Barbarians at the Gate (12 page)

They were smart moves. After its troubles during the seventies, Reynolds’s tobacco business had begun what would become a long decline. In 1983 cigarette sales had crested and would fall a steady 2 percent each year to come. The rise of the antismoking movement—the “antis,” Reynolds partisans spat—was taking its toll. By the early eighties, less than a third of Americans smoked. Federal excise taxes on cigarettes were doubled in 1983, to 16 cents a pack. Tobacco remained a fabulously profitable business—prices were still raised twice a year—but even die-hard industry partisans saw the twilight ahead. By diversifying, Wilson was simply readying Reynolds for the inevitable.

Horrigan was named Wilson’s president and chief operating officer. Their alliance was a shaky one, but Wilson owed Horrigan for his role in
drafting the midnight letter. Now, much as Wilson had grated on Sticht, Horrigan grated on Wilson. When he had questions about the tobacco business, Wilson bypassed Horrigan and went to his henchman Jerry Long, who replaced Horrigan as president of the domestic tobacco business. A stickler for detail, Wilson criticized Horrigan for his weekend trips to Palm Springs, where the Horrigans had a home. Even though Horrigan often took along other executives, Wilson thought the trips more personal than corporate, and challenged Horrigan’s use of a corporate jet.

“Ed, you’re really, really stretching,” Wilson said.

Horrigan bristled. “You’re challenging my integrity.” When internal auditors later forced Horrigan to reimburse Reynolds for some trips—at the going rate of twice first-class airfare—Little Caesar threw a fit.

Wall Street may have liked Wilson’s ideas about remaking Reynolds, but they were greeted somewhat less enthusiastically by Paul Sticht: Wilson was, after all, undoing a decade of his work. On his retirement, Sticht remained a powerful board member—maybe the most powerful—and kept close tabs on Reynolds’s inner workings. Wilson did everything possible to freeze him out. Sticht’s life revolved around the corporate jets, but when Wilson felt his trips were for personal business, he made sure Sticht was charged for them. A retired chairman was entitled to an office and a secretary, and Sticht got one—but in the old headquarters downtown, away from his beloved Glass Menagerie. “Sticht is going to be my sexual consultant,” Wilson was heard to say. “When I want his fucking advice, I’ll ask for it.”

But Sticht simply couldn’t let go. He called department heads with questions or observations. He took calls from Hicks Waldron, passing along his former Heublein colleague’s complaints. One of the sorest points was the head of Del Monte’s fresh fruit division, Sammy Gordon. He was a favorite of Sticht, who liked the business and whose son worked for Gordon. Sticht used the talkative Gordon to disseminate anti-Wilson gossip, Wilson thought. Sticht defended Gordon for running his business like the freewheeling banana trader he was.

Gordon’s style ran counter to Wilson’s bedrock belief in what he called “process and procedure.” Wilson lived for the trappings of bureaucracy: When it came to corporate decision making, he was confident that if one went through the right steps and approvals, the right conclusions would follow. “Process,” Wilson told a gathering of senior executives shortly after taking office, “can speed the smooth and orderly flow of most routine
activities and permit us to devote valuable management time to exceptional or unanticipated concerns.” As a maiden speech, it was an earnest declaration of principles. But it betrayed a rigidity and coldness that wouldn’t win Wilson allies when he most needed them.

Wilson would sometimes wander around headquarters, trying awkwardly to make small talk with middle managers. But he couldn’t shed his brusque nature. When he thought the executive dining room was being cluttered by too many lower-level types, he ordered higher admission standards. “R.H.I.P.,” he crisply explained, then translated: “Rank has its privileges.”

From the outset, Wilson’s relations with the Reynolds board were shaky. None of the directors condoned his strong-arm tactics in winning the chairmanship, and his treatment of their friend Sticht wasn’t appreciated. Wilson tried to build bridges, in his fashion. He sent directors briefing papers between board meetings. He scheduled one lunch a year with each director, during which he took copious notes as his guest aired whatever was on his mind; Wilson kept the notes in little books, one for each director.

But where it mattered most, Wilson fell hopelessly short. John Macomber was still pestering him for business and getting rebuffed. When Vernon Jordan pressed for more legal work, Wilson would coolly reply that, as a nonlawyer, he couldn’t judge whether there was anything appropriate; he referred Jordan to Reynolds’s general counsel. In contrast to chief executives such as Paul Sticht and Ross Johnson, who played their boards like a personal symphony orchestra, Wilson had a tin ear.

He further alienated Sticht and the board by diminishing an institution dear to their hearts, the International Advisory Board. Since its formation in the seventies, it had become a prime junketeering vehicle for Reynolds directors. Wilson cut the meetings back from two a year to one and removed Sticht as the board’s chairman, making the job a staff-run function. Wilson knew all the changes weren’t met with pleasure by Sticht or his board cronies, but both profits and the stock price were up, and he couldn’t conceive of anyone arguing with his results.

After unloading Aminoil and Sea-Land, Wilson began preparations for his biggest move yet, an acquisition that would fulfill his grand vision to mold Reynolds into a consumer-goods superpower to rival Procter & Gamble. Wilson set up a task force of Reynolds staffers and representatives of the company’s longtime Wall Street investment bank, Dillon
Read & Co., to sift through and rank the candidates. After many months and countless computer studies, they came up with three recommendations.

Second runner-up was PepsiCo, which scored seventy-five on Wilson’s acquisition-lust scale. Wilson approached it first, in part because he knew its chief executive, Wayne Calloway. But Wilson found Calloway as ice-cold as a Pepsi. “There’s no way I’ll discuss that with you, and if you come at me hostile I’m going to fight you all the way,” he said. Wilson backed off.

First runner-up, with a score of seventy-six, was Kellogg, the cereal giant. But half its stock was controlled by a trust, and Wilson doubted the trust would sell. That left the company that was number one, with eighty-one points. Wilson demurred only briefly, because he didn’t know the chief executive. According to his task force, Reynolds’s ideal marriage partner was Nabisco Brands, headed by a breezy, likable Canadian named Ross Johnson.

The two chief executives met the following week over sandwiches at Johnson’s midtown Manhattan office, and Wilson laid out his plan. Reynolds, he explained, needed a major acquisition to ease its reliance on tobacco, and he thought Nabisco fit the bill perfectly. As they spoke, the two men leafed through each other’s annual reports.

Relaxed and chatty, Johnson played it coy, not responding immediately. Wilson suspected Johnson would be receptive: He had picked up rumors that Nabisco and Philip Morris were sniffing at each other, and he thought Johnson would be motivated to sell. To make certain, Wilson threw in a sweetener. The two of them were the same age, Wilson noted, but he had no plans to remain chief until sixty-five. Wilson told Johnson he planned to retire in two or three years, and hinted strongly that Johnson would get first crack at replacing him as head of their combined companies. The two talked terms and agreed that if they chose to pursue a merger, a tax-free stock swap made sense. They parted with plans to meet again in several weeks. Both had board meetings in the meantime, and each could get word on whether to proceed.

Wilson had left Johnson’s office sky-high, his grand vision apparently
within reach, but when he met with his directors in late April 1985, he found them cool to the idea of merging with Nabisco. Some were downright angry. This would be the biggest deal in Reynolds history: Why hadn’t the board been told about it beforehand? The reason, Wilson noted testily, was that he and Johnson had had only the most preliminary of chats: no money on the table, no obligations, just a first date. What about this business of promising Johnson a shot at the chairmanship? the board members protested. Succession was their prerogative. The directors didn’t like the idea of a tax-free merger, either; if any deal was done, Reynolds ought to do the buying. In a stern rebuke, they ordered Wilson to back off.

Wilson remained confident. “This is still going to happen; it makes so much sense,” he assured Horrigan over lunch. “But the next time Ross Johnson isn’t going to have so much power. We’ll be the acquirer. All he’ll get is vice chairman.”

The talks, in fact, rekindled within weeks. A small army of Wall Street lawyers and investment bankers were brought in, and, the directors having been convinced, Reynolds agreed in principle to acquire Nabisco for cash. The lone sticking point was the price. Then, during the negotiations, Nabisco stock began rising, a sure sign that word of the talks had leaked.
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Johnson took it as an opportunity to wheedle more money out of Wilson. At $80 a share, Wilson said he could go no further. “Well,” Johnson said, “you’re not gonna get a deal at eighty bucks.” The logjam broke when Wilson agreed to throw in preferred stock, which brought the price to $85 a share, or $4.9 billion, at the time the largest merger ever to take place outside the oil industry.

Johnson, sensing Wilson’s hunger for the deal, drove tough bargains on side issues. Despite Sticht’s love of corporate jets, Reynolds’s perks trailed those of Nabisco. Most everything was negotiable, Johnson said, but not the perks. Wilson thought company apartments for all the top officers of a cookie-and-cracker company was ridiculous. But he wasn’t giving up his dream over Johnson’s petty concerns; he gave in. Johnson insisted he be named president and chief operating officer, number two behind Wilson. He characterized it as a signal to Nabisco people that they wouldn’t be forgotten; Wilson gave in to that, too.

The problem, of course, was that by elevating Johnson he would be forced to demote the proud, tempestuous Horrigan. Wilson broke the news to him gently, promising to give him a sweet contract, the post of vice chairman, and a place in a new, three-man office of the chairman. Horrigan, seeing he had no choice, relented, taking solace in the fact he would be part of a troika ruling a vast new empire.

On the last day of May 1985, the Reynolds board met in a teleconference to wrap up the details. Horrigan, en route to Australia to inspect Reynolds troops there, stopped by Del Monte’s San Francisco offices to listen in. Wilson, in New York for the negotiations, ticked off the final terms item by item, leaving the management structure for last. “Ross Johnson will become the president and chief operating officer,” he said. “Ed has agreed to accept the position of vice chairman.”

“I want to hear from Ed on this,” John Hanley of Monsanto asked. “Is that acceptable to you?”

Horrigan made a gracious little speech—wholly out of character, some thought—that he had written for the occasion. For several minutes he rhapsodized about the need to sacrifice his ambitions for the greater good. Afterward Wilson came back on the line. There would be an “office of the chairman,” he announced, consisting of Wilson and Johnson. He didn’t mention Horrigan.