Diana Andersen again put up her hand. “With all these profits, when is the dividend going to be raised?” she asked.
“I’ll try to answer that, my dear,” her father said, from his armchair. “The Company now pays ninety cents a share—roughly one-third of profits. Absent any great demands for cash, which I don’t now foresee, I’d expect there would be a modest increase sometime in the next twelve months, possibly to a dollar. But I don’t see going above the one-third line. We have to make capital expenditures on our plants and we must spend unsparingly on research and development. All this takes money, and it means we can’t be paying out all our earnings to the stockholders.”
“But other companies manage to pay out more,” Diana pressed.
“Of course they do. Eat, drink and be merry, for tomorrow you may die. And that’s exactly what companies that fail to reinvest may do. Die. Die a slow death trying to operate without any innovations. Besides, Diana, I don’t quite see what your concern is. At a dollar a share, you’ll collect annual dividends of about two point four million. That really ought to be enough to live on, my dear. Unless, of course, you’ve sold off some more of your stock.”
Flemming Andersen’s veiled reference was to the fact that Diana had sold a portion of her AFC holdings. She had originally held the roughly 3.2 million shares her father had given her. But citing the needs of Concerned Women and her other causes, she had sold 800,000 shares in the public market over time, freeing up (after taxes) some $15 million for her good works.
Diana’s parents had been furious at her disloyalty; it was a firm, if unspoken, Andersen rule that family-owned shares were not to be sold. Laurance and Sorella, unlike their parents, probably would have been tolerant of Diana’s sales, except for her high-minded exhortations to them about being too rich and about not caring for the poor and unfortunate (Diana making her own moral superiority in this regard quite clear). As a result, her brother and sister were as displeased with her as Flemming and Sally, and they now quite enjoyed their father’s dig.
“Thank you, Father, for your help,” Diana said sarcastically. “I think that even little impractical me could have figured out my dividend income—multiply the number of my shares by one dollar, right?—but thanks for doing it for me.”
When Flemming Andersen again rose from his chair, his audience assumed that this signaled the end of the proceedings. But instead, he began speaking, his countenance no longer placid but stern and angry.
“After all the good news you’ve heard this morning, I’m afraid I have some bad news. Or at least disturbing news,” he began. Several of his listeners looked at each other, puzzled.
“Last night I received a call from Jeffrey Gruen. Now you all know who he is—the raider, the financial Dracula who takes over corporations and sucks out their lifeblood. Gruen told me that he’s bought eight percent of AFC’s common stock and he wants to buy the rest.
“The man is a blackmailer, in addition to everything else. If the Company Board of Directors approves a deal with him, he says he will propose forty dollars a share. But if he has to make a hostile tender, the price will be thirty-eight.
“Mr. Gruen asked to meet with me tomorrow morning. I’m going to do that. But I’m also going to tell him that there is no way that he is ever going to take control of AFC, because this family will never sell to him, no matter what his tender price.
“I assume that I have the concurrence of all of you in this—that AFC should oppose Gruen by every honorable means at its disposal. Is there any dissent from that proposition?”
The room was silent and no hands went up. Flemming looked directly at his daughter Diana and his nephew Billy O’Neal—the most likely potential defectors, in his judgment—but they sat impassively.
“Very well. Our esteemed counsel, Reuben Frost, tells me that we have been given what is known in the mergers-and-acquisitions trade as a bear hug. Well, ladies and gentlemen, I can tell you here and now that if it is legally possible to do so, we will extricate ourselves from that hug, whether we tickle the bear under the armpits or do something dirtier and more drastic.”
“Who’s going to this meeting tomorrow?” Billy O’Neal asked, from the back of the room.
“Whoever wants to,” Flemming replied. “If you want to come, that’s fine. You or Laurance or anybody else.”
“I do,” O’Neal said.
“I do, too,” Laurance Andersen added.
“All right. I might also tell you that two of Chase & Ward’s lawyers are coming up here this morning and will fly back with us this afternoon. Reuben, let’s go find out if they’re here yet. I’ll see the rest of you at lunch.”
The family meeting was over. Flemming quietly circulated in the group and approached those he wanted to go back to New York with him on the first flight leaving after lunch. There would be a second flight soon after, so the others would not have to wait long, though Flemming’s arrangements would separate husbands and wives (including Reuben and Cynthia).
“Reuben, what do we do about the Board?” Andersen asked, when he had found Frost in the crowd and after asking him to come back on the first flight. “Shouldn’t we be setting up a special meeting?”
“Yes, you should,” Frost answered. “As soon as you can.”
“I’m sure everyone’s scattered to the four winds today. So I guess it’ll have to be tomorrow. Gruen wants to see me early, if possible. So do you think the Board can wait till afterward?”
“That depends on what you’re going to say to him.”
“I’m going to tell him to go straight to hell.”
“That’s what I suspected, from what you just said inside. But I don’t think you ought to do that without the Board behind you. If they agree to tell him to go to hell, that’s fine, but I don’t think you should do it on your own, no matter how strongly you feel as an individual.”
A look of impatience appeared on Andersen’s face, then as quickly went away. He knew the rules, knew that he was not the sole owner of AFC, but he did not especially like to be reminded of this actuality. He was sure in both heart and mind that he would only act in AFC’s best interest and did not need the Board of Directors—or his lawyer—to tell him how to go about it. But this was no time to be autocratic.
“What are you saying, that I should be noncommittal?” Andersen asked.
“Yes. And if that’s your approach, the Board meeting can certainly wait until afterward.”
“I’m going to try and call them all now. And I’ll tell Gruen we’ll see him at nine o’clock. Okay with you?”
Frost thought briefly of asking whether Andersen really wanted a superannuated retired lawyer to accompany him. But he thought better of it. After all his years dealing with AFC affairs, why shouldn’t he go along? Besides, he had to admit to himself that it might be interesting.
“Fine. While you’re calling, I’ll see if Yates and Crowder have arrived.”
SUNDAY MEETING: II
4
Frost found his colleagues from Chase & Ward at the hotel’s front desk, where they were inquiring about him.
“There you are,” Ernest Crowder said. “We were just trying to find you.”
“Where’s Flemming?” Marvin Yates demanded of Frost, in his rapid-fire, no-time-for politeness manner; Reuben might as well have been Chase & Ward’s greenest legal assistant as far as Yates was concerned.
“Let’s review the bidding for a couple of minutes and then I’ll introduce you to Mr. Andersen,” Frost said pointedly, trying to underscore the reality that Yates had never met the man he referred to with such familiarity. “Let’s go out here,” he added, leading them outside to a remote corner of the hotel’s terrace.
As they went outside, Frost could not help noticing the differences between his two former partners. They were a study in contrasts. Crowder, at forty-three, was roughly the same age as Yates, but appeared to be at least a decade older. Never married and a gravely celibate bachelor, he was dressed in a severe dark
suit, complete with white shirt and quiet striped necktie. There were several red spots on his face and balding scalp, indicating that he had been in the sun but that he was not particularly used to it. As he walked outside, he looked around disdainfully at the hotel and its grounds, his narrow, pursed lips sloping downward in disapproval.
Yates, by contrast, was oblivious to his surroundings. All nervous energy, he was interested only in hearing about the problem that had brought him to the Mohawk Inn. In contrast to the fastidious Crowder, he had not shown much interest in his attire: bright green golf slacks, a pink alligator polo shirt and a light blue linen blazer. Frost knew that this apparent lack of sartorial attention was deceptive; when required, he could show extraordinary sensitivity and patient observation, as when he devoted himself to his four young, attractive and intelligent children, one more gifted than the next, or when he participated, as a very good amateur violist, in chamber-music evenings organized by his wife, a pianist of near-professional standing and a graduate of Juilliard. And when it came to professional business, patience and politeness might disappear, but a dedicated, laserlike concentration on the legal problem at hand always remained.
Since Frost was the only one who was up-to-date on developments, Yates and Crowder of necessity had to hear out his recapitulation, though Yates’s impatience, as he listened to his former partner, was palpable. Frost reviewed the call from Gruen and the prospect of a Monday morning meeting. He also told his colleagues of Flemming Andersen’s repeatedly announced determination to fight Gruen’s tender offer, if it came.
“How does the stock break down, Ernest, do you know?” Yates asked his partner Crowder, ignoring Frost.
“Unless things have changed, and there’s no reason to think they have, the family has about twenty-six percent and the Foundation another thirteen percent.”
“And can Flemming truss up his family?”
“Hard to say,” Crowder said. “One daughter has already sold some stock and I’m sure wants to sell more. The others have held on to theirs so far, but I can’t say what they’d do if Gruen’s money were flashed in front of them.”
“What about the Foundation?” Yates asked.
“It’s pretty much run by Flemming’s daughter Sorella, though I think Randolph Hedley manages to intrude in its affairs pretty heavily.”
“You mean that prig from Slade, Beveridge?”
“That’s not fair, Marvin,” Crowder said. “He’s not a prig.”
Crowder and Hedley probably go to the same church, Reuben thought as he listened.
“Okay, okay, Ernest. But he’s not my idea of a companion for a desert island.”
“Sorella’s important,” Crowder observed, ignoring his partner’s dig about Hedley. “She owns four percent outright. And she and her father and Hedley are the trustees of the Foundation. If she votes with her father, the two of them can deliver the Foundation’s thirteen percent.”
“What does the husband do?” Yates asked.
“He’s a failed novelist,” Crowder answered, leaving unclear whether he regarded “failed” or “novelist” as the word of greater opprobrium.
“It looks to me as if the family should be in pretty good shape if they put up a united front,” Yates concluded.
“Here comes Flemming Andersen now,” Frost interrupted. Andersen greeted Frost and Crowder, and was introduced to Yates.
“You’re the expert who’s going to save us from perdition, is that right?” Flemming asked Yates.
“We’re going to try, sir.”
“Good. Let’s have some lunch and we can talk the whole thing over on the plane, which is leaving at two o’clock.”
“Before we do that,” Yates said, “have you got your investment bankers on board for this? Hughes & Company, isn’t it?”
“That’s right. Jack Hilliard,” Flemming replied.
“Has anyone called him?” Yates asked, looking pointedly at Frost.
“Not yet,” Andersen said.
“Well, you should. They should be analyzing the terms Gruen outlined to you, because you’re sure going to want them to tell you whether he’s being fair or not.”
“I’ll do it right now,” Andersen said, almost obediently.
Frost regretted that he had not thought of this detail himself—Yates’s glance had convinced him that he should have. But his lapse had been rectified and no great harm had been done.
The alert AFC staff members had cars at the Mohawk Inn promptly at one forty-five to take the working party to the airport. Reuben Frost, after fleetingly commiserating with his wife, who would have to return on the plane for women and children leaving an hour later, joined the group at the front entrance: Flemming Andersen; Casper Robbins; Randolph Hedley; Crowder and Yates; Laurance Andersen; and Billy O’Neal. Sorella’s husband, Nathaniel, and the more junior Company officers, such as Joe Faxton, were not included. Nor were Sorella and her sister.
Whisked off to the airport, the chosen party boarded the waiting G-IV, which took off promptly at the appointed hour of two.
“I’m glad we’re going back on this,” Yates muttered to whoever was listening as they boarded the plane. “We came up on their Westwind, which is like riding sidecar on a motorcycle. But at least it wasn’t a Lear.”
Frost didn’t know what his former partner was talking about, though he assumed Yates had acquired great expertise about the private aircraft used by corporate America in his M&A travels. He did not like the sound of the Westwind, on which Cynthia would presumably be stuck an hour hence.
Once aboard, the eight passengers sat in two clusters of four across the aisle from each other. Flemming Andersen began a dialogue with Marvin Yates, who was sitting on the armrest of a seat with his arms crossed in front of him. Coat off, he was ready to operate. The others paid rapt attention and only occasionally interrupted.
“Mr. Yates, I assume Reuben has told you about our bear hug, as I believe it’s called.”
“Yeah, he has.”
“So what can we do to stop Mr. Gruen?”
“Before I get into that, I think there are a couple of things I ought to review for you. They may be obvious, but it doesn’t do any harm to go over them,” Yates began. There was a sense that he was starting a speech he had given to troubled executives before—which was true—but his hearers didn’t care; his sermon could be hackneyed as long as it promised deliverance.
“Let’s assume Gruen offers to buy AFC at a price well above market—thirty-eight, forty, you name it. Can the Company—that is, the Board of Directors of the Company—fight the tender? Not necessarily. You must not forget, my friends, that directors have a duty to act in the best interests of the Company and its shareholders. If they reasonably believe they are so acting, they should be protected from stockholder lawsuits. That’s the so-called ‘Business Judgment Rule,’ which protects directors if they act responsibly and reasonably. Incidentally, where is AFC incorporated? Did I read Minnesota?”
“That’s right,” Flemming said. “My grandfather set the company up there and nobody’s ever seen any reason to change.”
“Good,” Yates said. “You won’t be stuck with all the complications about business judgment that have occurred in Delaware. But let’s get back to reasonableness, and what it is. Opposing an offer just because it would unseat existing management is not reasonable behavior. But if there are other factors to consider, then you may have a basis for opposition—a reasonable basis for opposition. For example, would the raider endanger the Company’s effectiveness or seriously alter its corporate policies? Would he be interested in breaking up an entity that has had a proven track record operating as an integrated whole?
“From what I’ve heard about AFC over the years from Ernest, and what I read last night and on the plane this morning, it seems to me the Company’s unique—an efficient, smooth-running, integrated operation with a classy reputation. That’s something worth protecting, and Jeff Gruen isn’t exactly known for keeping companies in one
piece, or enhancing their reputations, once he takes them over.”
“Mr. Yates, why on earth does Jeffrey Gruen want AFC?” Casper Robbins interjected. “Any theories?”
“Sure. Gruen’s got a big reputation. He’s made himself a billionaire in the takeover game, at least on paper, He’s bought corporations cheap and sold off the pieces for big prices. In some other situations he’s taken positions in companies, scaring the bejesus out of their managements, and then accepted an inflated price to go away. Otherwise known as greenmail.
“Then there’ve been the leveraged buyouts—LBOs—like United Dresses. He and the management of UD borrowed the money to buy out the public stockholders. Then he and his newfound buddies in the UD management held the stock for a little less than two years, when they unloaded it on the public once again—at a much higher price, needless to say.
“Whatever the game, Gruen’s been right there, becoming a paper billionaire in the process,” Yates continued. “And he’s made a whole stable of investors rich, too. Including almost certainly some silent partners.”
“Is that true, Marvin, silent partners?” Crowder asked.
“That’s the rumor.”
“Who are they?”
“Depends who you talk to. Arab sheiks. Texans bailing out of the oil and gas business. South American dope dealers. The Rockefellers. Who knows?”
“I don’t understand,” Randolph Hedley declared. “Surely Gruen has to disclose the sources of his funds in his SEC filings?”
“He’s supposed to, Randolph,” Yates answered, a touch of condescension in his voice. “But if no one can prove he has silent partners, how can he be made to name them? Rumors over breakfast at the Regency are one thing, proving the facts quite another.”
“You still haven’t answered my question,” Robbins pressed. “What does he want with us?”
“Sorry, I got sidetracked,” Yates said. “My guess is that Gruen’s under pressure to perform from his investment partners. Don’t forget he hasn’t been doing so well the last few months: Gene-Some, his genetic-engineering company, is practically bust. The movie company he bought hasn’t had a hit since he took over. And he lost his fight for that supermarket outfit—Foodstops—to the Canadians. He needs a win, and the more prestigious the better.”
Murders & Acquisitions Page 4