Barbarians at the Gate

by Bryan Burrough

  It sure seemed like a lousy time for a joust.

  As Atkins handed out copies of the curious letter to board members, the man responsible for his discomfort sat anxiously five blocks away. At thirty-eight, James Maher was in the eighth month of the most torturous period of his life. As cohead of First Boston’s investment banking and merger departments, it had fallen to Maher (pronounced Mah-her) to pick up the pieces after Wasserstein’s departure.

  Small wonder competitors likened Maher to the captain of the Titanic. But the scramble to save First Boston was more than business to Maher. Besides being his bosses for a decade, Wasserstein and Perella had been Maher’s best friends. Their parting left him angry and confused; the intense competition that instantly sprang up between their two firms only added insult to Maher’s injury. Survival now meant daily skirmishes with men who had been his confidants for ten years. Beating their former superiors became the rallying cry of First Boston’s remaining deal makers.

  Now, eight months after their resignations, Maher was desperate. His brief tenure had been marked by exhilarating highs and devastating lows—mostly lows—and it had all come down to this: First Boston was the only major investment bank not involved in the RJR Nabisco deal. It was worse than humiliating. Sitting on the sidelines during history’s largest takeover sent a dire message to every First Boston competitor and client. Maher suffered no illusions: His department’s future was at stake.

  Coming just four days before the bid deadline, Maher’s proposal was a rank long shot. On Friday the special committee expected to receive fully financed offers, a task that had taken Kravis and Cohen weeks; First Boston hadn’t yet talked to a bank. But if it could somehow emerge with a piece of the action, Maher knew, he could rescue his department from its decline. If he failed, Maher had no doubt, he would be a laughingstock.

  A chain-smoking New Englander, Maher was thought by some to be an odd choice to lead First Boston’s 170-odd merger specialists. He was neither a natural leader nor a cheerleader. His primary attribute was a steadiness that was the marvel of his colleagues. Some considered Maher a stoic, although he had a gentle, self-deprecating humor and was prone to rare fits of temper; close friends knew to avoid him when the vein in his jaw began pulsing. Thoroughly unpretentious—a rarity on Wall Street—he wore his hair slicked back in a power cut that looked out of place on his head.

  Maher grew up a strapping, middle-class kid from central Massachusetts, his father the president of a local machine-tool maker. He had entered Columbia Business School in 1975 when the bicycle-parts maker where he was sales manager began to slide downhill, prodded by a massive recall of shaky handlebar supports. Later he joined First Boston, taking a spot in the infant merger department after a fast-track colleague turned it down as a dead-end job. He started one week after Wasserstein. In First Boston’s culture of gray flannel and maroon suspenders, Wasserstein, hair uncombed, constantly in motion, fascinated Maher. “I didn’t know who this character was—I thought he was from another planet,” Maher would recall. “Bruce was just this rumpled mess.”

  As their fame grew, Wasserstein turned to Maher so often for advice on personnel and conflict-of-interest questions he took to calling him “Mr. Judgment.” For his part, Maher was one of the few at First Boston who could get away with shouting at Wasserstein. Colleagues remember Maher stomping out of Wasserstein’s office from time to time, shouting, “You asshole!” at the top of his lungs. No one could make Jim Maher madder than Bruce Wasserstein.

  For all Maher’s levelheadedness, Wasserstein never considered him a top-notch deal maker. To Wasserstein, Maher’s takeover tactics lacked decisiveness. Time was everything in big takeovers, yet he felt Maher hashed over strategies for hours, even days, before moving. So indecisive did Maher seem at times that, behind his back, Wasserstein and the others called him “Hamlet.”

  It was inevitable that Wasserstein and Perella’s success would lead the pair into conflict with First Boston’s management. First Boston was headed by Peter Buchanan, a no-nonsense former trader who drove a station wagon and had lived in the same New Jersey house for twenty years. Many felt Buchanan had a hard time understanding Wasserstein and Perella’s fast-track world of Porsches and mansions in the Hamptons. By the summer of 1987, Wasserstein believed, with some justification, that he and Perella were First Boston’s most important assets. When Wasserstein pushed for First Boston to channel its efforts away from trading and into his merchant-banking domain, he ignited a powder keg. After an initial blowup with Buchanan and other senior managers, Wasserstein and Perella were, by fall of 1987, mulling the possibility of leaving. It was assumed their inner circle would follow.

  With Perella pushing the idea and Wasserstein astride the fence, Maher became the leading voice against their departure. All winter he argued that Wasserstein owed it to himself, and to the investment bankers he had recruited, to stay the course. Privately, he feared Wasserstein wouldn’t take the time to properly administer a new firm. Maher also suspected that other members of The Group who didn’t have First Boston’s best interests in mind—Tom Hill and Eric Gleacher—were encouraging Wasserstein to make the break. A weakened First Boston, Maher knew, presented tremendous opportunities for its competitors.

  For Wasserstein the final straw came in January 1988, when Buchanan, revealing the results of a lengthy policy review, declared there would be no shift in the firm’s direction. Disgusted, he and Perella made up their minds to leave. For Maher the end came at a Japanese restaurant. Wasserstein and his closest advisers sat for hours debating the pros and cons of setting up their own firm when it happened. Wasserstein drew a line in the sand. “We’ve got to make a decision,” he said. “Who’s in?”

  One by one, Perella, a bearded deal maker named Bill Lambert, and the circle’s fifth member, Chuck Ward, threw in their lots with Wasserstein and the new firm.

  Maher didn’t pause. “I’m out.” He hoped his resistance would dampen Wasserstein’s enthusiasm for the idea. It didn’t.

  “Well,” Wasserstein said, after more discussion, “we’re going off to get a drink and talk about this.” Nobody said anything, but it was clear Maher wasn’t invited.

  “Well,” Maher said, “keep me informed.”

  “Well,” Wasserstein responded. “You’re out of it.” The words stung like a slap. It was as if eleven years of friendship had been forgotten. It was exactly the kind of thing Maher had come to expect from Wasserstein, a painful example of why he wouldn’t follow the two stars into a small firm. Maher would stew over the remark for months to come. “A typical Brucian move,” he would term it later.

  Chuck Ward had tried one last argument to persuade Maher. “You got to come with us,” he had argued, only half in jest. “You’re the only one around here who can control Bruce.”

  When Wasserstein and Perella handed in their resignations that February morning, Maher sat in his forty-third-floor office cleaning out his desk. If Maher wouldn’t start anew with his friends, neither did he have any interest in picking up the pieces they left behind. First Boston’s merger effort was Wasserstein and Perella. It was nothing before they arrived. And when they left, Maher feared, it would be nothing again. Maher didn’t know what he would do. But he couldn’t stay around these offices any longer.

  Maher was pondering a resignation letter when Pete Buchanan called. First Boston’s chief came right to the point: He wanted Maher to take Wasserstein’s place and lead the firm’s investment-banking arm, including the merger department. Buchanan pushed all the right buttons, appealing to Maher’s loyalty and to his guilt at leaving behind aimless colleagues. Maher thought it over for a couple of hours. All around him, chaos reigned as news of Wasserstein and Perella’s departure spread; he had to move fast to prevent permanent damage. He called his wife. Then, taking a deep breath, he accepted Buchanan’s offer.

  It had been worse than Maher dared fear. Immediately, more than a dozen of First Boston’s leading deal makers followed their mentors
to their new firm. Every day for weeks, it seemed, another of Maher’s friends walked into his office, resignation in hand. It amounted to a full-scale assault on the department they had built over the last decade. Maher fought back with the usual office morale builders: Friday afternoon beer-and-pretzel parties, scattered pep talks, T-shirts. (“Just say no” to Wasserstein Perella & Co.) For weeks he worked eighteen-hour days, pleading with veteran bankers and young stars not to abandon ship.

  Even as Maher battled on that front, Wasserstein laid siege to First Boston’s gilded client list. Many hired his new firm, including Time Inc. and investor Ronald Perelman. Gleacher and Hill offered their condolences even as their aides phoned Maher’s bankers with job offers and sought his biggest clients with predictions of First Boston’s impending decline.

  It was inevitable that the turmoil at First Boston would take its toll on the firm’s performance in a hectic merger season. In an odd way, it had initially worked to Maher’s advantage. He was wounded badly enough, competitors reasoned, to do something desperate, a possibility that had to be factored into any confrontation with a First Boston client. Tom Hill knew it. Shearson’s merger chief, representing Black & Decker in a hostile tender offer for American Standard that spring, had been surprised to find Maher leading a last-minute rescue mission. A First Boston client, Kelso & Co., topped the Black & Decker offer and agreed to acquire American Standard. Hill’s client had to decide whether to fight or retreat. “Knowing Jimmy’s problems, it was clear to me they would stay with it,” Hill said. “The deal meant an awful lot to First Boston.” After sizing up Maher’s resolve, Hill advised his client to bow out of the bidding. For Maher’s shell-shocked troops, it was the first tangible sign there might be life after Wasserstein.

  First Boston hadn’t fared so well in other fights. Maher’s Chicago office threw up defenses for an Illinois grain company, Staley Continental, only to see them quickly battered down by a British suitor’s hostile bid. One crisis followed another: In June, Maher’s entire LBO group quit to form its own firm.

  The low point was First Boston’s defense of one of its oldest clients, Koppers, that spring. Maher met Beazer’s tender offer, orchestrated by Tom Hill, with a spirited defense. His twenty-seven-year-old restructuring whiz, Brian Finn, pieced together a complex defense plan involving the sale of Koppers’ businesses to three separate companies. But Koppers’ board rejected the plan as too iffy, and caved in to its suitor.

  Each night Maher trudged home to his Riverside Drive apartment, exhausted. Few besides his wife and four children saw the signs of his strain. Through it all, Maher was outwardly calm. He remained the department’s most sought-after father-confessor, “the pier where everybody’s boat wanted to tie up,” as one friend put it.

  Sniping by his new competitors only made matters worse. Commenting on First Boston’s string of takeover losses, an anonymous Wasserstein aide told The Wall Street Journal that summer, “When we were there, you’d never see things like that…. But nobody at First Boston seems to care as long as the fees keep rolling in.” Maher exploded. His best friends were accusing him of selling out. A senior Maher aide, Kim Fennebresque, fired back. “Wasserstein Perella & Co., although a fine firm, is basically a one-product firm,” he told Investment Dealers Digest, suggesting that its thirty bankers worked to create “the impression that Bruce is really working on [all clients’] deals.” (Fennebresque knew the term fine firm would rankle the Wasserstein contingent. “In investment banking,” he explained, “that’s like saying she doesn’t sweat much for a fat girl.”) For his comments, First Boston colleagues pounded Fennebresque on the back as if he had made a last-minute touchdown.

  The response to Fennebresque’s remarks was immediate. Maher fielded a call from irate Wasserstein aide Chuck Ward. “Can’t you control your own people?” Ward demanded.

  And so it went. At one point, a bogus memo to First Boston’s junior bankers, purportedly from Wasserstein Perella’s Ward, circulated at First Boston. Laced with sarcasm, its clear intent was to persuade First Boston bankers not to defect to the new firm. “There are lots of important bags to carry over here and not many bag carriers to go around,” the memo said, adding that applicants were advised to bring along mouthwash, knee pads, and Vaseline. “If you need to ask why,” it continued, “you haven’t figured out how things work around here.”

  By fall, while First Boston could point to continued lofty rankings among Wall Street merger advisers, morale was sinking. To fatalists First Boston remained an embittered polyglot of Wasserstein castoffs, a group of second teamers destined to sink to Wall Street’s lower tiers. Seven months after its founders’ departure, the department’s pipeline of deals-in-the-works was drying up, and competition for new business meant daily combat with the emerging clout of Wasserstein Perella.

  Fennebresque, the thirty-seven-year-old banker in charge of attracting new business, became one of Maher’s closest confidants. A glib, Waspy lawyer, Fennebresque’s impish sense of humor served as a counterweight to Maher’s sternness. By fall Fennebresque felt the department had become “a rudderless ship.” “There had to be a chance for us to do something dramatic,” Fennebresque recalled. “Our captain hadn’t encountered rough seas yet. There was concern whether we had the depth we needed.”

  Then on October 17 came the stiffest blow to First Boston’s merger effort since announcement of Wasserstein’s departure. Philip Morris’s $11 billion tender offer for Kraft, the largest offer of its kind in history, not only startled the corporate world. In choosing Wasserstein Perella as its sole adviser, Philip Morris also landed a haymaker to the jaw of its former banker, First Boston.

  Jim Maher was in his office interviewing a job candidate a few minutes before six o’clock that afternoon when a headline crawling across the computer screen beside his desk caught his eye.

  “PHILIP MORRIS LAUNCHES BID FOR…,” the Dow Jones News Service headline paused.

  “Oh, no,” Maher said to himself. “Oh no…Oh no…” For several paralyzing moments, his eyes riveted to the screen, Maher prayed the headline signaled only a minor acquisition.

  Then came the full headline: “PHILIP MORRIS LAUNCHES BID FOR KRAFT.”

  “Oh…fuck.”

  The pain Maher felt was more than knowing First Boston was being excluded from history’s largest unfriendly transaction. It was more than being upstaged for the umpteenth time by Wasserstein. To Maher Philip Morris’s rejection of First Boston was an acute, personal insult: The tobacco giant was his account. Maher had personally overseen Philip Morris’s 1985 acquisition of General Foods. As it sunk in that Wasserstein had snatched one of his largest clients, Maher knew he had only himself to blame. He had worked so hard to keep the department together he had neglected his other responsibilities. It was a body blow to the entire department, a reminder that First Boston could no longer count on its best clients for business.

  Maher dialed Ehud Houminer, a top Philip Morris executive he knew well. He strained to hold his temper. “Ehud, you know, this is a real kick in the balls.” Houminer made soothing noises but offered no promise of future work. It was the same with every Philip Morris executive Maher called that week.

  When news of Ross Johnson’s $75-a-share proposal inched down his computer screen, Fennebresque thought for a moment it was a typographical error. His mind flashed to the young computer genius in the movie War Games. A crazed hacker has invaded my Quotron. This can’t be real.

  Maher immediately convened a meeting to draw up an attack plan. Like every other investment bank on Wall Street, First Boston aimed to get a piece of the action, most likely by representing the special committee or a buyer for a major product line. Anything, in short, that might produce a fee.

  Over the next few days, hundreds of calls were placed to potential buyers of RJR Nabisco assets. At first Maher didn’t worry that First Boston was left out of the mounting drama. Something was bound to break. RJR seemed so big that dozens of companies would hire investment
banks to analyze acquisition strategies. Rolling up his sleeves and chain-smoking Marlboros, Maher hit the phones.

  He first checked to see if First Boston might represent RJR’s board, but Lazard and Dillon had already been hired. He called Tom Hill. Did Shearson need more capital for their buyout? Hill said no. Maher called Ted Forstmann and Geoff Boisi. Neither man offered encouragement. Door after door slammed in Maher’s face.

  The day after Johnson’s announcement, some of Maher’s old hands were already grumbling. Late Friday afternoon, Gary Swenson wandered into Fennebresque’s office. Swenson was a twenty-year First Boston veteran with a Midwestern sobriety that Fennebresque, a Long Islander, found irresistible.

  “You know, we’re missing the goddamn boat on this deal,” Swenson said.

  “What do you mean?” Fennebresque asked.

  “Everybody on Wall Street has a horse in this thing except us. We’re the only ones not involved. We’re getting passed by, I tell you. I know what we need to do. Let’s put a group together and do it ourselves. Buy the whole thing. It’s just what this place needs. It could really turn this place around.”

  At first Fennebresque dismissed the idea. It was just too big, too crazy. But as Swenson talked, Fennebresque found his enthusiasm catching. He called in several bankers, including David Batten, a veteran First Boston executive ending his first week in a new post in the merger department.

  Batten shared Swenson’s concerns. Arriving four days earlier from the firm’s London office, he recalled finding “a palpable lack of self-confidence in the air.” Batten told his colleagues, “What this place really needs is a shot in the arm. Goddamn it, we’re still at the top of the heap. We can accomplish as much as anyone.”

  The group brainstormed in Fennebresque’s office. First Boston could call in its Swiss affiliate Credit Suisse, they reasoned, and the two firms’ London joint venture. Together the three firms could canvas the globe looking for money and assemble a bidding group. They owed it to themselves to try.