Barbarians at the Gate (72 page)

“Let’s get on with it, Peter,” he said.

“Christ,” Sage blurted out, “we need a goddamn number. It’s getting late.”

Steve Goldstone could hear the exasperation in Gar Bason’s voice. It was past two o’clock and the Shearson group hadn’t yet produced a final offer.

Goldstone had left Bason at Davis Polk shortly after noon and gone to check on the discussions at Shearson. He was surprised to find Cohen, Gutfreund, and more than thirty others eating a leisurely lunch, debating bid structures amid a tableau of white tablecloths, hovering waiters, and clinking china. The scene resembled a banquet more than a strategy session.

“Gar, it’s aborning.”

“Hey, come on,” Bason pleaded, his voice strained over the phone line. “We need a number. We’re running out of time. Steve, if they don’t make up their minds soon, we’ll have no bid at all.”

Goldstone knew his partner wasn’t exaggerating. With less than three hours to go, Bason had been preparing more than a dozen major documents—bank commitment letters, debt documents, and other arcane papers—that couldn’t be completed without a final number. Bason had word processors standing by at three law firms.

Bason got his number just after three. Across Manhattan, at a half-dozen banks, law offices, and accounting firms, fingers flew across calculators, totting up interest rates, payment schedules, and other key ratios. By a quarter to four the lawyer could see details of the bank letters were falling into place. But it was also clear the three-inch-thick bid package wouldn’t be ready in time for the run uptown to Skadden Arps at Fifty-fifth Street and Third Avenue.

The logistics of time-sensitive midtown deliveries were familiar to all Wall Street law firms. Subways were out. A single smoky track fire could trap a courier for hours in the musty tunnels beneath Lexington Avenue, and portable phones were unreliable. Moreover, Bason knew the nearest subway station on the key Lexington line was four long blocks from
Skadden Arps. He preferred taxis up the crowded parkway along the East River.

At four-twenty the young lawyer ordered Salomon’s lead counsel, Peter Darrow, a twenty-six-year-old Davis Polk associate named Richard Truesdell, and two other lawyers into a car for the trip uptown. Several key documents the lawyers carried were incomplete, so the four attorneys were to pencil in the remaining numbers in the cab. Lawyers from Citibank and Bankers Trust were to meet the team at Skadden Arps with copies of the final loan documents. As they walked out, Bason handed Truesdell an NEC portable telephone.

Fifteen minutes later, with the four lawyers scribbling furiously in their seats, the car sagged in heavy traffic at Fourteenth Street. At Davis Polk, Bason crossed his fingers and kept his eyes glued to the clock. Goldstone, returning from Shearson, joined him, along with Johnson and Horrigan. Johnson, the only one relaxed, took in the scene and smiled. “At least we’re going to have some fun with this.”

Every five minutes Goldstone dialed Truesdell, who rode shotgun: “Where are you now? What block are you on?”

Worried looks broke out at Davis Polk as the cab nosed through heavy traffic in the Thirties and Forties. With fifteen minutes to go, the cab turned off the parkway onto First Avenue. Ten minutes later, it crawled to a stop at Fifty-fifth and First, where it froze in the grip of a Friday afternoon traffic jam.

Goldstone was on the verge of hysteria. Horrigan, too, was beside himself. “Why’s this taking so long?” he demanded.

Panicking, Goldstone grabbed the phone. “Get out of the cab and run!” he barked at Truesdell. The four attorneys piled from the taxi and began sprinting the two long blocks to Skadden Arps. By then Johnson was laughing uncontrollably. “I hope your guy was a cross-country runner,” he told Goldstone, “because there’s no way he’s going to make it by five o’clock.”

Goldstone’s eyes were glued to the clock. They weren’t going to make it. Seconds later he had Bason call an Atkins aide, Mike Gizang. “We’re faxing the bid letter,” Bason said. “It’s coming to you now.”

As clerks began feeding the bid letter page by page into the fax machine, Goldstone listened to Truesdell’s labored breathing over the portable phone.

“We’re at Fifty-fifth and Second!”

The minutes ticked by. Johnson fielded a call from a worried Charlie Hugel. “Where’s your bid, Ross?” Hugel asked. “Where’s your bid?”

Johnson, amused, tried to sound earnest. “We’re still thinking about it, Charlie.”

Horrigan was in a white fury. “Can you believe this! I can’t believe this!” Andy Sage, who had also shown up, was dumbstruck by the spectacle. “This is the gang who couldn’t shoot straight.”

When Truesdell’s breathless group reached Skadden Arps, their path was blocked by a throng of photographers and television cameras. The newsmen, spotting the portable phone, crowded around and began shouting questions. The lawyers plunged like fullbacks through the assembly and into the lobby.

Inside, there was no sign of the bank team. “Where are they?” the lawyers asked, craning their necks and turning round like tops. “Where are they?” Darrow, the only one who knew the bank lawyers by sight, scurried about the lobby like a child lost at the zoo.

Seconds later, Goldstone reached Truesdell.

“Richard, where are you!”

“In the elevator!”

On the thirty-fourth floor, a receptionist directed the four lawyers to an upper floor. “Wait, wait, wait!” Bason’s reedy voice chirped over Truesdell’s phone. Bason ordered a last-minute check on the preferred stock’s dividend rate. Precious seconds ticked by as the number was double-checked.

As Truesdell and his three companions spilled from the elevator on the upper floor, their way was blocked by an enormous security guard. A minute later, Truesdell was escorted into the reception area, where, exhausted, he handed Peter Atkins the binder containing the group’s bid. The bank letters wouldn’t arrive for another forty-five minutes.

Darrow looked at his watch. It was 5:01. The largest takeover bid in corporate history was late. He prayed no one would notice.

Cogut watched the guard stop everyone entering the reception area. A Skadden Arps partner, caught in the net by mistake, was screaming at the guard. “I’m a goddamn partner! I’m a goddamn partner! Now let me in!”

Cogut handed Atkins the binder and left.

In Chicago, Pritzker himself was having doubts about First Boston’s competence. By seven, he was wondering aloud to Jerry Seslowe whether to scrap the whole effort. “Do you feel First Boston is up to the task?” he asked.

Seslowe knew Pritzker was on the verge of backing out. All afternoon the investor had warned Seslowe he didn’t want to be embarrassed by this bid. The passing of the deadline and the letter’s ragged quality only fanned his concerns.

“Jay, look,” Seslowe said. “It’s clear they’re not what they used to be. But they’re still damn good. They have a good structure here.”

“Do you think we ought to go through with this?” Pritzker asked. “Jerry, how embarrassing is it for us if we back out now? Should we? Why don’t we just pack it up and go home.”

“I still think they can pull it off,” Seslowe said. “Let’s just ride this thing out.” Seslowe knew he was putting his own word on the line, a fact he wasn’t entirely comfortable with.

By nine o’clock Maher had had enough. After suggesting to Pritzker that future snafus could be avoided if the investor’s lawyers were in New York, he ordered the letter sent.

Attorneys were still suggesting changes as copies were being run off. They were shouted down. All pretense at diplomacy was dropped as shouts ricocheted through First Boston’s emptying halls.

“Just get it out! Get it out! Forget about that! Go on! Go on! Get out of here!”

The lawyer wasn’t there. When Finn offered to wait, Atkins’s secretary said he was in a meeting and couldn’t be bothered. Finn handed the woman the letter. Leaving a phone number, the two men swiftly retreated.

Hugel’s favorite came from a Toronto banker. He laughed as he passed it around to the directors and investment bankers milling about a forty-seventh-floor conference room Friday evening. The fellow offered $123 a share, but with a twist. He proposed paying each member of the special committee $7 million for his vote, “to pay respect for their many years donated to the company.” Other directors would get $5 million.

As the bids arrived, Peter Atkins held court in his corner office filled with its collection of carved wooden ducks and the usual Lucite tombstones. Shadowing Atkins was Mike Mitchell, a professorial trial lawyer who worked from a casual, cluttered office down the hall. Atkins was well aware the night’s events might someday be replayed in a courtroom, and Mitchell was there to make sure they played by the rules.

Mitchell stood in a corner, smiling as the messengers, lawyers, bankers, and directors scurried in and out of Atkins’s office. The scene reminded him of a Charlie Chaplin film. It took nearly an hour for the management group’s bank documents to arrive. Every ten minutes or so Jim Maher called and assured them his letter would arrive any minute.

A feeling of relief swept the assembled lawyers when they finally peeked at the two bids.

It wasn’t even close.

Kravis had bid $94 a share, or $21.62 billion.

Johnson had swamped him with a bid of $100 a share, or $23 billion.

This was going to be easy. By nine o’clock Atkins dismissed the investment bankers and told the directors that they, too, could go home. The committee would meet Sunday morning to formally declare Johnson the winner. In the meantime, representatives from both bidding groups would come in Saturday to explain the securities in their bids. Both included large amounts of PIK securities, and Atkins needed that “paper” valued for the presentation Sunday morning. It was a formality, but Atkins was determined to cover all the bases.

When First Boston’s proposal was finally passed to him, Atkins read it closely. He hoped to brush it off as he had the other joke bids. Maher’s proposal was only half-formed, he could see, really no more than an idea. It had no financing; it wasn’t even clear Maher had talked with a bank. Yet First Boston was suggesting it could attain between $105 and $118 a share in a restructuring using Brian Finn’s installment notes strategy.

The key to the proposal was taxes, and Atkins was no tax expert. At first glance, he knew he couldn’t easily disprove its thesis. If Maher could do what he said—and Atkins had little reason to believe he could—First Boston’s approach could be worth $3 billion more than the other proposals. This would be a matter for Skadden’s tax counsel.

Until the plan could be checked, Atkins and a dozen colleagues gathered in a glass-enclosed conference room to eat dinner, and hash through Maher’s strange idea. Cartons of Chinese food were arrayed on a large oak table. Between them were small round containers holding dozens of sharpened pencils. A ficus tree hung lazily over their deliberations. Out the window Manhattan’s Upper East Side and, beyond it, Harlem were gearing up for the weekend. Copies of Maher’s nine-page proposal were run off and passed around; the lawyers flipped through it while eating.

Around eleven o’clock they were joined by Matthew Rosen, the team’s
thirty-six-year-old tax counsel. Rosen was a lawyer from the “Thirtysomething” crowd: Italian suits, tassled loafers, an office crammed with modern art, the kind of early 1970s rabble-rouser embarrassed to tell his Swarthmore class reunion he now made millions sniffing out tax loopholes for corporate takeovers.

“How’d you like to be witness number one to the lawsuit?” Mitchell asked Rosen.

“What are you talking about?”

Mitchell handed Rosen the First Boston binder. “Read this,” he said. “It’s all tax.”

Matt Rosen looked at the proposal for a minute, then retreated to a conference room to examine Maher’s desperation bid more closely. At its core, he could see, the First Boston letter harbored a nasty knot of tax assumptions whose viability was far from certain. Rosen immediately realized that the fate of the proposal—and thus of the entire auction—rested on his judgment of how reliable those assumptions were. It was up to him to advise Atkins and Mitchell whether $4 billion in taxes could actually be deferred. The senior attorneys would almost certainly take his advice. If Maher’s proposal could work, Rosen knew, a new wild card would emerge and the entire process would probably be thrown into chaos.

He tried to clear the enormity of his task from his mind and concentrate on the letter before him. But as he leafed through Maher’s tax assumptions, Rosen’s stomach began doing somersaults. As if the stakes weren’t already high enough, Rosen now noticed something far more worrisome. As he worked through the First Boston proposal, he was confronted with a single, unavoidable fact: Several of its core conclusions, including a crucial assumption on the exact treatment of the tax deferrals, were
his.

Rosen had been afraid this would happen. As December 31 approached, installment sales were all the rage on Wall Street. Every investment bank seemed to have a dozen in the hopper; Brian Finn was applying the same idea to at least four other major takeover situations for First Boston. And Finn’s favorite tax lawyer was Matt Rosen.

The two young men were kindred spirits and over the years had become close friends. Many of Finn’s Rube Goldberg restructuring ideas turned on esoteric tax strategies, and the two often discussed them for hours on end, especially after Finn acquired a car phone and took to badgering
Rosen during his hour-long evening commutes. Finn prized Rosen for his creative solutions to the thorniest tax problems; Rosen appreciated Finn’s quick mind. The young tax lawyer was already working with First Boston on an installment sale for General Cinema, which wanted to buy some Pepsi bottling operations. Now, to Rosen’s growing horror, he was being asked to pass judgment on ideas he himself had helped conjure.

Rosen and Finn hadn’t specifically discussed RJR Nabisco; they didn’t work that way. Finn talked in hypotheticals, tossing what-if scenarios to Rosen. In a kind of mental tennis game, Rosen swatted the ideas back to him, usually not knowing what companies he was discussing. But as he looked at the First Boston proposal, Rosen easily identified it as the fruit of the pair’s recent conversations.

Conflict of interest: Rosen hated the thought. But he knew it might apply to him. Given the nasty nature of the RJR Nabisco fight, it would only be a matter of time before someone found out about his work with Finn. In his heart Rosen told himself he could be fair, that he wouldn’t put his career on the line to help a friend. But in the litigious atmosphere of a major takeover, appearances of impropriety can prove as damaging as the real thing.

Rosen was pondering his plight forty-five minutes later when Atkins interrupted him. The senior lawyer couldn’t stand waiting any longer for an opinion on the bid’s viability.

“What do you think?” he asked.

Rosen took a deep breath. “Well, I’ve got some technical problems. A couple of things here, I think, are screwed up. You just can’t tell—there’s not enough here. If you’re asking the question, Peter, whether or not this is a deal that could be done, with massaging and modification, I’d have to say yes, it could be done.”

Rosen then explained his problem with Finn. He trusted Atkins, had invited him to his wedding six months earlier. “Peter, you know I’m very familiar with this thing. We’ve spent a lot of time working with First Boston on just this kind of proposal.”

Atkins put Rosen’s concerns aside for the moment.

“Talk to me about the proposal,” he said. “What problems stand in the way of its working?”

Rosen ticked off several. For one thing, there was nothing about financing; billions of dollars would have to be raised. A real question existed as to whether First Boston could complete its work before the tax loophole
expired at year end—now just forty-two days away. In such a short time, every day would count: The deal could be derailed if First Boston were forced to undergo a lengthy antitrust review by the Federal Trade Commission. Exactly who would own which of RJR’s businesses was also unclear. These were details that would have to be worked out with First Boston, Rosen said.

“This is not off the wall, Peter. At its heart is a basic analysis that I’m comfortable with.” Too comfortable, Rosen thought. “If the five or six questions I have are resolved favorably, as a legal matter do I think this works?”—Rosen paused—“Yeah. I think this works.”

Into the wee hours Rosen endured the cross-examination of his partners, including Mitchell, the crack trial lawyer. Each probed Rosen’s reasoning for defects, for an opening, for a reason to ignore the troublesome First Boston letter. But Rosen held his ground; he couldn’t say flat-out the idea wouldn’t work.

As Friday slid into Saturday, the weary lawyers left, one by one, for their homes in the suburbs. At four o’clock Skadden’s offices were still. Outside the streets were quiet. In a conference room down the hall, cartons of Chinese food lay cold, half-eaten.

Atkins and Mitchell were the only ones left. They sat alone among the wooden ducks in Atkins’s office. Rosen had left earlier, promising to talk the next day with Brian Finn. Unless Rosen changed his mind after talking to Finn, the two lawyers could tell where they were headed.

“I don’t see what else we can do,” Mitchell was saying. He stared at a copy of the First Boston letter on Atkins’s desk. “How do you ignore something like that?”

Atkins nodded. He looked at Mitchell and sighed. “This is just the way it’ll have to be.”

There were a few seconds of silence. The two men were old friends, joined by their love of the law. Pending Rosen’s talk with Finn, they had
made their decision; all that was left was the special committee’s approval Sunday morning. Mitchell sensed the importance of the moment.

“Boy,” he said. “Whoever expected this to happen.”

There was a moment of panic when the Kravis troops realized that Drexel’s Peter Ackerman, the point man on the bid’s securities, had boarded a plane to return to Beverly Hills. Ackerman would have to be put on speaker phone for the session. A different dilemma arose with Bruce Wasserstein. After the newspaper leaks, Kravis didn’t trust Wasserstein and didn’t want him at the meeting. The problem, Ted Ammon explained to Dick Beattie, was getting Wasserstein’s assistant, Mack Rossoff, who was needed to explain some securities in the package.