Barbarians at the Gate (65 page)

Charlie Hugel didn’t believe him. It was the second time in a week he thought he had caught Ross Johnson in a lie.

Johnson’s words still echoed, unreal yet undying, in John Greeniaus’s mind. The path he had chosen since his fateful meeting with Johnson was
radical but, as he saw it, unavoidable. It was a matter of either being loyal to his people at Nabisco or to the man who would set them adrift.
I’m going to make you rich,
indeed. How could Johnson do this, Greeniaus wondered, and think that money would make it all better? It wasn’t money that made John Greeniaus tick; it was making Nabisco a well-oiled machine. Now Johnson wanted to take his machine and sell it for spare parts.

First he had been numb. The numbness gave way to anger. It was all so clear now: why Johnson had reorganized Nabisco and Del Monte into separate, bite-size, easy-to-sell operating units; why Johnson had given 300,000 shares of restricted stock to tobacco people that summer and almost none to Nabisco people;
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why Horrigan had always gotten his way. Johnson had been setting this up for a long time, Greeniaus decided, lying to them all. Now he was promising to take care of Greeniaus, provide a happy landing in some new corporate haven. He would never believe Johnson again.

Greeniaus hated the very idea of this LBO, yet he hated equally the fact that he hadn’t been invited to join the management group. It was a bitter tangle of emotions. Finally, as was always the case with John Greeniaus, hot anger gave way to cold reason. No use getting mad; he would get even.

He had flown back to Nabisco’s New Jersey headquarters the day the LBO was announced. Within days he slipped a confidential planning document into an envelope and mailed it to Charlie Hugel, marking it “confidential and urgent.”

It was the first part of a plan that may, Greeniaus thought, just be a fantasy. He was almost certain Johnson would get the company. Johnson knew the kinds of things no competitor could find out. He had the board in his pocket. But if a top-secret tidbit helped the directors see Johnson’s true colors, Greeniaus would see they got it. If another bidder gave Nabisco a better shake than Johnson, he would aid and abet the enemy.

He summoned Nabisco’s chief financial officer, Larry Kleinberg, into his office. They were going to dissect Nabisco and reinvent it in revved-up form, he told him. They would dress it up for the big party, showing how money could be saved and cash flow spurred. If other bidders saw Nabisco’s true potential, they might up the ante and beat Johnson. And if they won, they might keep Nabisco. It was a long shot, Greeniaus said, but it was their only chance of saving the company. “This is a survival game,” Greeniaus told Kleinberg. “Let’s play it to the best of our ability.”

As he secretly prepared for his guerrilla war, Greeniaus took pains to keep his troops happy. From his office a steady stream of anti-Johnson cartoons and memos poured forth to amuse the depressed Nabisco executives. One cartoon showed a divorce court judge addressing a boy. “Junior, would you prefer to live with a smoking or nonsmoking parent?” Greeniaus’s accompanying line: “Who knows—we might just be better off with a nonsmoking parent.”

When Kravis appeared on the scene, Greeniaus had begun his campaign in earnest. Introduced to the special committee’s bankers at Dillon and Lazard, he had kept them amused with RJR Nabisco “factoids.” “Guess how many members of Team RJR Nabisco there are,” Greeniaus asked. The guesses came in: eight, ten, maybe a dozen. “How about twenty-nine?” Greeniaus said. “How about a cost of seven to ten million dollars a year?”

He titillated them with the famous—Jack Nicklaus and his million-dollar deal—and amazed them with the obscure. Who
was
Vijay Amritraj and why was he on Team RJR Nabisco? Greeniaus regaled them with tales of the villa in Castle Pines, the compound in Palm Springs, the apartments in New York. There was method to Greeniaus’s madness: the more waste the board bankers could see cutting, the higher the “fair” price they would demand.

Finally, after three weeks of teasing the bankers with tidbits, Greeniaus was ready to make his move. He took his idea to Josh Gotbaum of Lazard, who immediately grasped its significance. “We’ll tell these things only to the special committee,” Greeniaus said. “It can’t go to management, to Ross. Some of what we have to say could cost us our jobs.” Gotbaum had guaranteed Greeniaus that word of their plan wouldn’t get back to Johnson.

Greeniaus was scheduled to address the special committee at Skadden Arps on Monday, November 14. By coincidence, so was Johnson, who had
been called in to answer questions as part of the board’s due diligence. That morning Greeniaus stopped by Nine West on his way to the board meeting.

“Johnny!” Johnson boomed when he spied Greeniaus. “Come on in with us. We’re working on our strategy to handle the special committee.”

Terrified, Greeniaus followed Johnson into the fishbowl conference room, where Steve Goldstone and the management group sat around the large, round table in the midst of a spirited discussion. It was to be Johnson’s first meeting with the board in nearly a month, and everyone had an idea how they should handle it. Horrigan, as usual, urged a combative approach: Don’t give the bastards an iota of new information. Johnson vacillated between cool and courteous. Greeniaus sat frozen in fear he would be found out.

When it came time to go to Skadden, Johnson discovered that no provisions had been made for transportation. He turned to Greeniaus, who commandeered a Nabisco limo. They rode to Skadden together; once there, they sat in a small holding room. When Hugel arrived to escort Johnson into the board, Greeniaus stood, anxious and confused. For all the courage he had mustered, there was no way he was addressing the board in Johnson’s presence.

Hugel fixed him with a puzzled look. “John, you’re not part of the group, are you?”

“Uh, no,” Greeniaus said.

“Well, you wait then,” Hugel said.

Relieved, Greeniaus returned to his seat.

As they prepared for Johnson’s appearance that morning, the board members were clearly testy. It was day twenty-seven of the LBO crisis, and they all felt as if they were hostages to it. Hugel’s ire was directed at press leaks, which had continued nonstop since the committee’s first meeting three weeks before. Felix Rohatyn of Lazard urged Hugel to calm down. The leaks could be coming from anywhere, he suggested, and witch hunts would only exacerbate the tension they all felt.

Privately, several directors thought Hugel more than a little hypocritical.
They all knew Johnson was talking regularly with Hugel, an advantage other bidders didn’t have, and that could leave the committee exposed to lawsuits. Twice board advisers had tried to bring the subject up with him, but had gotten nowhere. Hugel had also gotten his wrist slapped for a series of newspaper interviews in which he suggested, among other things, that the board would look favorably on the bid that contained the most cash, as opposed to junk bonds and other securities. “Cash is cash,” he said.

Adding to the snappish air that morning was a letter from Ronnie Grierson, the British director. Grierson, the directors all knew, was keenly worried about his liability in any lawsuit. Patched into board meetings via speaker phone from London, he was forever slowing meetings with questions the others thought nit-picking; Hugel had been forced to cut him off several times. Other directors, however, shared Grierson’s concern. All board members had been told not to take notes unless they wanted them subpoenaed at a later date.

Now Grierson was demanding the resignation of Johnson and the entire management group. It was “highly improper,” he suggested, for them to continue running the company while attempting to acquire it. Hugel was later able to talk Grierson out of his demands, but for the moment, everyone found them irksome. This was no time for him to break ranks.

The mood didn’t improve when Johnson and Horrigan were escorted in to address the board. Asked about the management agreement, Johnson stuck to his line that
The Times
had it wrong, that his share of the profits wasn’t out of line with that of other LBOs. Asked for ways to cut costs in the tobacco business, both Johnson and Horrigan stated flatly that there weren’t any. Their attitude bordered on hostile, and it made them no points with the board.

At one point, the developing rift between Johnson and Hugel flared into view. The board had repeatedly stated its opposition to the bidders “preselling” RJR Nabisco assets, that is, agreeing to sell its businesses to outsiders before the bidding was over. When Johnson denied his group was doing so, Hugel smiled ironically and said: “Everyone’s preselling.”

“Are you challenging my word?” Johnson snapped. “That’s absolutely wrong. I want you to withdraw that statement. Maybe Shearson’s doing it and Sally’s doing it, but I can tell you we’re not doing it.” Hugel backed
off, but it was clear to everyone that a number of friendships wouldn’t survive this auction.

Kravis had hoped to emerge from his due diligence sessions at The Plaza with a set of reliable projections. Stonewalled, his people had fallen further and further into a quagmire of confusion. By Monday, just four days before bids were due, Kravis knew something about Del Monte, a little about Nabisco, and next to nothing about Horrigan’s tobacco business.

The job of assembling Kravis’s projections had fallen to a thirty-year-old associate, Scott Stuart, a handsome bachelor with a sadly neglected apartment on Manhattan’s Upper West Side. Often working eighteen-hour days, Stuart had developed four separate sets of projections for RJR Nabisco, each, at least in theory, more accurate than the last.

He began with numbers obtained from RJR Nabisco via the special committee. Coming straight from Johnson, they were suspect. Normally, Stuart would spend weeks brainstorming with management to refine these numbers and identify areas where savings could be found. But with no management on board, Stuart turned to tobacco-industry analysts at Drexel and Merrill Lynch. Work with the bankers at Morgan Stanley and Wasserstein Perella yielded further revisions. Bit by bit, Stuart had compiled a nice, neat set of white computer runs. He wanted to believe they were reliable, but he feared they were no better than guesswork.