman.

Analysts noted that all proceeds from the IPO were to go to investors through special dividends and bond redemptions, and put out
the word that Lewis might be looking to cash out of TLC Beatrice. That speculation, which happened to be inaccurate, made potential investors quite wary.

“The analysts pilloried the deal, saying Reg was being too greedy, there were problems getting cash back to the States—anything they could think of,” Kevin Wright says.

Lewis had been courted assiduously by Merrill Lynch to do the IPO, which offered to sell 18.5 million shares at an estimated price of $9.75 a share. That represented 30 percent of TLC Beatrice and would have raised $180 million.

The IPO had to be done by the end of 1989, Lewis told Merrill Lynch, because he wanted to set a clear mission for the management of TLC Beatrice going forward into 1990.

The signs were ominous. That year, institutional investors bought significant amounts of public equity and many had experienced depreciation and gains and were looking to close shop toward the latter part of 1989. The TLC Beatrice filing took place late in the year, in mid-November, in the middle of the Thanksgiving and Christmas holiday seasons when many people take vacations and this diluted the pool of potential investors. And there had been a few IPOs in 1989 that had given investors pause, like one by Smith Corona Corp. that saw the company’s stock drop more than $5 less than a month after its IPO.

The TLC Beatrice stock offering was also coming at a bad time because of repercussions from the 1980’s orgy of acquisitions that were fueled by junk bonds. Companies acquired through leveraged buyouts were carrying tons of debt and many were struggling mightily to meet their debt service. There were predictions of massive junk bond defaults: The fact that Lewis had paid off most of TLC Beatrice’s junk bond debt went unnoticed.

In addition, in mid-October of 1989, the stock market experienced a mini-crash with the Dow dropping several hundred points.

Finally, Lewis was being forced to swim upstream by the financial media. While initially receptive to Lewis’s IPO, the press soon carried stories casting him as the king of avarice, in an era where his impressive wealth accumulation was a pittance compared with that of Michael Milken, Henry Kravis, and buyout specialist Ray Chambers, among many others.

On November 19, 1989,
Newsday
columnist Allan Sloan wrote the following story about Lewis’s IPO attempt, under the headline, “A Feeding Frenzy at TLC Beatrice.” Sloan wrote in part: