by David Lender
Croonquist got off the elevator on the 47th floor of the GM building. The receptionist at Surrey Capital Management’s offices looked like a model on the cover of Vogue. Only in New York. She smiled like she was posing, head cocked to the side.
“Mr. Croonquist?” she said.
“I must have that rumpled public servant look about me.”
“Not at all, Mr. Croonquist. Jamie said to expect you at noon, and that you were always punctual.” She looked over at her computer monitor. “You’re two minutes early.”
Croonquist smiled and shrugged.
She walked him into the center of the office, which was a single trading floor that took up a full third of the building’s footprint. They entered a series of trading stations arranged in concentric circles around a single circular desk raised slightly above them. Croonquist felt cool air from the floor. He knew from prior visits the floor was raised to accommodate the myriad wires and communications cables running underneath the panels, chilled to help dissipate the heat emanating from all of the computer and communications technology in the room.
Croonquist guessed 60 people sat in the trading stations positioned in the circles around the center desk, all in front of multiple LCD screens. Most wore headsets with microphones. Their voices blurred together into a monotone buzz.
Jamie Swift, the founder and manager of Surrey’s $15 billion in hedge funds, smiled at Croonquist from the center desk, where he presided over the rocket scientists who worked for him. As he approached Swift, Croonquist felt more cool air cascading down from the ceiling. He smelled nothing. He recalled that one of Swift’s rules was no perfumes or colognes: nothing to interfere with the ozone-charged air, designed to enhance creativity and a positive outlook.
“Roman,” was all Swift said, standing and shaking hands. He motioned for Croonquist to sit across from him, then sat and said, “Great to see you. Whatcha got?” No extended pleasantries, right to it. Croonquist had known Swift for over 15 years and it was always the same.
“Something, I think. But I hope you can tell me for sure.”
“Okay, lemme take a look,” Swift said, reaching across for the papers Croonquist pulled out of his briefcase. Swift flipped pages for a few moments. “These must be code names.”
“Of course. But can you figure out what they’re doing without knowing the company names?”
“Yup. They put on a colossal bearish macro sector put trade with a long stock hedge. They’re real gamblers.”
“Care to put that in English?”
Swift laughed. “Somebody made a huge short bet that the stocks in a single industry would all decline.”
“Yeah, that really clears it up for me.”
“Okay, these guys placed a couple billion dollar wager the stocks in this industry would drop—fast, and made three hundred million or so in profits by the time they unwound the trades.”
“How did they do it?”
“They bought puts—options to sell the industry companies’ stocks, which increase in value when the stocks drop—and simultaneously bought the stocks, to moderate their loss if they were wrong and the industry’s stocks went up. A hedged bet with a major downside bias.”
Croonquist slid a piece of paper across the table with the real names of the homebuilding companies on it.
Swift smiled. “Of course, the homebuilders.” He flipped back through the first pages Croonquist had given him, then looked back up at Croonquist. “The instant Milner’s IPO of Southwest Homes was announced, the rest of the homebuilding sector traded down 10%—because a lotta money managers sold off their homebuilding stock positions in anticipation of buying Southwest’s stock once it became publicly traded.”
“What are you saying?”
“Somebody knew in advance about Milner’s IPO of Southwest and anticipated the market’s reaction. Either that or they’re geniuses and guessed that the housing bubble was getting ready to pop, and that the homebuilding stocks would tank.”
“What do you think?”
“A short bet this big on an industry sector as hot as the homebuilders were a month ago? Nobody’s that smart. I’d say somebody’s a crook.”
Now Swift was talking a language Croonquist understood.
Richard buzzed for entry at the door into the sealed-off Mergers and Acquisitions Department. Cynthia Jackson, the administrative head of the department, waited for him on the other side. She ushered him into the windowless conference room.
“May I see your ID, please?” she said.
“Cynthia, we’ve ridden the elevator together for four months. You know who I am.”
“Do I look like I’m kidding?” She recorded Richard’s employee ID number into a loose-leaf notebook, opened it and pushed it in front of him on the conference table. “Okay, Richard this is serious. This is the M&A Department Security Procedures Manual. I need you to read it before you do anything else, even if it takes you all morning. Sign both copies of the form at the front, give one to me and retain the other and the manual for your records. Don’t sign the Consent and Waiver of Injunctive Relief unless you fully understand and agree to be bound by the rules of the manual and the applicable Securities and Exchange Commission statutes summarized in it. If you need any clarifications, we’ll get you a full text, and we can have the General Counsel of the firm explain them to you in detail. I’ll leave you alone now to read.”
Remind me to stay the hell outta your way. She walked out and closed the door. Richard skimmed through the table of contents. Topics like Confidentiality, Persons with a Need to Know, Document Shredding Procedures, and so on. A section had sample questions and answers regarding preserving confidentiality of inside information on pending merger and acquisition transactions. He signed the forms and called Cynthia.
“I meant it when I said read it,” she said.
He read through it. He recalled being fingerprinted on his first day of work, like everybody else in the securities business, and felt an ominous rumbling in his stomach when he read the waivers of rights that he would be signing. They meant if he screwed up he was on his own. They included signing away his right to being represented by Walker & Company’s legal counsel, and his right to enjoin the firm from testifying against him if he broke the securities laws, particularly for insider trading. He called Cynthia back about 45 minutes later. Cynthia then led him, smiling now for the first time, from door to door of the glass-walled offices of the Managing Directors and Vice Presidents around the periphery of the department, introducing him. Then the rows of movable office partitions that made up the cubicles of the Associates and Analysts. He felt a smile cross his face; hell, he felt it down in his groin and creep upward all the way up to his chest.
She walked him into another windowless conference area. “This is the War Room. The Comm Room in the Corporate Finance Department was the original version of this. As you can see we’ve got much more high-tech stuff in here now.” The War Room was a buzz of activity. The Dow Jones and NASDAQ tickers streamed across the far wall. A row of flat panel plasmas tuned in CNBC, Bloomberg, CNN and a few foreign news channels. Two rows of desks in the center of the room sported flat-panel LCD screens, rows of tickers and trades blinking on them, Associates and Analysts hunched in front of half of them, punching keyboards. A shredder stood in the corner, scraps of paper near it proving it actually got used. A team headed by François LeClaire reacted to some news story impacting their deal.
After Richard was introduced to the rest of the department at the following morning’s 8:30 a.m. departmental meeting, he followed François LeClaire to his office for his first deal assignment. Richard had learned a lot about LeClaire since his screening interview back in March. Ecole Poly technique, where he got his undergraduate engineering degree, was France’s equivalent of MIT, Harvard and Stanford combined. It was regarded as the premier engineering school in the world. He’d then immediately gone to work for GCG. GCG soon saw his potential and sent him to Harvard Business School, then injected him
into GCG’s new investment, Walker & Company. Ron Elman, the firm’s resident genius buffoon, said the combination of LeClaire’s technical education at quant-jock Polytechnique, overlaid with the all-case-study, touchy-feely teaching method at Harvard, had left LeClaire permanently confused. “So he’s syncopated,” Elman said, referring to LeClaire’s accent. “Puts the emphasis on the wrong syl-la-ble. Ha-ha-ha-ha.” LeClaire was now a respected Senior Vice President. He was feared by the Associates. White-hot smart. Richard told himself to be careful, remembering LeClaire grilling him in his interview.
Larry Nivens, a Managing Director in M&A, lounged on the sofa in LeClaire’s office when they entered. “How’re Elaine and the kids?” Nivens asked.
LeClaire’s face softened. He cooed. “Wonderful,” he said. His round face beamed the words. His eyes were wide and his mouth open like a child’s. “Absolutely wonderful. At least that’s how Chloe would say it.” His thick accent strained Richard’s ears.
“How old now?”
“Nineteen months.”
“Well, I can see you’re busy,” Nivens said, getting up. “Welcome to the department, Richard,” he said as he left.
LeClaire sat down behind his desk, motioning for Richard to sit in the chair in front. Richard’s stomach tightened, watching as the softness in LeClaire’s face disappeared, angular lines showing as he set his jaw. Here it comes.
Then LeClaire smiled. “I have good news, young man.”
Young man. Funny. He remembered that from their interview. LeClaire couldn’t have been more than six or seven years older than Richard.
LeClaire went on, “We are heading uptown to meet with Harold Milner at two o’clock.” He looked at a pile of documents lined up perfectly on the left side of his desk, then another on the right. All was exacting order. Richard could see a pad in the uncluttered center of his desk with neatly scrolled words and figures on it, like mathematical equations. And a few structural drawings with arrows and boxes, like physicists’ renderings. LeClaire reached to the pile on his right, grabbed a document from about halfway down, then lined up the pile again. He handed the document to Richard. “Read the Tentron Corporation Annual Report later. Now swing your chair around here and I will show you what we are up to. This should be a fun day.” The corners of LeClaire’s eyes turned up as he smiled. His face softened again like it had when he mimicked his daughter. He waved Richard in close to his elbow as he slid the pad to the corner of his desk. He pulled a pencil from the holder containing a bunch of sharpened #2s.
Not a bad start, at the elbow of the firm’s rocket scientist. It was a helluva contrast to his first days getting slapped around by Jeannie Peters and George Cole. LeClaire was actually showing him something, and enjoying it.
Richard and LeClaire got out of a taxi on 45th Street in front of the Helmsley Building. Richard could see the expanse of Park Avenue and the core business district of Manhattan running north through the building’s gilded lobby, and through the arches of the eastern and western pedestrian walkways on either side. He looked up above them at the elevated highways that channeled traffic around Grand Central and into and out of the arches through the Helmsley building, then spilled cars out onto Park Avenue. He took in the sound of horns honking, the smell of diesel exhaust, the feeling of the rumble of Grand Central trains beneath the pavement.
Standing between the yin and yang of New York power. Richard looked up at the stone gargoyles surrounding the spire of the Helmsley Building. And Harold Milner up there, on top of them both.
When they arrived at the penthouse floor, Richard saw from the open lobby that the entire floor belonged to Milner. Smoked-glass-walled offices covered three sides. Northern Manhattan up Park Avenue streamed in through clear glass on the northern quadrant. Milner’s office and conference room were on a mezzanine level, taking up the whole northern wall of the penthouse. The penthouse had double-floor-height ceilings, like Richard had read the earliest New York skyscrapers featured; this was originally the New York Central building, built by the railroad barons, the Vanderbilts. For the owner’s throne room.
LeClaire led Richard past Milner’s receptionist, who nodded with an air of recognition at LeClaire. Milner and Jack Grass reclined in living room furniture that occupied the initial few thousand square feet of the floor. Steinberg stood to the side, eyes blinking. That ever-present lazy way he had. Milner lounging with his geniuses, and Richard in the midst of them.
“I have to say, Mickey,” Milner was saying, “I really admire the Russians’ tube technology. I believe it’s now the best in the world. Their 6C33 power triode output tube used in the guidance system of the MIG 25 fighter plane is something you just have to hear in a really high-quality stereo amplifier.”
“Transistors trump tubes,” Steinberg said. “Tubes just don’t give you the precise resolution, soundstaging and deep bass of solid-state.”
“Maybe if you’re into technical perfection. Give me tubes’ palpable reality anytime.”
“An overly warm and colored reality.”
“If you ever heard the 6C33 in my old Macintosh monoblock amps over there, the question would be resolved forever. I have just that much respect for your listening sensitivity.” Milner winked at Steinberg. “But the things are just damned hard to come by, and one of my last matched pair just blew out.”
“So get yourself a pair of Krell amps and find out what real music sounds like.”
LeClaire and Richard waited until Steinberg finished his sentence, then walked up. Butterflies now in Richard’s stomach like before a high school track meet. He felt his shoulder tug like the pitch books in his briefcase were an atom bomb.
“Characteristically punctual,” Milner said, turning to look at LeClaire.
“I do not wish to keep our most important client waiting,” LeClaire said, shaking hands with Milner. That syncopated French accent. “Hello, my friend,” LeClaire said warmly.
“Hello, Francois,” Milner said. “Always great to see you. And you, Richard,” he said, shaking hands with him, “good to see you again. Still enjoying the music I gave you?” That big, warm paw of Milner’s enveloping Richard’s hand, now familiar.
“Yes, I’m a convert to lossless encoding.”
“Jeez, another one,” Jack said under his breath. He stood up. “Let’s get to work,” he said and motioned toward Milner’s mezzanine office.
Milner led them upstairs. Milner had half a dozen wellthumbed manila folders and a few 10-Ks on his conference table. He seemed to have done most of his own research on a handwritten spreadsheet with penciled notations. Richard took a seat at the far end of the table, thinking to keep a low profile, but Milner sat at the end next to him. LeClaire took them all through his pitch book, Richard following along as he went. Richard kept his head down early on, like in class when you didn’t want to risk getting called on because you hadn’t read the assignment. Most of it was standard stuff he’d seen before: valuation numbers and ratios he’d crunched for Jeannie Peters and George Cole. He figured he could get up to speed quickly. He knew he’d be doing lots of them. The guts of the meeting only took about 20 minutes. Jack threw out some crude concepts after LeClaire finished going through the book, Milner threw them back, and then Steinberg and LeClaire exchanged some stuff that Richard found incomprehensible. Richard did his best to take notes.
At one point Milner saw Richard looking sideways at his onepage spreadsheet. Jack, LeClaire and Steinberg were engrossed in some penned manipulations LeClaire was creating in front of him on his pad.
“This is all I need. My map of reality,” Milner said. “If I can’t get it on one page, it’s not worth doing, because I can’t keep it framed in my head.”
When it was over, Milner pushed back his chair and said, “So, Richard, what do you think?” He leaned on the table and cupped a hand over his mouth.
Not like he was trying to put Richard on the spot, at least Richard didn’t think so. Richard smiled.
“I’m new at this,
Harold. It’s my first day in the M&A department. I’ve only read the Tentron annual report, carried the pitch books and sat in here.”
“So, you must have some impressions.”
Richard was afraid if he looked down the table at the others he might get a twitch of nerves. He didn’t want to embarrass himself. But he felt comfortable with Milner, always had since the beginning. He said, “I don’t know much about turbinedriven generators, but I do think that Nick Williams’s CEO letter to shareholders in this year’s annual report was a little cocky on their developments in that area this year, especially since they’ve got a number-three market share. I think the guy’s got a big ego, and he’ll likely put up a fight.”
“Not a bad insight,” Milner said. “And?” Milner was smiling with his eyes, his hand cupped over his mouth again.
“You could probably take the same approach you did with Berkshire United. Borrow against the hard-asset businesses with asset-backed financing and sell the divisions you don’t want. That way maybe you get most of your investment back right away. As I recall on BU, you got more than your investment back after the sale of the unwanted businesses, so the whole deal was playing with other people’s money.”
Milner smiled, then looked down the table at Jack. Richard hoped Jack wasn’t rolling his eyes. “Any other observations?” Milner said to Richard.
Richard still resisted the urge to see what Jack’s reaction was, said, “Northern Ash baseball bats in the consumer subsidiary. They’re an American icon. Every kid in my, and probably your, generation grew up using them. They’re the second most popular bats in Major League Baseball. So from a PR standpoint it might be like attacking our national pastime, or worse, mom and apple pie, if you try a hostile takeover.”
Richard now glanced to the other end of the table. Jack was looking at him like he was from Mars, it seemed with some admiration. Steinberg was placid. LeClaire, sitting erect, was listening as if Richard were discoursing on a new physical property of argon gas.