Barbarians at the Gate (71 page)

What he heard was startling. Working blind, Stuart had overestimated RJR Nabisco’s available cash by $450 million. Golden parachute payments were $300 million more than he had guessed. And his worst fear about the “Other Uses of Cash” column came true: $550 million more cash was flowing out of the company than his projections reflected. Stuart didn’t need a calculator to assess the damage: $1.3 billion had to be lopped off their projections. It was roughly $6 a share.

“What happened?” Paul Raether asked in amazement when Stuart brought the news to his office. No one knew. Stuart was deeply embarrassed.

Already unnerved by press criticism, Kravis was shaken anew when he learned of Stuart’s revisions Thursday morning. It wasn’t just their effect on the projections. Kravis could live with that. The more severe blow was to their confidence. If they could be that far off on fundamental numbers, Kravis wondered, how reliable were the rest of their projections? What else didn’t they know? All their analysis to date, nearly a month of work, was suddenly open to question.

All this began to sink in on Thursday, not thirty-six hours before bids were due. It was a very bad time to get cold feet.

It was a somber group that Kravis gathered in his office Friday morning. The same thoughts were on everyone’s minds. Here it was, the biggest bid in history, and what did they really know about RJR Nabisco? They hadn’t visited the factories, hadn’t talked with more than a handful of executives. All they had was a pile of annual reports, government filings, and stacks of white computer runs—all of which they had lost confidence in.

Their doubts fueled other concerns. Could a deal this size be done safely? Would the banks, already nervous about LBO loans, come through? Would jittery junk-bond buyers want KKR’s bonds? Roberts brought up life-style issues. They all lived quiet, tidy lives. Buying RJR Nabisco would mean a wave of publicity, Washington hearings, and an unprecedented commitment to run the company. “This firm’s going to be in business for a long time,” Roberts said. “Do we really need this aggravation?”

“Do we really want to do this to ourselves?” Paul Raether echoed.

As they talked, they followed a familiar pattern. The discussion began with the most junior, Scott Stuart or Cliff Robbins, and went around the room until it stopped with Roberts. As they completed each circuit, the group grew more and more downbeat. At the outset, Kravis and Raether had been the most bullish. Both were comfortable with a bid in the range of $97 to $98. Roberts was the bear. He wasn’t comfortable with anything
much above $93. “Why don’t we do it at ninety-one or ninety-two?” he suggested. “Why take chances?”

Around two-thirty Dick Beattie stuck his head in. His tone was plaintive: the schoolteacher hurrying children off the playground. “If you guys don’t hurry up and give us an answer, you’re going to be left out of the bidding. I’m going to have to call over there and get an extension or something.”

“Okay,” someone said. “Give us fifteen more minutes.”

The Winthrop team arrived at First Boston with a draft letter at eight o’clock Friday morning. The lawyers waited anxiously while Maher and his lieutenants studied it. In minutes their verdict was unanimous: The letter was a disaster.

“This is shit!” Fennebresque ranted behind closed doors. “This is absolute garbage!” Finn agreed. “It’s incomprehensible,” he said, shaking his head.

Irked, Maher sent the lawyers and a First Boston team to an upstairs boardroom to rework the five-page letter. It promised to be a difficult task, but Maher wasn’t too worried. They had all day.

Upstairs the scene degenerated into bedlam. A half-dozen Winthrop lawyers attempted to recast the letter. A First Boston contingent attempted its own version. Drafts were written and torn up. New lawyers filed in. First Boston people shuffled in and out. By noon Jerry Seslowe and his partners arrived, adding to the rising cacophony. Lunch was brought in. More drafts were written and discarded. Heated discussions broke out over the wording of obscure clauses. Finn’s secretary, scribbling down every change and suggestion in shorthand, was an island of calm. As the afternoon wore on, a layer of smoke slowly settled atop the arguing lawyers and bankers. Tempers grew short. Points were made then forgotten;
talks moved in circles that no one could keep track of. A paper airplane cleaved the smoky air.

Seslowe had never seen anything like it. First Boston’s people couldn’t seem to agree on the simplest things. Would they bid for the entire company or the food business? Would it be an LBO or a restructuring? Seslowe retreated to a corner where he shook his head in bewilderment. He thought of Tom Pritzker and the senior Pritzker attorney on the deal, Hank Handelsman, who had remained in Chicago. “I’m just glad Hank and Tom aren’t here to see this,” Seslowe repeated, mantralike. No one seemed to be in charge. “What a disaster,” he muttered.

There was little doubt in Seslowe’s mind that if Jay Pritzker walked into the room, he would back out of the deal. “They would; they’d just walk away,” Seslowe assured one of his partners. Yet in telephone conversations with Pritzker all that day, Seslowe reassured the Chicago investor all was well. Seslowe was acutely aware it was he who had gotten Pritzker into this deal; he wasn’t going to back out until he had to.

As the day wore on, Seslowe found himself worrying whether First Boston was up to the task of a $20 billion takeover. To a partner he confided, “I would feel much more confident with Wasserstein and Perella around. These guys are a shadow of their former selves.”

It was two hours before the five o’clock deadline when a copy of the revised letter was delivered to Maher’s office. Maher read it in silence. The letter seemed to jump from point to point with no focus; peering through its tangled verbiage, it wasn’t clear exactly what First Boston wanted from the board, one transaction or three, a merger or a restructuring.

Maher exploded, kicking the leg of his mahogany desk and slamming his fist violently onto the desktop. “This is the worst piece of shit I’ve ever seen!” he said. “Can’t we do this right? I mean, this is awful.”

Maher picked up the letter, strode out past his secretary’s desk and up three flights of stairs to the crowded boardroom. To Finn, who knew Maher’s moods, there was no mistaking the anger in his boss’s clenched jaw. Within moments the room fell silent.

“You guys are missing the point,” Maher told the group. “Now, just listen to me. This is what we’re going to do.” Then, for thirty minutes, Maher dictated a new letter to Finn’s secretary. When someone interrupted, Maher raised his voice and talked over him. Seslowe couldn’t believe the scene. It was like a teacher disciplining a roomful of second graders. For a while he teetered on the edge of phoning Pritzker and
advising him to drop out of the bidding.

As the deadline approached, Maher and the lawyers were still arguing whether to bid for the entire company or just the tobacco operation. “The arguments that broke out weren’t just over spelling and syntax,” Seslowe recalled. “We were still debating what form the bid would take, what we would bid for.”

A few minutes before five, Maher called Skadden Arps and told Atkins the letter might be a few minutes late.

“Keep in mind,” Seslowe told Maher after he hung up, “you still have to get this past Pritzker.”

It was too much for Maher.

“Chicago! I’ve got to deal with Chicago? This is just a letter! Give me a break!”

Ed Horrigan was nearly foaming at the mouth. For two hours Johnson and his entourage had sat around the paisley-wallpapered Shearson dining room while butlers in white jackets took lunch orders and hovered over them with coffee and baskets of rolls. They were supposed to be discussing their bid, but so far all they had done was pass menus.

Johnson couldn’t believe the scene. As usual, the room was packed. A full Shearson complement, maybe a dozen people, augmented by a nine-man team from Salomon led by John Gutfreund, plus Johnson and his people. Gutfreund’s group, which had downed sandwiches and Styrofoam cups full of soup before arriving, sat at a separate table. “We’ve come over to watch everybody eat,” Gutfreund said in a rare bit of humor.

Johnson, Horrigan, and Sage had walked into Cohen’s office that morning and found the Shearson chief standing behind his desk. “Okay, guys,” Cohen had said. “What’s the price going to be?”

“A pissload,” answered Johnson, smiling.

Cohen called his secretary to get someone on the phone. Horrigan wondered what the Shearson chief had up his sleeve. A secret weapon? A moment later, Cohen picked up the phone. “Hello?” he said. Horrigan listened in anticipation.

“Yes, my wife and I have talked it over. Forget the coat. We’ll go with the jacket.”

Three hours later they still hadn’t begun talking about their bid. The
lunch went on and on, until by one-thirty even Johnson was growing impatient.