Dave Atkinson did most of the talking. Kavner had looked disinclined to stick with EO and GO at first, but when he had gone around the room polling his lieutenants, only one was in favor of working with Apple instead. Although Kavner had liked the idea of standing shoulder to shoulder with John Sculley at a public announcement, he knew that it was imprudent to overrule his advisors. In the end, he told them to proceed with the GO-EO merger, but to keep the door open to Apple. It was a wise move: soon afterward, Sculley left Apple.
“You did a good job lining up support in the ranks,” Atkinson said to Bill.
But that wasn’t all. There were a number of conditions, which Atkinson relayed to Bill as gently and sympathetically as possible. Kavner wasn’t willing to put up any more money, and when the merger was done, he still wanted voting control of the combined companies.
“What about the Taiwan investment?” Bill asked.
“We’re going to ask them to redirect that money into EO.”
“What does Warwick think about this?” Bill couldn’t believe that his friend and staunch supporter was in favor of this plan.
“It doesn’t matter,” Atkinson said. “He’s just been reassigned to China.”
Bill found the nearest pay phone and called me in my hotel room with the news. I was livid. “So instead of AT&T paying us for the company, we’re supposed to hand it over to them in return for funny money—restricted EO stock. Then we’re supposed to figure out a way that they get to vote that stock for us, and pray that someday they allow us to cash out.”
A recorded voice interrupted me—“Insert twenty-five cents for the next three minutes, please”—but Bill didn’t have another quarter.
“I don’t get it,” I said. “We could have gotten by without their money. All they had to do was stand firmly behind us.”
“Some fuckin’ life, huh?” Bill said. Then the line went dead.
14
The Showdown
WHEN I WAS FIVE, my parents got a portable television set for my bedroom. At first I was afraid to get dressed in front of it, for fear that the people on the screen could see me, just as I could see them. I knew that the gray, blurry pictures were merely signals magically sent through the air, but I didn’t understand which qualities of living human beings carried over to the new machine. Like the rest of my generation, I was captivated by this limitless window on the world, and what I saw seemed as real to me as my own two hands.
Through the power of television, I knew that lions were large, proud creatures that roared and lived in Africa. But one day my father took me to see the big cats at the Bronx Zoo. I could barely relate the coarse, smelly creatures in front of me—lying docile and panting in their cages while flies buzzed around their heads—to what I had witnessed from the comfort of my bedroom. The TV images just didn’t capture the real experience.
Sitting in the briefing rooms of AT&T thirty-five years later, watching staffers project spreadsheets, graphs, and slides from their portable computers onto the large screen monitors, I realized that computers mislead managers just as television misleads kids. Fed a steady diet of numbers and charts from the comfort of their conference room chairs, senior executives experience only a desiccated version of the powerful forces that shape and grow their organizations. Mistaking these two-dimensional reflections for reality, they shadowbox their way through complex decisions, unwittingly jostled in one direction or another by self-interested emissaries, who can spin a tale of threat and opportunity as skillfully as any Hollywood screenwriter.
In these rooms, individuals are stripped of their unique skills and reduced to chits, then shifted from one column to another. Complex working relationships, knitted together over time like trees intertwining their limbs, become statistical learning curves. Loyalty and trust, painstakingly earned through years of delivering useful products and serving customers’ needs, are measured as the difference between market capitalization and book value. Real human wealth, in the form of security, freedom, productivity, and knowledge, is scarcely captured by unexercised stock options. There are no line items that gauge the real engines of prosperity: vision, passion, and commitment. The plain truth is you cannot suck reality from the hypnotic glow of a vacuum tube.
While Bill and Randy began planning the merger, my job was to keep GO’s visibility as high as possible among the powers at AT&T. I was lucky to be invited to present some of our most recent work to Bob Kavner at an early morning briefing, barely two weeks after his powwow in Short Hills. Flying to New Jersey for a planning session, I spent an entire day in a room full of nervous staffers, who reviewed my slides word by word, carefully coordinating my presentation with theirs.
“When you do your demo,” one staffer suggested, “it’s a good idea to focus your benefits around increasing long-distance traffic. That’s the real mother lode around here.”
“Got it.”
After ten hours of review for a fifteen-minute demo, the next morning I walked into the conference room where Bob Kavner and several other key executives sipped coffee and chatted about the news: Kavner had just been promoted to CEO of the multimedia products and services group. One of GO’s sharpest salespeople, Danny Shader, was accompanying me on the trip. As unobtrusively as possible, he went around the room collecting business cards.
“What’d you do that for?” I whispered. “You pretty much know who everyone is.”
“Titles are deceptive, but you can tell who really matters by the paper.” He showed me the cards. “The ones with the real power are printed on this bone-colored stock. The others have white cards with blue logos.”
I sat down next to Kavner and made my pitch. “Most people think that you have to have a computer with a keyboard to access a database. But there are thousands of VTR [voice tone response] systems in operation today. You know, ‘Press 1 to hear your balance, press 2 to hear your last five debits.’ In fact, this is probably the dominant form of consumer data access today. Working with your people, we’ve prototyped a new, richer telephone interface under Penpoint—the successor to today’s twelve-key pad—which integrates voice and data for the phones of the future.”
Kavner watched the screen closely throughout my demo, nodding periodically. But whenever he had a question, he turned to his own staff for an answer. I felt as though I were just another audiovisual device delivering the latest briefing in a more personal form.
I groused to Danny as we packed up our gear. “I felt like a trained monkey.”
“You looked like a trained monkey.”
“What a waste of time. We fly all the way out here and squander a whole day in a planning session, then get to entertain Kavner for half an hour before his real day gets under way.”
“You don’t get it,” Danny said. “This goes on all the time. It’s just how things get done in a big company.”
I hadn’t thought about it before, but I had never actually worked for a big company. And based on what I had seen, I wasn’t so sure I wanted to.
The next estaff meeting was superseded by a joint executive staff meeting of GO and EO, to start planning the merger. As usual, most of us were in the men’s room, unloading before heading over to the conference room in another part of the building. Robert and I occupied the two urinals, one of which was much lower than the other, no doubt to satisfy some building code. Bill and Randy waited their turns.
For some reason, Bill decided it was a good time for a team huddle. “Listen guys, I know there’s been a lot of bad blood between us and the EO folks, but it’s up to us to help make this thing successful. Our people are going to be counting on us to do the right thing. So remember, this meeting isn’t a contest to see whose dick is bigger.”
Robert leaned over toward the privacy partition. “I see you’re using the kiddie urinal,” he said.
“This one’s for the guys with the big dicks,” I responded.
“You’re right—this water sure is cold,” he shot back.
Once the EO folks arrived,
led by Alain Rossmann, the first order of business was to compare our two organization charts for duplicated functions, which of course were everywhere. “I want to keep our run rate under thirty million after the merger,” Rossmann said. “We’ve got about a hundred fifty full-time heads, and you’ve got over two hundred. We need to target no more than two fifty after the merger.” As we reviewed each area, the managers responsible deliberated over the strengths and weaknesses of their key people. Gradually a picture of the combined organizations emerged, and it became clear that GO needed to lay off eighty to one hundred people. The plan was for each manager to produce a list of who was to go and who was to stay.
After the meeting, Bill and Randy met with Rossmann to discuss other issues. Calmness prevailed until they got to the matter of how to value the two companies in the merger. Bill started with a simple offer. “The last post-money valuations of our organizations were about the same, so I think the fair thing to do is just make it a fifty-fifty deal.”
Predictably, Rossmann had a different perspective. “Your last valuation was based on a small investment—ten million from AT&T—at a high price. Ours was a real transaction. I’ll give you one third, tops.”
“Maybe we should figure out first whether you’re buying or I’m selling.”
“And by the way,” Rossmann said, “you have to eat the IBM loans.”
Bill lost his cool. “This is bullshit. I’m going to talk to Atkinson. You knew about the IBM loans all the time. I’m not going to take less than forty percent. And the loans are your problem.”
It was beginning to look as if the two of them might come to blows. Randy jumped in to cool things down. “We could scream at each other about this all day. Why don’t we just get an investment banker who we both trust and ask him to figure out the relative valuations.”
This seemed sensible enough. Within a week, both sides had agreed on Ruthann Quindlen, an informal and fair-minded young banker who had previously spent ten years with the firm of Alex Brown and who had plenty of experience pricing computer companies for the public market. She was already familiar with the situation, having recently married one of our board members, David Liddle.
A few days later, I had a chance to meet with Mitchell Kapor and bring him up to date. He and his family, on vacation in San Francisco, were staying with John Doerr. Layne and I stopped by with some Indian takeout food.
Mitchell’s two small children, a boy and a girl, had just learned to tell riddles.
“When is a dog not a dog?” the boy announced to the crowd.
No one answered.
“When it’s a hot dog!” he said. The two of them giggled wildly.
“Want to hear it again?” he shouted. “When is a dog not a dog?”
The girl answered in a high-pitched squeal. “Den it’s a ho-do!” They both laughed again, no less enthusiastically.
Mitchell and I went into another room while the children started a third round. “They haven’t quite got it yet,” he explained, “but it’s amazing how much I love watching them learn.”
I could see that something had changed in him. He seemed less intense, more at peace with himself. “Where did you park the jet?”
He sighed. “Sold it. I’m also selling our vacation house in Hawaii.”
“Too bad, I never got to mooch a vacation there,” I said. “How come?”
“We just decided to get our priorities straight. All this stuff—our material possessions—were weighing us down. They owned us instead of the other way around.”
“Sounds great. What convinced you to do it?”
“Nothing, really. We just started to realize that life is about people, not things. We were wrapping ourselves in stuff to prop up our egos. I guess we just didn’t want our kids to grow up thinking that what you have is who you are.”
I explained to him about the merger. I thought he might be concerned about the million dollars he stood to lose.
“Just hand it over to those turkeys and say good riddance,” he said. “They’re just going to yutz it up anyway. The war’s over, and you may not believe it, but you won. Now it’s a deep-pockets, big-company thing. The important thing now is to do what’s best for your people and the project.”
“What do you mean, we won? We’ve spent nearly seventy-five million dollars, the product didn’t sell, and AT&T is stealing the company out from under us.”
He waved his hand as though pushing my comment aside. “Have you thought about how many jobs you created? how many people you inspired? how many people believe in your vision of pen computing? These things will last a lot longer than a bunch of stock certificates.”
As the last orange rays of the sun slipped out through the Golden Gate Bridge, I walked over and gave Mitchell a hug.
Within a week, Ruthann Quindlen was ready to present her results. “You’re not going to like this,” she said as she passed some papers around the small conference table in Randy’s office. “I looked at the market capitalization for some PC software companies of a similar size, then subtracted your outstanding loans. It came to fifty-two million. Then I took EO’s last valuation, subtracted a twenty-five percent premium that AT&T should have paid to get control, and removed their obligations as well. That’s one hundred and two million.”
Bill couldn’t hide his disappointment as he wrote the key figures on Randy’s whiteboard. “Two to one,” he said. “That’s essentially what Rossmann is offering—one third, except for the loans. It’s tough to swallow, but we agreed to honor your assessment.”
We thanked her, and she left to deliver the same message to EO.
Bill erased the board. “According to Debbie B, if we don’t get the three million EO owes us, we’ll have to shut the doors in two weeks—by August 13 at the latest—if we want to pay everyone their accumulated vacation time and some reasonable severance.” Debbie Biondolillo was GO’s vice president of human resources. An old friend of Bill’s, she had agreed to help us out by working part time after leaving her job at Apple.
“There’s no way Rossmann’s going to send over that money,” Randy said. “Even I wouldn’t do it in his shoes. He should just starve us out.” Randy was right, but for the wrong reasons. We still didn’t know that the EO board had refused to approve the payment.
Randy started working the keys on his pocket calculator. “There’s a small silver lining to Ruthann’s numbers. After the preferred investors take their cut, there’s still about five-point-two mil left over for the common. That works out to somewhere between fifty and seventy-five cents a share, depending on who exercises their stock options.”
“It’s a far cry from the three-sixty AT&T paid in the last round,” I said. “Our people aren’t going to be real happy about that.”
Randy swiveled his chair and put his feet on the desk in resignation. “It’s better than nothing!”
Bill’s voice took on a dark tone. “It’s all bullshit anyway. I’ll bet each of you one thousand dollars that you never see a nickel for your stock.”
Neither Randy nor I took the bet.
The next morning, Randy and I went over to Kleiner Perkins for a preliminary working session with GO’s and EO’s attorneys on the legal structure of the merger. They recommended a “reverse triangular merger,” keeping the legal shell of GO alive but transferring ownership to EO, which had certain tax and liability benefits.
“Kind of like Norman Bates in Psycho,” Randy observed. “We keep the mummified body in a rocking chair in the basement.”
When the meeting ended, I went back to GO. Bill joined Randy and John at KP for a negotiating session with Atkinson, Rossmann, and Dave Kinser, EO’s chief financial officer. Kinser, a quiet, polite, youthful-looking man with the short blond hair of a swimmer, had previously worked with Bill and Randy at Claris, so he knew them both quite well.
Bill expected to ratify Quindlen’s conclusions as is and get on with it. But Rossmann had other plans. “You know, I spent the weekend playing with Newton. It’s
good, it’s really good. I’m not so sure we should do this deal at all. Kavner’s still thinking about the thing with Apple.” Rossmann knew that no one at GO had had an opportunity to examine a Newton yet, and he was using this fact to keep up the pressure.
Bill’s response was direct and swift. “Don’t be an ass.”
Rossmann continued, unfazed. “I think Ruthann’s analysis is a good starting point, but now I feel that your value is about half of what she recommends—four to one.”
“Forget it,” Bill said. “It’s two to one or nothing. Anything less than that and we’ll shut the company down.”
“You can’t do that,” said Rossmann. “It makes no sense. Something is better than nothing. The investors won’t let you just throw everything away.” He gestured with his hand as though disposing of a used tissue.
“Then the investors can fire me and do the deal themselves. See how many of our people stay when they find out that the management team resigned rather than agree to this.”
Atkinson was turning white. He had expected to deliver this deal to Kavner, and now it was starting to look messy. John Doerr was equally nervous. He suggested that the two sides adjourn to separate rooms.
Once back in his own office, John became panicky. “What’s the matter with you, Bill? This thing could fall apart any minute. Kavner could change his mind at any time!”
“No way, John,” Bill said. “My sources at Apple tell me that the AT&T deal is already dead.”
John was pacing around like a ferret. Just then, another of the KP partners stuck his head in to see what the ruckus was about. “I’ve got a suggestion,” he said. “It’s not unheard-of for the preferred stockholders to give a bit extra to the common, to secure their vote to get the deal done.” In fact, he had discussed this possibility with John in some detail earlier in the day.
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