Barbarians at the Gate (45 page)

Ted Forstmann had been waiting for nearly two hours, and there was still no sign of the man.

After a full day of deliberations, Forstmann was ready to begin his crusade against Kravis and the junk-bond scourge. Forstmann Little’s computers had chewed through every available piece of public information on RJR Nabisco. Teams of analysts from Goldman Sachs had pored over the resulting printouts, and their conclusions only buttressed what Forstmann already knew: Even at $90 a share, RJR Nabisco was a good deal.

Forstmann Little’s strategy was clear, at least its first step. Kravis’s rash tender offer opened the door for the firm to step in and “rescue” RJR Nabisco. Kravis was already taking a beating in the press for his “franchise” speech, and Forstmann’s advisers were determined to take advantage of it. “We’ve got to cloak ourselves in apple pie and motherhood,” Geoff Boisi told Forstmann, a plan to which he agreed wholeheartedly.

Now all they needed was Ross Johnson.

Accompanied by Tom Hill, Johnson finally arrived at Forstmann Little
at half-past six. After shaking hands, Forstmann noticed a third man behind them.

Forstmann took Hill aside.

“Who is this fucking guy?” he whispered, motioning to the third man. Hill looked sheepish. “Well, without going into great detail, he travels with Johnson. He has nothing to do with this.”

A bodyguard, Forstmann thought. Bodyguards were not Forstmann Little’s style. It was not a good sign.

Forstmann led Hill and Johnson into a conference room whose informal furnishings gave it the atmosphere of a family room rather than a boardroom. Twelve black leather chairs ringed a wooden table. A television sat in one corner. The walls were lined with the Depression-era posters Forstmann favored.

Johnson, a broad smile pasted across his face, took a seat at the head of the table.

“I’ve just come from the competition,” he began.

Ted Forstmann flinched. “What?”

“I’ve just come from talking with Kravis.”

Forstmann couldn’t hide his irritation. “What are you doing that for?”

Tom Hill intervened. “It’s something that we had to do, Ted,” he assured Forstmann. “It’s nothing, really. I’d attach no importance to it.” Johnson was merely covering all his bases, Hill suggested.

The mention of Kravis’s name set Forstmann off on The Spiel. For nearly half an hour he pontificated on the evils of junk bonds, the sins of Henry Kravis, and the way Forstmann Little could save Wall Street. He made a special point to mention his article in
The Wall Street Journal
that morning. Johnson listened, secretly amused.

This guy’s cock is really stiff over this
Wall Street Journal
article,
he mused. Johnson thought he understood Forstmann’s world view.
Henry Kravis is a devil. Ted Forstmann is an angel. His clients are perfect. He’s not interested in fees. This guy is doing the Lord’s work for people who want to go private.
…

Oh, I see.

When Forstmann finished, Nick Forstmann and a partner, Steve Klinsky, began asking Johnson questions about his company. What was the outlook for tobacco? Which businesses could be sold? In his rambling replies, Johnson seemed almost hyperactive. Clearly the pressure of the deal was wearing on him, Forstmann thought.

“Mine either,” Cohen agreed.

Yet Hill could see it was attractive. A fee that size was nearly half of Shearson’s total merger-advisory revenues for the entire 1987 year. Shearson’s fourth-quarter earnings were expected to be down, and Hill knew Cohen was under enormous pressure to save them. A one-shot injection of $125 million would be tempting.

“Needless to say,” Hill said, “if we take it, it would be the end of our merchant-banking business. It would be an admission that there’s a price where we will stand down. Even if we dressed it up, it would be clear. There’s no way we can take it.”

Forstmann was confused. It was clear Hill meant Kravis. Was Hill negotiating with Kravis on
his
phone? What was going on here? Lost in his thoughts, Forstmann couldn’t have grasped the irony of the poster over his right shoulder: “Don’t waste my time,” it read. “Idle talk earns nothing.”

“We have to talk about this,” Hill was saying to Johnson, “because this offer isn’t as insulting to you as it is to us.”

Johnson and Hill soon left, leaving the Forstmann brothers perplexed. Was Johnson negotiating with Kravis? If so, why was he talking to Forstmann Little? Maybe they would find out later: Hill had invited Forstmann’s crew over to Nine West that evening to talk about joining forces.

As they ran through details of the meeting, Steve Klinsky came up to Ted Forstmann. “Are you sure that guy is all there?” he asked.

Forstmann put Johnson’s strange behavior down to excitement. He had seen the phenomenon many times: a chief executive, secure in his corporate environment, bewildered by the blinding pace of Wall Street. “He’s under a lot of pressure,” Forstmann explained. “He’s in a difficult position, you know. I have sympathy for CEOs in this world.”

Klinsky wasn’t so sure. “I think the guy is totally insane.”

“Have you heard about our offer?” Beattie wondered.

Millard passed on the news Beattie expected. Cohen, the trader said, was bouncing off the walls at Kravis’s offer. He was insulted; he was outraged; he had never seen anything like it.

“He’s calling it a bribe,” Millard said.

“I knew it,” Beattie said with a sigh.

For all the sound and fury, the Kravis offer brought into the open the unacknowledged rift between Shearson and Johnson, which had now lasted nearly two days, since Kravis’s announcement the previous morning. Johnson still hadn’t openly reaffirmed his commitment to go ahead with the Shearson offer. Robinson and Cohen, although they hadn’t pressed the matter, were clearly worried by Johnson’s meeting that afternoon with Kravis. Would Johnson stay with Shearson or leap to the Kravis camp?

“Ross, if you want to go with them, you’re perfectly free to do it,” Robinson now told Johnson. “We won’t stop you.” Cohen echoed Robinson’s sentiments.

“Oh, hell,” Johnson said. “Let’s just everybody calm down. I’ve got to talk about this with my people first. Then we’ll decide what we’re going to do.”

By nightfall the forty-eighth floor was overflowing with people: teams from Shearson, Davis Polk, Jack Nusbaum’s law firm, and RJR were all busily reworking weeks of analysis in preparation for topping Kravis’s bid. Johnson gathered his executives in his office. Horrigan, Henderson, John Martin, and the others draped themselves over the cream-colored furniture and lined the walls.

“This is the situation,” Johnson said, explaining Kravis’s offer. “I’m not going to make a unilateral decision here. We’re going to vote on it. I’ll do what you guys want to do. I want each of you to tell me how you feel.
Now you can go any way you want to go. But fellows, you’re voting your careers. We can go with Henry, or we can go with Jim.”

Johnson looked around the room at the men he had chosen to pursue the Great Adventure. You all know what working for Henry Kravis would be like, he explained. There were nods all around. They knew. But the odds of winning with Shearson were hardly any better, Johnson cautioned.

“You realize, if we go with Shearson,” he said, “you’re probably all gone.” Shearson’s chances of beating Kravis seemed that remote; no one was even sure Cohen’s people could raise the money necessary to do battle. If they went with Shearson and lost, they’d all lose their jobs.

Listening to the speech, Ed Horrigan knew Johnson was serious in encouraging them to reconsider their allegiances. The two men had earlier spoken privately, and when Horrigan asked about Johnson’s meeting with Kravis, he had been startled by Johnson’s apparent ambivalence. “Boy, they’re great guys,” Johnson had said of Kravis and Roberts.

“They are?” Horrigan said, incredulously.

Horrigan had questioned Johnson closely about what had happened six floors below. At one level, the feisty tobacco chief was suspicious about what kind of deal Johnson, acting as a free agent, might have cut for himself. At another, he was baffled: How could they suddenly go from regarding Kravis with fear and loathing to embracing the SOB? Maybe hang-loose Ross Johnson could make that flip-flop. But not hang-tough Ed Horrigan.

“I don’t know what you talked about,” Horrigan said, “but I don’t like it.”

“I don’t understand you,” Johnson replied. “I’m making the biggest deal in the world and you’re not impressed.”

Horrigan tried to make it simple for him. For one thing, he said, think about how all this will look to the board. How on earth could the management group maintain it was trying to serve shareholder value if it was cutting a deal with Kravis that would no doubt hold down the company’s selling price? “The board will shove it right up our butt,” Horrigan declared.