Lupo crossed the Atlantic several times to meet with Drexel’s hotshot bankers. He had learned by then to use Hillblom strategically. The trick was to bring in his eccentric boss at the last possible moment. When Lupo eventually talked his way into a meeting with Drexel’s president, Fred Joseph, he finally summoned Hillblom to the company’s offices at 60 Broad Street, a generic steel-and-glass edifice two blocks from the New York Stock Exchange.
Like Fred Smith, Fred Joseph was handsome and Ivy League–educated and had served in Vietnam. He was also fond of suits and was leading by far the hottest company in his industry. “He was a very impressive guy,” Lupo recalls, ignoring the ominous. “We said, ‘We want to buy Flying Tigers.’ And we worked hard on it. But I think, basically, the DHL structure was too fragmented, and our airline was too puny and our capitalization was too thin to really give Drexel the comfort they needed that we could launch any kind of takeover.”
So Lupo traveled the short distance to Greenwich, Connecticut, and pitched a novel idea to executives of the only remaining merger possibility: United Parcel Service. Lupo suggested that DHL and UPS merge and then the combined entity would buy Flying Tigers. “That was just a knockout strategy,” Lupo says, and beams, “because we had the international market. UPS controlled the domestic market, where we were very weak. Neither of us had an airline of any substance. UPS was just starting theirs. We were just starting ours. Ours was rubbish. Theirs was very good but still old aircraft. Route authorities were difficult, particularly international. And then you’d put the FT airline, freight, on top of that, and then UPS would generate small package traffic. We would have delivered the packages internationally. I’m telling you, it would have been huge. In fact, had that occurred, I would question whether there would be a Federal Express outside the U.S. today. It was really a knockout.”
But Lupo could not close the deal. A year later, a UPS vice president suggested a straight buyout of DHL. The courting phase lasted several years. “They just kept putting us through one hoop after another,” Lupo groans. “We kept trying to dance and basically got slate. [Now] UPS is basically saying, ‘Well, we’re going to do our own thing internationally.’ So, as these things happen, you get more and more disenchanted with the prospect of doing anything, and so there came a time when I just said, ‘We’re out of here.’”
With the last of DHL’s potential partners out of the picture, and DHL’s reputation sullied, Lupo confronted a frustrated Hillblom and his angry partners. Some of the original station owners had waited nineteen years to be rewarded for their hard work and sacrifice. They’d watched the company grow exponentially, but most of them had only unimpressive paycheck stubs to show for it. Thanks to restrictive covenants, they could unload their shares only to another shareholder, and for far less than they were probably worth. One of the shareholders had designed his dream house, anticipating that UPS would buy DHL, and now lived in the garage—the only part of the home he could afford to build. Meanwhile, he and his fellow shareholders had witnessed Hillblom’s escape to a tropical island where he now owned an airline and a smattering of smaller businesses. When one of DHL’s bankers told Lupo that the company had outgrown its shareholders, he knew the man was right. But there was nothing that anyone could do without bloody Hillblom’s approval, and Hillblom had other things on his mind.
Twenty-Three
The Spy
When the young U.S. Navy JAG lawyer Howard Hills found out that Larry Hillblom was coming to New York City in the summer of 1987, he immediately asked his superiors for permission to interview him. Hills, a tall, blond surfer from Laguna Beach, California, said he wanted to discuss Hillblom’s relentless opposition to terminating the Trust Territory, but he had a personal fascination with the man who was showing up at Trustee Council and Congressional hearings on a regular basis. They had even chatted a few times in the hallway of the Capitol. “His arguments were very good,” the still rather intense Hills tells me, “but his personal presentation cut both ways. He would show up in Congressional meetings or UN receptions wearing sandals, shorts, and a plain white T-shirt that was dirty! Sometimes he would wear jeans and an aloha shirt [where] everyone else was wearing suits. And I envied Larry because I’m a beach guy!”
Permission to interview Micronesia’s chief gadfly was granted, mainly because the State Department had no idea how to handle Larry Hillblom. The JAG lawyer was hardly intimidated by his eccentric reputation, however. In every island group, Hills explains, there were a few Americans who had risen to a certain level of political influence. “There were always several people,” he remembers, “who found their way out there and looked around and said, ‘Wow. This is like the Wild West. This is like being in Dodge City or Keystone, Arizona. This is out here on the frontier.’ You always tended to attract Americans who were eccentric but who were very smart people. They tended to be able to give the U.S. government a run for its money.”
Larry certainly fit that bill. Not only was he connecting the dots of Micronesia’s four nations, befriending politicians and local businessmen alike, but he had run for Congress in the CNMI and had just purchased the Marshallese ambassadorship to Vietnam for $25,000. As an unofficial lobbyist, Hillblom was now helping Palau negotiate more foreign aid from the United States, and he was also arguing against the termination of the UN Trust Territory with respect to the CNMI, which still lacked the required consent of the UN Security Council. Hills wanted to know Hillblom’s motives: Was he just trying to protect his tax cut? Keep his tax returns confidential? Was he an egomaniac? Or did he just enjoy fucking with them?
He showed up at Hillblom’s hotel in Manhattan on a warm summer night. During the short walk to the Japanese restaurant that Hillblom suggested, the two young men tried to stake out some common ground: the possible fallout of the Iran-Contra affair that had embroiled Ronald Reagan’s White House, their favorite beaches in Micronesia, etc. Once they sat down at a small table and ordered sushi and beers, however, the conversation turned to business: Hillblom’s opposition to the termination of the Trust Territory.
“I started talking about how I saw the self-determination process and the Trust Territory system,” Hills recalls. “I basically told him that I thought that the U.S. had a very dysfunctional territorial policy and law in practice and that I thought free association was probably a better way for the U.S. to go and for the islands to go, and I found that it was interesting that the CNMI had chosen territorial status.”
“The decision to go for Commonwealth status was not territorial,” Hillblom interrupted.
Hills shook his head. “I think all of the history of the Covenant establishes that it’s under the territorial clause of Congress,” he shot back. “Any special rights are statutory and therefore under the authority of Congress.”
“Under the Covenant,” Hillblom said firmly, “the territorial clause does not apply to the CNMI.”
“Well,” Hills finally said, “let’s agree to disagree.”
Hillblom nodded. Then he launched into an analysis of the ways in which the territorial clause might apply to the CNMI after all. The Covenant, he offered, had created an ambiguous legal situation and that would have to be determined going forward.
Hills tried and ice-breaker: the Territorial Clause issue was irrelevant, anyway. The CNMI, he told Hillblom, was not going to achieve the status that they wanted to achieve in any event. It wasn’t just a matter of getting the United States to agree with them, but of the islanders ultimately getting what they wanted. Termination was a good thing, he argued, because it was based on principles. It was not just a ploy by the United States to create a new colony. The Covenant, after all, allowed people to debate whether or not the Territorial Clause applied. Any disagreement would therefore be best fought out in the context of the new status. And the islanders had a lot more leverage to negotiate their rights as U.S. citizens rather than as wards of the UN Trust Territory.
Hillblom fell silent for several moments. “I’ve never ta
lked to anyone who’d explained this to me as clearly as you’ve explained it to me,” he finally said. “And I can see that there are principles in your policy and that it has a positive agenda. But, I think now more than ever, I realize that I have to do everything I can to prevent termination of the trusteeship.”
Hills was shocked. He thought he’d made Hillblom see the light but now the opposite seemed true. “Why?” he blurted.
“Because,” Hillblom replied, “I don’t think the U.S. is capable of acting in a moral manner toward the Mariana Islands without UN oversight.”
“That’s interesting,” Hills replied, a little flush, “because the UN and the Trusteeship Council had oversight when the U.S. conducted sixty-seven nuclear tests in the Marshall Islands and the Security Council and the Trusteeship Council had the ability to exercise their authority but they acquiesced. So it wasn’t just the U.S. who conducted the nuclear tests; it was the UN. And although there were later a lot of questions and concerns, the UN regime that was in place facilitated the nuclear testing program. And if you believe, as I do, that that was, in terms of the impact on the people on the islands, lamentable,” he continued, “then it doesn’t really sustain the view that the UN makes the U.S. more moral.”
Hills tried once more to make Hillblom get it—that keeping the trusteeship in place just allowed Congress to lord it over the islanders and fail to educate them—treat them as subjects instead of citizens. Why not, he implored, bring U.S. law to the Marianas and end what was essentially military rule?
“Because,” Hillblom replied calmly, “withholding termination of the Trust Territory gives the Marianas more leverage in dealing with the U.S. government.”
“But the Trust Territory is okay to the U.S. because it gives the U.S. everything it wants! The new structure will introduce limited government. In the end, the U.S. has disproportionate bargaining power. I think you increase their bargaining power by moving to the new status.”
“That is what’s going to happen,” Hillblom allowed, “but for now, I think the smart move for the CNMI is to slow it down and keep the UN involved.”
The young JAG officer had now exhausted his arguments—legal, political, even moral. Only after returning to his own hotel that night would he realize that that’s exactly what Hillblom had wanted all along, to draw all of the government’s potential arguments out of him. Hills had hoped to pick Hillblom’s brain; instead, it was Hillblom who’d cleaned up.
But Hills had a feeling that, for Hillblom, this wasn’t about the Marianas or about the UN or about the Trust Territory. Becoming a linchpin made him a much more important person. And not having the Trust Territory terminate must do something for him business-wise, though what that might be Hills had no idea. How else to explain that his appeals to Hillblom’s sense of history and his commitment to democracy and self-government had been so totally ineffective, if not counterproductive?
When Hillblom returned to Saipan, he told his friends that the United States had sent a psychoanalyst posing as a government attorney to size him up over dinner, but that once he had realized what was happening, he’d stormed out.
The former JAG officer enjoys a laugh when I mention Hillblom’s version of events. “As I recall,” he says, “we parted amicably. It wasn’t an official assignment or information-gathering mission. No one had briefed me on him. I just saw him as one more of a long parade of eccentric and interesting people who tended to be the Americans out on the islands.”
Twenty-Four
Polar Bear
In an ambitious bid to become a global air freight carrier, Federal Express Inc. agreed today to pay $880 million to buy Tiger International Inc., parent of the Flying Tiger Line, the world’s largest air cargo carrier.
—The New York Times, December 17, 1988
The brief New York Times article datelined December 17, 1988, announcing Federal Express’s purchase of Flying Tigers might well have doubled as DHL’s eulogy. “It was pretty bleak,” Patrick Lupo admits. Compounding the sense of doom at DHL’s headquarters in Brussels, the U.S. company’s latest president, a food service executive named Charlie Lynch, had recently jumped ship to join a private equity firm, and Lupo had just fired DHL’s European chief for not making his numbers. Meanwhile, FedEx had begun testing the Japanese market by flying to Tokyo under a limited route authority—something that both UPS and DHL had applied for, and lost. “Geez,” Lupo said to Larry during one of their weekly phone calls, “you lose Japan and then what happens next?”
They both knew the answer. Whether or not Larry was willing to do what was necessary to save the company, however, was another question. When Lupo had lined up a major new investor not long before, Hillblom had sabotaged the deal by failing to show up at a key meeting—probably, Lupo had assumed, because Larry was not yet ready to give up control. DHL had outgrown its major shareholder, but Hillblom wasn’t going to relinquish the strings unless he got what he wanted. And, unbeknownst to anyone besides a few childhood friends and Carla, what Hillblom wanted more than anything was a deal that would make him a billionaire.
So Lupo focused on the near impossible task of making the hodgepodge of more than one hundred companies that Hillblom had strung together in a tangle of cross-ownership and nominees palatable to Wall Street. Lupo had sold Cocos Island and a number of Larry’s other hobbies long ago. He had hired an investment banker from a major New York firm to put the books in order. And DHL itself had already met two crucial goals: expanding the network to more than two hundred countries and stabilizing the technology platforms that would make further growth possible—and none too soon. Documents been had only the crest of a tsunami that DHL had ridden to unimaginable growth. Now there was the inkling of another wave, parcels and cargo, forming behind it. Thanks to the popularity of Japanese electronics like Sony’s Walkman and just-in-time inventory practices that required express shipping and logistics, DHL was once again in the right place at exactly the right moment. But Lupo needed long-haul airplanes and transcontinental route authorities—or the money to buy them.
In Asia, Hillblom may have seemed inert, but paranoia was still his most reliable ally. He had always made the big decisions when he sensed that DHL’s survival was at stake. On golf courses in Micronesia and Japan, Hillblom now discussed the idea of a strategic alliance with executives of Japan Airlines, one of DHL’s major suppliers. Within a couple of months, he’d negotiated a deal to sell one quarter of the company to JAL and an affiliate company called Nissho Iwai. The deal valued the entire DHL network at half a billion dollars—enough to make Hillblom easily one of the wealthiest men in America, if still a ways from making him a billionaire. More important, from Lupo’s perspective, is that DHL would leapfrog Federal Express and gain respect. “There was a huge credibility [in having] the biggest airline in Asia,” Lupo recalls. “Otherwise, we would have had to acquire the large aircraft. Instead, we used the belly of the JAL planes and concentrated on the hub and spokes.” Unlike Federal, which would have to max out Flying Tigers’ 747s with small packages in order to be cost-effective, DHL could send packages virtually anywhere in Asia in virtually any quantity at virtually any moment. By flying its own long-haul airplanes, FedEx was guaranteed to create bottlenecks for itself at customs. By using commercial airlines’ cargo space, DHL’s package flow would be far smoother and less prone to delay.
Hillblom signing the deal that made him one of the world’s richest men. Pat Lupo is on his right. Peter Donnici stands behind him. (Courtesy of L. Patrick Lupo)
But once again, Hillblom swooped in with the grand idea and left it to others to execute. As a small army of attorneys from JAL and Nissho Iwai suddenly invaded DHL’s headquarters in Brussels to do their due diligence, the company became overwhelmed. “Two things happened in one day,” Lupo sighs. “One is that the manager here rang and said that the lawyers wanted to see each and every lease for every vehicle we had in the UK. And we had over a thousand vehicles. . . . It was just stupid. It was lawyers
over-lawyering to generate big fees. Then, in the same day, one of their senior lawyers fronts up and says he wants to basically come into my office and go through all of my files. I said, ‘What are you looking for?’ And he said, ‘Nothing particularly. I just want to go through all of your files.’”
“You gotta be kidding me!” Lupo shot back. “I’m a lawyer; I’ve done due diligence. That’s not how you do diligence.”
“That’s how we do it,” the attorney replied. “We have an approach at our firm and our clients fully subscribe to it. It’s called ‘open kimono.’”
Lupo lost it. “I don’t care what y’all . . .” he growled. “Take that whole team of people and I want them out of the building now!”
A minute later, Lupo’s phone started ringing. “It was Larry’s partners,” he remembers. “They rang up and said, ‘This is tragic! This is terrible! All this work!’”
Lupo told them to forget it. He was putting his foot down. After seventeen years building DHL and defending Larry Hillblom’s company against attack from regulators and competitors, he wasn’t about to defend it from its owners. Only one shareholder agreed with him. “Larry supported me a hundred percent,” Lupo recalls. “He said, ‘Yeah, that’s just ridiculous. You don’t have to go through that.’”
King Larry Page 16