Read Barbarians at the Gate Online
Authors: Bryan Burrough,John Helyar
Barbarians at the Gate (44 page)
While Cohen and Kravis glared over their coffee cups, Johnson decided to take matters into his own hands. He simply had to know if the Kravis bid was real and, if so, what it meant for his management group. Johnson was nothing if not a quick read: He could tell Cohen was less than enthusiastic about sharing the deal of his life with Kravis. Both times Cohen and Kravis had spoken they had gotten into spit fights. Maybe it made sense to try some kind of partnership with Kravis. The only way to find out for sure, he reasoned, was to meet with Kravis himself.
Scanning his phone messages, Johnson saw Steve Waters’s name. Perhaps the former Shearson investment banker, now working for Kravis, would be a good conduit. Minutes later, Waters picked up the phone in his office at Morgan Stanley and was surprised to hear Johnson’s laughter. “I thought I’d get through to you,” Johnson said, chuckling.
“Ross,” Waters bantered, “you know I always talk to you.”
Johnson mentioned he might have an interest in speaking with Kravis. “You really should see Henry,” Waters said. “He’s not such a bad guy. It clearly makes sense for you guys to be talking to each other.”
Johnson agreed. Next he tracked down Jim Robinson at American Express. He wanted to touch base before striking out on his own. “Listen, Jim, I think I’m going to meet with Henry, just to hear what he has to say. What do you think?”
Robinson listened as Johnson made his case.
“I just think the more people talking the better. Maybe it’s right, maybe it’s wrong, but I’d like to hear their position myself. Jim, you’re a highroad guy, and so am I. I think there’s a highroad here.” He left the obvious unspoken: Cohen’s “low-road” arguments with Kravis were getting them nowhere. “Jimmy,” he concluded, “I want to bring in the varsity team, not the JV.”
When Robinson agreed, Johnson got back to Steve Waters. A meeting with Kravis was set for four o’clock that afternoon.
After his breakfast with Cohen, Kravis crossed the street and caucused with Beattie and Roberts, who had flown in the night before, in his forty-second-floor office overlooking Central Park. Peter Cohen, they agreed, was the only thing standing in the way of their owning RJR Nabisco. There was no earthly reason for Shearson to be in this deal. Ross Johnson had the management expertise. Kohlberg Kravis had the buyout expertise. Cohen had an appetite for big fees, an eye on making it big in LBOs, and a bad attitude.
“They don’t bring much to the table,” Roberts said.
“No, they don’t,” Kravis agreed.
There had to be a way to get rid of Shearson. The obvious solution was to offer it some lesser role in the deal. Kravis favored some kind of advisory fee and maybe a chance to buy a piece of the action. But he wasn’t going to give up a large share of the stock, certainly nothing approaching fifty-fifty control. Maybe 10 percent, he suggested.
Beattie wasn’t so sure. Ten percent sounded pretty puny. After all, Shearson had put this deal together. The lawyer didn’t say much, but he felt certain that Cohen would view the offer as an insult. Equally clear, he could tell, was the fact that Henry Kravis didn’t give a damn.
While Cohen lunched with Tom Strauss and John Gutfreund of Salomon Brothers and attended a Shearson board meeting, Johnson met with a gaggle of gray-suited commercial bankers at Nine West to raise funds for the Nabisco deal. With their niggling questions about cost cuts, the bankers were a nuisance, and Johnson tried to push them off on Jim Stern of Shearson. In turn the bankers, led by Bob O’Brien of Bankers Trust, felt Johnson didn’t understand the importance of their role. For $13 billion, they thought he ought to sit still for their questions.
But Johnson had more important things on his mind, most notably his meeting with Kravis. A few minutes before four o’clock Johnson stepped into the elevator alone for the ride six floors down to Kohlberg Kravis. As the elevator doors closed behind him, he realized he had forgotten which floor Kravis was on. He punched forty-four and got off there, only to realize his mistake. He tried forty-two and wandered around a few minutes before finding the firm in a back corner.
Inside, he was ushered into Kravis’s corner office and met George Roberts for the first time. The atmosphere was cordial: Johnson had no
ax to grind, and Kravis badly wanted Johnson’s management expertise. Taking long drags on a Premier, Johnson soon was outlining how he would run a post-LBO RJR Nabisco. The conversation was general: The three men wanted to feel one another out. When Kravis and Roberts talked about their operating philosophies, Johnson was impressed. They seemed to know much more about financial structures and money raising than Cohen’s people. Johnson replied with observations about his company, which the cousins, thirsty for information about their prey, listened to intently.
Johnson fished for more, openly curious about the possibilities of working with Kohlberg Kravis. “Now, Henry,” Johnson said, “if you guys get this, you’re not going to get into chickenshit stuff about planes and golf courses, are you?”
“That’s not important to us,” Kravis said. “If you take an extra plane ride, that’s up to you.” Talk to Don Kelly, Kravis said. “Well, that’s pretty good,” Johnson said, nodding.
Roberts, however, wasn’t as flippant. A man sometimes described as a “cold fish,” George Roberts was beginning to dislike Johnson’s breezy, putting-green manners. “Well, we don’t want you to live a spartan life,” he said. “But we like to have things justified. We don’t mind people using private airplanes to get places, if there’s no ordinary way. It is important that a CEO set the tone in any deal we do. Check with Peter Magowan.” Magowan was chief of the KKR-controlled Safeway Stores chain and a friend of Johnson’s.
“Well, I did,” Johnson said. “I guess the deal we’re looking for is a bit unusual.” Johnson explained that he was looking for a structure in which he would retain significant control of his company.
No, Roberts said, shaking his head, Kohlberg Kravis didn’t operate that way. “We’re not going to do any deal where management controls it,” Roberts stated. “We’ll work with you. But we have no interest in losing control.”
Why is that, Johnson wondered.
“We’ve got the money,” Roberts said, “we’ve got the investors, that’s why we have to control the deal.” From the look in Johnson’s eyes, Roberts could tell it wasn’t the message he wanted to hear.
“Well, that’s interesting,” Johnson said. “But frankly, I’ve got more freedom doing what I do right now.”
The subject of cost cutting, one of the keys to a successful LBO, was
raised. To Roberts’s surprise, Johnson said he didn’t care much for wielding a budgetary ax. Anyway, he explained, cutting costs was an overrated procedure. “Any Neanderthal can go in there and whack away and cut costs,” he said. “Show me a guy that can spend money.”
He went on. “I’ve run as spartan an operation as anyone. But we’re bringing in a first-class management team here. We’re not profligate. I don’t want a bunch of nerds telling me whether to take a limo or not. That’s all chickenshit. What you need to worry about is the price of tobacco or the price of assets I’m selling. I want to deal with the big issues.”
What was important were things like Premier. Johnson began talking about the smokeless cigarette, its strengths and weaknesses, the status of its test marketing. The secret, he told them, was that it warmed rather than burned the tobacco. Suddenly Johnson flicked his Premier onto Kravis’s antique Oriental rug.
George Roberts, horrified, looked down at the smoking tube at Johnson’s feet. “See, it doesn’t burn anything,” Johnson said, retrieving it with a grin. He thought Roberts was about to jump out the window.
They had been talking about an hour when Johnson trotted out to take a call. He returned a minute later, apologizing. “That was Jimmy and Peter. I’m late to meet with your buddy Ted Forstmann.” Johnson smiled. It didn’t hurt for these two to know he had options. “Yeah, we know Teddy,” Kravis said, smiling in return.
So Forstmann thinks he’s going to get in this deal.
The information struck Roberts cold. But then everything about Ross Johnson struck Roberts cold. The man didn’t seem to be a serious businessman. Now he was going to meet with Ted Forstmann? George Roberts wasn’t a man who liked being toyed with.
As he left, Johnson brought up the prospect of further talks with Shearson. “I hope you can work things out,” he said. “Just be fair. Make a fair deal. No one party should be looking to get some great edge over the other party. Work things out, you know. So we can get on with things.”
When Johnson walked out a few minutes past six, Kravis and Roberts agreed it was time to make their move.
Jim Robinson silently cursed cellular phones.
After Robinson had emerged from a meeting of the New York City
Partnership, a group of top corporate executives working to improve conditions in Gotham, he was surprised to find inside his limousine a phone message from Henry Kravis.
As his car pulled away from the curb, the only thing worse than the late afternoon traffic was the reception on Robinson’s portable phone. When Kravis came on the line, the transmission came in fits and starts. But his message was crystal clear.
I want to make you an offer, Kravis said.
The proposal: Kohlberg Kravis would acquire RJR Nabisco. In return, Shearson would receive a one-time fee of $125 million from Kohlberg Kravis and an option to buy a 10 percent stake in the company. Kravis said he’d like an answer by midnight.
Jim Robinson wasn’t the type of man to get excited at the sight of another man’s wallet. “Henry, that sounds a little thin,” Robinson said, but promised to get back to him.
Minutes later, Cohen emerged from the Shearson board meeting to hear the same offer. Cohen said little, but from the tone of his voice Kravis knew he wasn’t being greeted with open arms.
