by Connie Bruck
It was a stunning blow. Some MCA executives concluded that Ovitz had indicated his initial price range simply in order to bring Wasserman to the table. “If he had said their range was in the 60s, no meetings would ever have taken place,” one executive said. In fact, there had been some indication earlier that the range Ovitz had conveyed might be wrong—but that suggestion had gone generally unheeded. In the first week of October, stories had begun to appear in the Japanese press stating that Matsushita might pay about $6 billion for the company (roughly $60 a share), while MCA was seeking a purchase price of between $7.4 and $8.5 billion (roughly between $80 and $95 a share). But the MCA executives, who were following the Japanese press, did not put much credence in these figures. “When we saw that $60 to $65 a share, we were laughing,” one of them said. “We were sitting here with our calculators, multiplying the number of shares we owned by $100. But then we said, ‘No, let’s not be pigs—multiply by $90. Lew will never take less than $90.”
It is possible that the Matsushita executives had not trusted Ovitz sufficiently to confide what they were willing to pay. For while they certainly relied on him for the human elements of the deal—and they allowed him to hire investment bankers for the transaction—they had a second, secret team of advisers working on the numbers. Someone who has advised Sony says, “The Japanese never rely on just one adviser. There are always second and third tracks.” In the early summer of 1990, Hirata had engaged the mergers-and-acquisitions partnership of Nomura Wasserstein Perella, with offices in Osaka and Tokyo, to work on the deal. Matsushita “hired Nomura Wasserstein Perella as advisers because they’re Japanese and the client trusts Japanese people,” one person explained. “The client was coming into Hollywood blind, and therefore hired a Seeing Eye dog—Ovitz—but didn’t trust him. He’s a white American.” Matsushita had studied the Sony transaction under a microscope, determined not to repeat its mistakes—among them, having badly overpaid for Columbia. And the Matsushita executives were leery of Ovitz when it came to price. “They realized that for him what counted was getting the deal done—that he wouldn’t care what price they paid. They didn’t want to look like fools.” Although Japanese bankers at Nomura Wasserstein Perella were assisted by American colleagues, only the Japanese dealt with Matsushita directly. They did not attend the negotiating sessions, but they had rooms in the Waldorf-Astoria, as did the Matsushita executives, and were in close contact with them. According to one person, they counseled the Matsushita executives, “Don’t be in a hurry. It’s not a competitive situation. Remember who you are.”
After MCA flatly rejected Matsushita’s offer of $60 in cash, Matsushita came back the following day with an offer of $64 in cash, but that, too, MCA rejected. MCA was unwilling to make a counterproposal. “We were not going to name a price,” Rohatyn said. “Either they were going to make a proposal or not, but we were not going to have the price end up in the Mainichi Shimbun as part of a deal that didn’t happen.” Rohatyn and the other MCA advisers did not know what Wasserman would ultimately be willing to accept; as usual, he was keeping his own counsel. By the Wednesday night before Thanksgiving—three days after the discussions began—most, if not all, of the advisers concluded that the deal was dead. Ovitz left to spend the holiday in Los Angeles. And an MCA board meeting was called for Thanksgiving, at which the advisers planned to recommend against accepting Matsushita’s offer of $64 in cash.
Wasserman’s old friend Bob Strauss was one of the advisers, and wearing a dizzying array of hats; an MCA board member who frequently represented the company, and who had also represented Matsushita, he had been hired here as counselor to the transaction—representing both sides. (Strauss thought his role was unprecedented, but he evidently did not know about Sidney Korshak and CIC.) Now, Wasserman and Strauss and their wives went to dinner at “21.” Recalling that dinner, Strauss said, “The deal had shut down. We didn’t discuss it. We discussed whether to have the chicken or the fish. Edie Wasserman drank water and Helen Strauss had three scotches, as usual. It was an evening of nostalgia and reminiscences. And then, in the car, I said, ‘Well, Lew, I guess it wasn’t meant to be—you can’t have a damn stroke over losing a deal.’ He said, ‘You’re right. The only thing that troubles me—we can’t eat any better, how many more dinners at “21” can we have?—is the management, and the shareholders.’ And he said, ‘You have to make up your mind before you go into negotiations what the parameters are, or you get carried away with the momentum of the negotiations—you know that as well as anyone. And it’s just a shame—when two or three bucks more would have done it.’ ”
Over the next fifteen hours, Strauss labored with Matsushita’s other advisers to bring the deal back. On Thanksgiving morning, Ovitz, after talking by phone with Hirata, called Sheinberg and told him that Hirata wanted to meet with him and Wasserman, and that Matsushita would raise its offer by $2. “I said, ‘Let’s find a small room for this meeting,’ ” Sheinberg said later. “The whole process had been done in these enormous rooms, in the most abstract, inhuman way. I think one of my greatest contributions to this deal was finding a small room.” When they met, Hirata said, “ ‘It has taken us a long time to come this short distance,’ ” Sheinberg continued. “We were touched by that. That convinced us that psychologically he wanted to make this deal. At that moment, there was some human connection that hadn’t been there before.”
About the discrepancy between Ovitz’s initial statement and the final offer, Sheinberg, referring to the opening overture, said, “We did believe it to be in the realm—it would be dishonest to say otherwise. We did go through a period of sitting there, asking ourselves, ‘Why are we here?’ ” Despite such recriminations, Sheinberg had remained surprisingly calm. Ovitz had warned him that one explosion of temper could destroy the deal, and he had evidently taken it to heart. Strauss said, “This deal never would have been made without Sid. If being abrasive, mercurial, and emotional are his weaknesses, they never showed here. He was as calm, unemotional, and objective as a person could be. He had spent a lot of time with Ovitz, and developed the confidence that Ovitz could deliver what he said he could.” Rohatyn remarked that he had “never seen Sid so conciliatory.”
After the two sides reached an agreement in principle on price—Matsushita would raise its offer $2 a share, to $66 in cash, plus the equity stake in WWOR—there were myriad other issues still unresolved, and those were fought over bitterly in the next three days. Questions that the MCA advisers thought had already been settled were reopened. Even on Monday morning, an hour before the contract was scheduled for signing, a new batch of minor issues surfaced. The signing was set for 8:00 a.m. in New York; at that moment, Matsushita’s president, Tanii, in Osaka, was to go on Japanese television. His appearance had to be put off for over an hour.
Commenting on the arduousness of the negotiation, Rohatyn said, “This was completely contrary to their culture. The Japanese are accustomed to negotiating for two weeks, then going home for several months, then coming back—it can take a year. Here Ovitz had pushed them to understand that it had to be done in one week. And yet it was clear in negotiating sessions that their party didn’t have negotiating authority—they had to be calling Japan constantly. And the time change made that difficult. So it was a combination of culture differences, language differences, time differences. Their philosophy of negotiation is war by other means, with an open-ended time frame. Here a negotiation has a certain human element, which is much more sentimental. People recognize that they are buying not only a business but something that involves people, and that there are emotions that can be traumatic. You make allowances for them in the way you negotiate. But in this deal—and in deals with other Japanese companies that I’ve seen—the human side was not a factor. Here I never saw the side of the negotiations that I’ve seen in nine out of ten situations as they near the end, where people generally sit down and try to work things out. Instead, to the end we were lobbing Scuds at each other, firing Patriot missiles.
”
This was a deal that apparently would not have happened if Matsushita had not agreed to raise its offer by $2 a share. That $2 was not insignificant—it amounted to an additional $200 million. But the reason that the deal had hinged on it, Rohatyn emphasized, was not strictly financial; rather, the $2 had come to symbolize in the minds of the MCA executives and their advisers a broader issue—“whether we could really talk to these people or not.” That was a question, of course, that might have been more reasonably answered in a period of communication and mutual assessment in the months leading up to the deal. But Ovitz, the marriage broker, had made sure that the parties were utter strangers when they made their leap of faith.
There was a hint of the magnitude of the cultural divide that MCA and Matsushita executives would be attempting to bridge in the first words that Tanii uttered publicly upon the deal’s signing. While Wasserman, Sheinberg, and Hirata were offering champagne toasts to one another in New York, Tanii began his televised press conference in Osaka—a proceeding for which he had been drilled with more than a hundred prepared questions and answers. Probably the most predictable question was the one that had been asked of Akio Morita, the co-founder of Sony, when Sony acquired Columbia. Would his company be willing to produce a movie about the wartime role of the late Emperor Hirohito? Morita had said he would never interfere with such a production, though he could not guarantee that theaters in Japan would be willing to show it. However, according to an article in the Mainichi Shimbun, when Tanii was asked, “What would you do if MCA produces a picture in which the Emperor of Japan appears as a war criminal?” he replied, “MCA is a company with a good history and tradition, and will exercise appropriate judgment.” Pressed on this and other questions about the making of films critical of Japan, Tanii was more unequivocal, according to the Asahi Shimbun. “Since this acquisition is itself aimed at the cooperation of two countries, I am sure that such movies will never be produced,” Tanii declared. Several days later—after a flurry of articles in the United States and some expressions of concern from Congress—he issued a statement saying that Matsushita “has no intention of becoming involved in decisions regarding the subject or content of creative products at MCA.” Upon reflection, he surely realized that that was not only more diplomatic but, also, true; it would be foolish to endanger the value of Matsushita’s investment by overt censorship. Still, Tanii’s initial, instinctive response illustrated just how radical and wild this foray into Hollywood was for the sober Matsushita.
And for Wasserman, it was quite an introduction to Tanii, whom he had never met—but who was now his boss. After the signing ceremony, Wasserman, accompanied by his wife and a group of MCA executives, headed for the MCA plane to go home. He had asked Mel Ziontz to come to New York for the signing—Ziontz had not been involved in this transaction, since MCA had been represented by its New York lawyers, but Ziontz had worked for Wasserman for about twenty years. Like many others, Ziontz was perplexed by what had happened in this odd deal, from beginning to end. Initially, he had been shocked to learn that Wasserman, whom he knew as “a super-patriot,” was considering selling MCA to a Japanese company. Then, after Matsushita had made its two surprisingly low offers, and Wasserman had rejected them, he was sure the deal was dead, and that Wasserman would walk away. Ziontz was stunned that he had come back. “Lew had never done that,” he said. Despite the fact that the price was so much lower than MCA executives had anticipated, Ziontz expected to find his old friends in a celebratory mood; most of them had, by their lights, become wealthy overnight. Instead, they were commiserating with one another. “They kept repeating that Lew had said it would be in the 80s, and never less than 75. How could this be? And it wasn’t about the money—they were going to get a gezillion dollars, anyway—it was, how could he have been had? Could he be sick? Was it his fear of a worldwide depression? Was it that he thought Sid wasn’t up to it? They were desperate to find the explanation,” Ziontz recalled. “Their idol had let them down.”
The possibility that he could have been had—by the brash, upstart talent agent who had studied how Wasserman had had his way with people over decades—was for Wasserman’s followers the most painful possibility of all. It was also the most plausible: Wasserman had indeed been lured by Ovitz’s naming of a price range that squared with his own thinking, and once the story leaked and the stock price shot up, he had been placed in a very difficult position. Had he been younger, he would surely have extricated himself, endured the plummeting stock price, and dealt with the fallout. But he was seventy-seven years old, and the world he had fashioned was no longer his. This notion—that Wasserman had been outmaneuvered by Ovitz—was given some credence on the MCA plane coming back to Los Angeles, Ziontz recalled. “No one wanted to sit next to Edie, and there was a lot of shuffling around. I ended up in that seat. And I remember her taking off on the subject of Ovitz—it was like he had horns and a forked tail! She was saying he was so deceitful. I thought it was indiscreet. Ovitz had been the instrumentality of the deal—and her saying these things made it look like Lew got taken. Then Edie fell asleep. And Lew talked to me the whole way back. I was trying to find out why he had done it, without being enough of a jerk to ask outright.”
But Wasserman did not say. “All I can tell you is, he was not a guy who was ecstatic about what he’d just done,” Ziontz concluded. “He was nostalgic, reminiscing about the old days, about all the people he’d known, about how he had built the company.”
Lew Wasserman and Sidney Sheinberg. Steve Granitz/Retna Ltd.
Chapter 6
LOST EMPIRE
The strange union began with some sense of foreboding in the Black Tower, and perhaps in Osaka as well. Sheinberg, who had been the most heavily courted by Ovitz, and the most susceptible to the romance of the deal, seemed hardest hit by reality—even though he had by some measures come out of it awfully well. He was contractually guaranteed to succeed Wasserman; he had received roughly $113 million (for his stock holdings, plus a signing bonus on a new five-year contract), and he was being paid a salary of $8.6 million a year. However, in March 1991, about three months after the deal’s signing, he and Wasserman had traveled to Osaka, where, for the first time in their new incarnation as subordinates, they had undergone a budget review. According to one friend of Sheinberg’s, the process left him convinced that Matsushita was frightened by the acquisition, and was uncertain how to proceed. Friends said, too, that he was finding his day-to-day tasks, now involving the integration of the two companies, more onerous, and that he was disturbed by the persistent press speculation that, sooner or later, Ovitz would run MCA.
Interviewed after his return from Osaka, Sheinberg was plainly troubled, and made no attempt to disguise it. He emphasized, repeatedly, that the deal had been unlike any other, and seemed mystified by the process that had taken place. “It was so odd not to meet with the principals. We didn’t meet Tanii until he came and visited in January. The chairman, who is the son-in-law of the founder, we just met two weeks ago in Osaka. I don’t know why people met so little. The structuring was admittedly being done by Mr. Ovitz. It was a very traumatic experience for us—it is a traumatic experience, and will last a long time. Because there’s a lot that’s unknown. Only a fool cannot recognize that. Everyone gets married thinking it’s forever—and 50 percent of the time, or something like that, it doesn’t work. And the lack of human contact made it more traumatic. As did their lack of understanding of the business—an understanding that can only come through human interchange.” The Matsushita executives had supposedly been educated by Ovitz, Sheinberg added. “The future will show if that education was adequate.”
Several times in the course of the conversation, he wondered if he was “naive,” as he said those close to him were now telling him. He repeated that he was finding the transition difficult. “Someone said recently that since this deal was made, Wasserman looks younger and Sheinberg looks older,” he declared ruefully.
Wasserman did
appear much more sanguine than Sheinberg when he was visited in his corner office down the hall. That was to be expected—in terms of revealing what they were really thinking, the two men were polar opposites: Wasserman had long been hermetically sealed, and Sheinberg a fairly open book. But they were, too, at such diametrically different points in their careers; Sheinberg felt he still had much to prove, while Wasserman had proved all he’d needed to—he had only to put his house in order and see his company safe. He had accomplished the former. Many years before, Wasserman had acquired five million shares of MCA stock at an average price of 3 cents per share; if he had sold his stock to Matsushita for cash—for about $327 million—he would have had to pay a capital gains tax of about $110 million. Instead, Matsushita had obliged him by giving him preferred stock in exchange for his common, and had thus cured his capital gains problem; shareholder suits had been filed, challenging his special treatment, and were eventually settled. Wasserman collected dividends of $28.6 million annually at a rate of 8.75 percent. (Geffen, MCA’s largest shareholder, and Sheinberg had also been offered the preferred, but both had opted for cash. “I took the after-tax results of that sale and turned it into billions of dollars,” said Geffen, adding that the market boom of the nineties had offered almost infinite opportunity. “Lew and I discussed it. He saw disaster coming. He wanted a fixed return. If he had the money available, he could have made a greater fortune.”) Wasserman, however, had always owned bonds, not stocks (except for MCA’s). As he once remarked, “Money is too hard to make to risk losing it in the stock market.”