Barbarians at the Gate

by Bryan Burrough

  Ushered into Forstmann’s office, Cohen strolled about, inspecting its motley collection of art, family photos, and books. Forstmann realized Shearson’s chairman was sizing up the place. As a chance to make new friends, the gathering was a failure. Forstmann, impatient to join the fight, spent much of the time preaching against Kravis. Strauss thought Forstmann would never get off the soapbox.

  Geoff Boisi was also there. Tom Hill had passed his suspicions about the Goldman deal maker on to Cohen: Boisi and his people had shown a keen interest—too keen, Hill thought—in obtaining confidential information about Nabisco businesses. Hill didn’t know about Boisi’s contacts with Procter & Gamble and others, but suspected the Goldman banker had other interests at work than strictly advising Forstmann. Already Hill had directed his people not to share too much of their data with their Goldman counterparts.

  For his part, Cohen hadn’t appreciated Boisi’s bullying style during their first meeting on Tuesday. Now he quizzed the banker about his job as Forstmann’s adviser. When Boisi seemed to equivocate, Cohen realized Hill could be right: Boisi might be playing along just to get his hands on information that would aid a Goldman-led bidding group.

  Cohen and Strauss left Forstmann’s office that day deeply suspicious of Geoff Boisi’s motives.

  Friday morning Boisi read the news as his chauffeur-driven car nosed through Manhattan traffic on the way in from his Long Island home. The papers were full of what a great partner Salomon would make for Shearson, but there wasn’t a single mention of Forstmann Little. Coming after the fiasco Tuesday night, to Boisi it was more evidence that his client was being treated shabbily.

  From the car phone he dialed Forstmann, waking him from a sound sleep. It was time to talk to Cohen. “We better let this guy know absolutely that they’re not treating us correctly,” he told Forstmann. “This guy’s looking at you as financing. He uses the word partner, but he doesn’t know what being a partner means. It’s time they know how you treat a partner.”

  Cohen was at home, pulling on his overcoat and heading for the front door when the phone rang. He jogged into the kitchen to get it and immediately heard the steel in Boisi’s voice. “Teddy doesn’t have to do anything here, Peter,” he said. “Unless this thing starts going in the right direction, we can just walk away…. You know, you’re losing this guy. Don’t be sitting there thinking he doesn’t have any alternatives, because he does. We are perfectly capable of helping him.”

  “What are you saying?”

  “I’m saying we have alternative courses of action here if we don’t do this deal with you.”

  “Whoa, whoa,” Cohen said. “You have alternative courses of action? What does that mean?”

  Cohen knew exactly what that meant. Hill had been right: Goldman wanted to make a run at RJR Nabisco itself. To Cohen, the Goldman banker was a mole attempting to insinuate himself into the upper reaches of Shearson’s strategists. Cohen, in his own words, “went nuts.”

  “Listen. We don’t need you,” he told Boisi. “We don’t need Teddy. We don’t need anybody! We can go our own way, too, you know…. We’ve shared all our data, all our secrets, with you. Now you’re telling me you have alternative courses of action? That’s absolutely one hundred percent contrary to what you have told us to date.”

  Cohen hung up knowing it wouldn’t be the last heated exchange he would have with the Goldman banker. Later that morning, Cohen called Forstmann, who was due at Shearson only a few hours later.

  “Who are you going to bring down?” Cohen asked.

  Forstmann ticked off his brother, Boisi, and Steve Fraidin, the owlish lawyer.

  “Can’t we do it without Boisi?”

  “Gee, Peter, he’s our adviser, you know.”

  “Well, all right, if you have to. But I don’t need to get any more phone calls from this guy. I don’t like the way he talks.”

  Cohen was still fuming when the Forstmann group arrived at Shearson that afternoon. They took seats in its sumptuous nineteenth-floor library, and turning to Boisi, Cohen came right to the point. “I want to know whether you guys have signed the confidentiality agreement,” Cohen said. “Are you free to go out on your own? Otherwise, I don’t know how you can be sitting here in this room with us.”

  No, Boisi said, neither Forstmann Little nor Goldman has signed any such agreement. But Boisi assured Cohen he had no intention of divulging any of Shearson’s secrets. “Peter, you have my word on that.”

  “I want to hear that from a lawyer.”

  Boisi stiffened. “Let me understand, Peter. You’re saying my word isn’t good enough?”

  “I just want to hear it from a lawyer.”

  Cohen turned to Fraidin, who sat on a couch across from him.

  “Hey. Lawyer.”

  Fraidin, who was taking notes, didn’t seem to hear him.

  “Hey you. Lawyer. I’m talkin’ to you.”

  Fraidin, blinking through his professor’s glasses, looked up. He knew Cohen was trying to intimidate him. “Are you talking to me? What’s the question?”

  “Does the confidentiality agreement permit you to make an offer separate from management’s?”

  Fraidin was silent for a moment. When he spoke his tone was calm. “I have two answers. First, I am not your lawyer. I would not presume to give you legal advice. You should ask your own attorneys that question. Ask Jack Nusbaum. He’s a fine attorney. As regards the other, I have advised my client, of course, they are free to pursue another venture.”

  Cohen showed no reaction. A minute later he excused himself and left the room.

  Forstmann couldn’t believe the exchange. “Hey you, lawyer?” Who does this guy Cohen think he is? Little tough guy with that big cigar. A psychiatrist would love this guy.

  It was clear to Forstmann that Cohen was confused. Forstmann Little had signed a confidentiality agreement with RJR Nabisco barring it from divulging any of the company’s secret data. There was no such agreement with Shearson, nor with any member of the management group. Nor would there be.

  Cohen returned several minutes later with a set of photocopied computer runs. This is how we think a Shearson–Salomon–Forstmann Little offer would look, Cohen said, handing Forstmann a copy of the document.

  Forstmann leafed through it, but the numbers inside meant nothing to him. Everywhere he looked there were junk bonds, page after page of gobbledygook. Somewhere among the figures he found Forstmann Little’s $3 billion sandwiched between layers of junk bonds. It made his skin crawl.

  It got worse. It was clear Forstmann Little didn’t control the bidding group, and the Shearson proposal seemed to contain clause after clause whose sole purpose was blocking that from ever happening.

  Cohen could tell Forstmann didn’t like what he was reading. “Don’t think this is a hard-and-fast proposal,” he said. “We’re perfectly willing to accommodate you on this.”

  Forstmann was shaking his head. This won’t work, he said. He tried to make Cohen understand that, under Forstmann Little’s guidelines with its investors, the firm would end up controlling the bidding group. A full 37 percent of every Forstmann Little deal was promised to its lenders. Another 10 to 15 percent was sold to management. Even if they split the remaining 53 percent, Forstmann and his backers would have majority control. Guidelines preventing that made no sense. “No hard feelings, Peter, but this just won’t work.”

  “That’s all right,” Cohen said. “We’ll just rework it.” He got up and left the room.

  When Cohen left, Forstmann turned to Boisi. “Geoff, what can we do about this? We can’t even talk about this. You can’t turn chickenshit into chicken salad. There’s nothing to negotiate. You know? They just don’t get it.”

  The four men caucused. Maybe, they agreed, Forstmann ought to propose his own capital structure to Shearson. Forstmann thought it was a great idea. Besides, he was worn out from forty-eight hours of nonstop analysis. He rose and went looking for Cohen. He found him down the hall, chomping a ciga
r in a smoke-filled boardroom. Lawyers and investment bankers clad in shirtsleeves lined the walls.

  “Peter, look, this is impossible,” Forstmann said. “I’m exhausted. I’m going back uptown. We don’t even have a starting point here. Let us put something together and send it down to you.”

  Cohen agreed.

  Outside, Forstmann and Boisi climbed into the backseat of Forstmann’s black Mercedes. The two were already deep in conversation as the car pulled into traffic on the West Side Highway. Suddenly Boisi noticed Forstmann’s eyes widen. Forstmann saw the oncoming car and wanted to yell, Geoff, duck! but it was too late. The Mercedes shuddered as a car plowed into its left rear end.

  No one was hurt in the fender bender, but the other driver had no insurance. They waited for what seemed like hours for a policeman to arrive. It just didn’t seem like Ted Forstmann’s week.

  His Spanish outing a success, John Gutfreund had a terrible time returning to New York. His flight to Paris was diverted because of bad weather. He was offered a chance to land at Lyon but turned it down. London was fogged in. Finally the plane landed at Brussels. Gutfreund caught the one-thirty Sabena flight to New York, landing at Kennedy International a few minutes before six.

  Clad in corduroy slacks and a sports shirt, Gutfreund boarded a helicopter arranged by Shearson and arrived at Salomon’s lower Wall Street headquarters in fifteen minutes. There he was met in the boardroom by a pair of advisers, Peter Darrow, his lanky longtime lawyer, and Mike Zimmerman, a fast-talking Salomon investment banker. In their hands were copies of Johnson’s management agreement.

  “You’re never going to believe this,” Zimmerman said.

  Gutfreund took a copy and read it. He was startled. The agreement was far more lucrative than Cohen had hinted. If he was interpreting it correctly, Johnson’s seven-man group was entitled to $1 billion, maybe more, free of charge. Darrow ran through the agreement with Gutfreund, point by point. It was important they realize what they had gotten themselves into.

  Arriving at Shearson a half hour later, Gutfreund didn’t wait long to bring up the management agreement with Cohen. “I am going to have an enormous amount of difficulty, and we as a team will have an enormous amount of difficulty, unless that package can be reworked at a lower level,” Gutfreund said. “Peter, it’s just unseemly.”

  “John, I promise you, it will be dealt with,” Cohen said. But, he added, it made little sense to revise the pact until they had a better sense of what levels the bidding might rise to.

  Relieved, Gutfreund agreed. It could wait.

  Teams of Shearson and Salomon bankers worked late into the night Friday and all day Saturday. Both firms mobilized traders and salesmen in London and Tokyo in the scramble to obtain funding commitments from an array of foreign banks. Another team, led by Jim Stern, was attempting to construct a compromise capital structure acceptable to Forstmann.

  Cohen spent much of Saturday looking for Forstmann. He called his office and his home. Forstmann was at lunch; then he was out during the afternoon. Cohen knew he was getting the messages. All week Forstmann had bugged him to move faster, always faster. Now, when he was needed most, he couldn’t be found. Cohen guessed Forstmann was trying reverse psychology, playing hard to get.

  “He’s just trying to act cute now,” Cohen told Tom Strauss.

  As the phone messages from Cohen stacked up, Forstmann ignored them. He took a long lunch, and that afternoon played tennis across the East River in Queens. Loping across the court, he reflected on Cohen and RJR Nabisco. He wasn’t comfortable with the way this deal was going.

  I think we’re out. We’re wasting too much time. You think Kravis is wasting his time? We’ve got to move!

  As Forstmann walked off the court, he couldn’t shake the feeling that had plagued him for three days. As much as he wanted to whip Kravis, this didn’t feel like a Forstmann Little deal. It’s gotta feel right.

  Forstmann returned to his apartment to find the phone ringing.

  “I’ve been trying to get you.”

  The tone of Cohen’s voice instantly conveyed his irritation. Cohen was saying something, but Forstmann wasn’t listening. I don’t want to be on board with a guy like this. I don’t like this guy. Why can’t he be more like Jim Robinson? You’re trying to make a hooker into a dream girl, Forstmann told himself, and it just won’t work.

  “Peter, I got the messages,” Forstmann said. “But I’ve been out all day.”

  Cohen apologized for the misunderstanding. “I’ve got some good news for you,” he said. “I’m out at Tommy Strauss’s house. I really think we’ve figured out a way to accommodate your strictures. We can do this. I know we can.” Cohen and Strauss had breezed into the Salomon executive’s Armonk, New York, home in the middle of an informal dinner party, and Cohen had ducked out to call Forstmann.

  Forstmann heard dogs barking and children giggling in the background. He heard someone, maybe Cohen, jokingly say, “Get that dog outta here.”

  Forstmann warmed to Cohen at that moment, chastising himself for so harshly judging the Shearson executive. This is more like it, Forstmann thought. Dogs and kids. This is good, this is like a family. This is more like Forstmann Little.

  Cohen outlined a new capital structure to Forstmann. Salomon and Shearson would each contribute 25 percent of the group’s equity. Forstmann Little would take the remaining 50 percent. Control of the company would be split the same way, with Forstmann Little taking half. The proposal downplayed the junk-bond aspects of the earlier proposal and promised Forstmann Little a greater voice in the future management of RJR. Just as important, Forstmann Little would receive senior debt rather than junior debt—roughly the difference between an American Express card and an IOU.

  “How’s that, Ted?” Cohen asked.

  Forstmann was genuinely surprised. “Peter, that’s a gigantic step forward,” he said. “That’s great.”

  “Let’s get together tomorrow,” Cohen said.

  All evening Forstmann’s people analyzed Cohen’s proposal. It looked promising, they agreed. Forstmann tracked down Boisi at a Long Island dinner party after midnight and excitedly passed on the news.

  That evening Forstmann’s partner, Brian Little, arrived in San Francisco after a Far Eastern vacation. Little had avidly followed the goings-on at RJR Nabisco at stops in Hong Kong, Thailand, and Bali. Soon after his plane touched down, he was on the phone with Forstmann, who brought him up to date on the talks with Cohen.

  Little was immediately turned off by the idea of teaming up with Shearson. “Geez,” he said. “This would be a real departure from anything we’ve done before, working with these guys.”

  Little’s reservations went deeper than balance sheets. He had known Cohen for a decade. The two men had weekend homes near each other in the Hamptons. Little thought Cohen represented the very worst of Wall Street, an abrasive, fee-hungry overreacher. He found the notion of working with the man repulsive.

  “Teddy,” Little said, “the guy’s a thug.”

  Forstmann assured him the deal they were considering would be “a Forstmann Little deal.” But Brian Little still couldn’t generate any enthusiasm for the partnership, and before hanging up, aimed at Cohen the ultimate insult a Forstmann Little partner could muster: “I’d almost rather be in business with Henry Kravis.”

  Most U.S. companies employ spokespeople who are paid to parrot the company line, whether it be on toxic wastes or quarterly dividends. To reporters they are derisively known as “flaks” whose main duties consist of peddling press releases. But on Wall Street, with its steady flow of gossip and inside information, a score of public relations professionals have managed to achieve considerable power. Their rise is understandable: As the business press devoted more space to the great takeover battles of the 1980s, the importance of manipulating its coverage grew. By the end of the decade, each entrant into a takeover fight routinely hired a p.r. firm to work alongside its investment banker and attorneys.

  For
years Wall Street public relations has been dominated by a single firm, Kekst & Co., and its well-connected founder, Gershon Kekst. Kekst spokespeople can be found in every major takeover, dishing dirt on that day’s enemy alongside their formal, routine press releases. It was on Gershon Kekst’s advice that Kohlberg Kravis managed to stay out of the headlines for nearly a decade.

  Then in the late 1980s came the first serious challenger to Kekst’s rule in years. Linda Robinson was no ordinary flak. She was a tall, willowy strawberry-blond with a knowing smile, a grueling work schedule, and an obvious love of gab. Raised in California, the daughter of the actor who played Amos in radio’s famous “Amos ‘n’ Andy” serials of the 1940s, she was a former debutante who spent the 1970s in a failed marriage and an array of jobs, including one at an acupuncture clinic.

  A die-hard Republican, she finagled a job as deputy press secretary to Ronald Reagan’s 1980 presidential campaign. Later she went to work for a company run by the former transportation secretary, Drew Lewis, where she met and married Jim Robinson. After she founded her own New York firm with a group of friends, Linda Robinson’s affection for her husband began to be displayed publicly, and regularly. “Isn’t he cute?” she asked one female reporter, insisting that the woman fondle Jim Robinson’s biceps.

  In no time she became a force to be reckoned with, although she bristled at any suggestion that it was because she was Jim Robinson’s wife. Her clients included Texaco, whom she advised in its drawn-out struggle with Carl Icahn, and Michael Milken of Drexel. Her friends included Tom Brokaw, Diane Sawyer, and Barbara Walters, and her attendance at the marriage of The Wall Street Journal’s managing editor was noted by the paper’s staff. “At 35,” the Journal observed in a front-page profile in 1988, “she appears poised to wield a degree of behind-the-scenes influence approaching that of a few superlawyers and image makers, invariably men.”