The Billionaire Who Wasn't (35 page)

Before Arnault arrived, the four faced the Wise Man across a table, their lawyers behind them. Bob Miller protested to Ira, “This is my company, I want to buy the company,” recalled Pilaro. Millstein retorted, “Listen, Arnault will pay you more, you guys will get a higher price, and these guys, Alan and Chuck, won't care.”

Feeney and Parker reiterated that they intended to sell to Arnault by September 30, and that they weren't convinced that Bob and Tony had the wherewithal to buy them out. They were concerned that Arnault's patience was running out.

At this point Miller and Pilaro got up and walked out. “We left in a huff,” said Pilaro. Feeney recalled that Miller “went storming out.” It was the last occasion that the four guys who had presided for three decades over one of the most successful retail operations in the twentieth century would meet together in one room.

Miller and Pilaro took the elevator to the ground floor. As they stepped out, Bernard Arnault was waiting to get into the elevator to go up. The Frenchman looked in astonishment as Miller and Pilaro emerged and walked past him. Pilaro said, “Hello!” but didn't stop. He and Miller walked out onto Fifth Avenue. “He was probably thinking he was coming to the birthday party, and he was going to buy the whole company, and he sees two guys walking out,” said Pilaro. The meeting in Ira Millstein's office was abandoned.

But Miller was still conflicted. He called Feeney after the walkout and suggested they meet one more time back in London. Miller, Feeney, and Parker had flown back to England immediately after the fiasco in Millstein's office, while Pilaro stayed behind in New York. On Sunday morning, September 1, they met around a table in a ground-floor room of Atlantic Group's headquarters at 17 Savile Row. The building was otherwise deserted. Feeney brought Chris Oechsli along to provide technical and financial data so that the three could work out a new proposal. Miller said he was willing to consider selling to Arnault after all, but at a higher price if possible. As they worked their way through financing issues, Chris would dash upstairs and telephone Jim Downey at his home in a Dublin suburb and Downey would come up with new formulations on his Toshiba laptop.

Oechsli noted that the three shareholders, who had come through so much together, seemed to have little to say to each other while waiting for him to bring each new set of figures. “They didn't talk very much, they kind of looked down,” he said. There was a surreal element to the few words the shareholders did exchange. They spoke in shorthand: “two point eight,” “three point four,” meaning $2.8 billion or $3.4 billion. After an hour and a half, they arrived at a formula for a phased sale by all four shareholders to LVMH. They would each sell just under half of their holdings to Arnault on
the basis of a capital value of $4.2 billion for the company, while giving LVMH the right to buy the remaining shares after eighteen months. Miller initialed the deal.

“We actually had the initials on a piece of paper that they were all going to agree to,” said Oechsli. “I went upstairs to Chuck's office after they had gone and said, ‘This is pretty positive, isn't it?' And Chuck said, ‘No, Bob is going to change his mind tomorrow.'” Parker, too, was dubious. Miller, he recalled, said only that he was “pretty sure” he would do it. He had seen over the years that Miller would sometimes not stand up to Feeney in person and later would change his mind.

Tony Pilaro realized something was going on when he got a call that Sunday at the Carlyle Hotel on Madison Avenue from Ira Millstein, saying that Alan Parker's investment banker from Goldman Sachs was trying to contact Miller and did he know where he was? This could only mean one thing—that the other two had gotten to Bob. Pilaro dashed to the airport and got the pilots of his private Gulfstream III to fly him to London immediately. He took a car straight to Miller's mews residence in central London. He wanted to be there because “maybe the banker would influence Bob one way or another.” Shortly after he arrived, the Goldman Sachs banker knocked on the door. “He was stunned that I was there,” said Pilaro.

Pilaro and Miller came up with a revised proposal of their own. They would go along with a sale of DFS by all four owners, but only if LVMH agreed to pay the tax burden that would arise because of the way Miller and Pilaro had restructured their interests in DFS during the “Big Bang” in 1986. The idea was conveyed to Paris, but Arnault was not interested. On September 18, Miller wrote to Feeney and Parker to say he had, after all, changed his mind about the agreement he had initialed. He suggested wistfully that they should all “quiet down now and let DFS get on with its business of making money.”

Miller's reluctance to break his lifelong link with DFS was clearly a major factor in his decision. Feeney saw this as a line Miller could not cross. “I did an analysis once and figured you were never going to get Bob. He would lose face. Bob was Mr. Duty Free. He liked to play the role. He kept coming back saying, ‘Duty Free is my baby.'”

Feeney and Parker returned to New York at the end of September to finalize their deal with LVMH, a complicated procedure that required a team of lawyers from both sides working flat out for most of a week to draw up
the terms. “There would have been twenty lawyers in the room and Chuck, myself, and Harvey in a side room where they would consult us on issues,” recalled Parker. One of the lawyers, David Gruenstein from Watchell, Lipton, Rosen & Katz, made a deep impression on Parker. “Tremendous. Tough as nails. I've never come across anyone like him in my life. When we were closing, he worked three days without going to bed.”

On Tuesday, October 1, everything was ready for Feeney and Parker to sign. Feeney abandoned his casual gear and turned up wearing a suit, button-down shirt, and blue silk tie, though with his trademark black plastic watch. With lawyers in shirtsleeves and gold watches hovering behind them, they signed a series of legal documents with red seals, laid out on a long glass table. It was done at last. Feeney and Parker had signed away their shareholdings in DFS to LVMH on the basis of a capital value for the whole company of $4.2 billion.

Looking up over his reading glasses, Feeney allowed himself a satisfied smile. An assistant handed him a glass of champagne. Feeney got up and posed for photographs, glass of bubbly in hand, with Harvey Dale, Jim Downey, and Chris Oechsli. Feeney and Parker then retired, exhausted, with a couple of the lawyers to celebrate their multi-billion-dollar deal in typical Feeney style, in a nondescript New York restaurant.

The deal had a “drop-dead” date of December 31, 1996 (later revised to January 15, 1997). Miller and Pilaro could sell on the same terms, up to that date, if they changed their minds. LVMH got in touch with Miller and Pilaro to say the offer could be taken up right away. They refused. Miller was furious. He complained bitterly that Feeney and Parker had “snubbed their partners of half a lifetime.”

CHAPTER 24

Cutting the Baby in Half

Three weeks later Bob Miller and Tony Pilaro threw down the gauntlet. On Thursday, October 24, 1996, motorcycle messengers brought two letters to Ira Millstein at his Manhattan law firm, Weil, Gotshal & Manges, one each from lawyers representing Miller and Pilaro. The letters reminded Millstein that the Wise Man Agreement stipulated that any dispute or controversy relating to the agreement should be resolved by arbitration before him. They claimed that the proposed sale by Chuck Feeney and Alan Parker of their shareholding in DFS to Bernard Arnault breached the Wise Man Agreement. They requested that Millstein rule that it could not go ahead.

The following day, lawyers for Miller and Pilaro filed Case Number 96605345 in the New York Supreme Court, on Centre Street in downtown Manhattan. The 200-page document called for an injunction to prevent the sale of DFS holdings by Feeney and Parker from going ahead, on the grounds that it would substantially undermine DFS Group's ability to compete with LVMH. It also accused them of divulging confidential information to a competitor. Judge Beatrice Shainswit, a twenty-year veteran of the New York Supreme Court, ruled the same day that Feeney and Parker must show the court by November 25, 1996, why an injunction should not be issued.

Up to this point, the fight for the future of DFS had escaped media attention. The lodging of court documents changed that. DFS was forced to issue a press release on October 30 giving details of the proposed sale of Feeney's and Parker's holdings to LVMH. The
New York Times
reported that “high-flying billionaire” Robert Miller was seeking to block the sale by Chuck Feeney and Alan Parker, as he and Mr. Pilaro “do not want to be the minority shareholder in a company controlled by DFS's largest supplier and a major competitor.” Quoting people “familiar with his far-flung interests,” it described Feeney as a billionaire whose estimated net worth was “much more” than the $975 million cited in the most recent
Forbes
magazine rich list. The
Wall Street Journal
and
The Financial Times
also reported the dispute. A spokesman for Arnault was quoted as saying Miller and Pilaro were just holding out to get a better price.

The day the story appeared, Caroleen Feeney was walking along Columbus Avenue in New York when she saw Andrew Pilaro coming in the opposite direction. They had been friends since childhood, when the Feeney and Pilaro kids went out in the company junk in Hong Kong on weekends. Instead of avoiding each other, however, they hugged. “This has nothing to do with us, it's between our parents,” Caroleen remembered Andrew saying.

The news that DFS was for sale brought the barbarian to the gate. Henry R. Kravis, of Kohlberg Kravis Roberts & Co. (KKR), whose 1988 leveraged buyout of RJR Nabisco had been dramatized in the book
Barbarians at the Gate,
⁴
wrote to Ira Millstein, expressing his interest in buying out DFS for a price higher than that offered by LVMH. The corporate raider, who had a reputation for buying companies, restructuring them, selling off selected assets, and then getting rid of the company at a profit, and who had bought and sold such American brand names as Gillette, Texaco, Samsonite, and Safeway, said he could back his bid with more than $5 billion in equity capital. “We believe that KKR is uniquely positioned to facilitate a transaction in a timely manner,” he wrote.

LVMH brushed off the Kravis bid. Such an offer wasn't permissible under the terms of the agreement to purchase signed with Feeney and Parker, a spokesman said. None of the four owners of DFS took it seriously. The Wise Man invited the legal representatives of the owners to come to his office at 10:00 AM on November 6 to begin his arbitration. Eleven
highly paid New York lawyers crowded into the room. Chuck Feeney's team was headed by Frederick A.O. “Fritz” Schwarz of Cravath, Swaine & Moore, who in 1975 was general counsel to Senator Frank Church's Senate committee that investigated U.S. intelligence agencies. Bob Miller was represented by Peter Fleming, who had appeared for former attorney general John N. Mitchell in the Watergate hearings, and by William Brickern, both from Curtis, Mallet-Prevost, Colt & Mosle. Pilaro had two teams, one headed by Thomas J. Schwarz from Skadden, Arps, Slate, Meagher & Flom, the other by Anthony Genovese of Robinson, Brog, Leinwand, Greene, Genovese & Gluck. Alan Parker was represented by Bernard Nussbaum of Wachtell, Lipton, Rosen & Katz, who until two years previously had been President Bill Clinton's White House counsel.

Ira Millstein spoke with some weariness. The four shareholders were his friends, he said. He had tried everything to avoid arbitration. “I've been discussing the various proposals for sales to LVMH from day one, starting with Chuck's desire to sell by himself, and continuing on through the various confederations thereafter, with some selling and some not selling, and some agreeing and some not agreeing. I've been involved in every one of these discussions with every single one of the partners. Chuck has come to see me alone. Bob has come to see me alone. Tony has come to see me alone. I've met them together and separately and in every combination known to man.” He had also had “untold” numbers of discussions with Bernard Arnault, asking him to help get a deal on track with one, two, or three, or all four of the owners. Nothing had worked. “I am a totally unsuccessful arbitrator or Wise Man or whatever in trying to get them to agree to do this together,” he said. “I flunked.” Now, he went on, he would listen to their arguments and then go off into a corner and make his own mind up.

“I have to find a way to cut the baby in half,” he said, “and somebody is going to be very unhappy.”

When Miller's lawyer sought a delay to consider whether or not to give Millstein a waiver for any conflicts of interest in past dealings with individual DFS owners, the Wise Man responded with exasperation. His seventieth birthday was coming up in two days' time, on Friday, he told them. He was planning a weekend away with his family. He would not be back until the following Wednesday. Without a waiver, “I'm out of here,” he said, and they would have to pick another arbitrator very quickly. He had
a nice career, and he wanted to keep it that way, so he did not want anyone accusing him later of conflict of interest. The Miller lawyers went into a huddle. Fleming came back to say, “Mr. Miller waives.”

Millstein requested that both sides file briefs and responses by December 4, after which he would make his ruling. Until then the deal signed by Feeney and Parker was on hold. One other thing, he said, as the lawyers stuffed files back into their briefcases. He wanted any outstanding bills due to him settled right away so there was no question of seeming bias. The Wise Man, who charged $500 an hour as a senior partner in his firm, also asked for a check for $250,000 against his fees.

In the following days, claims and counter claims piled up on the Wise Man's desk. From Paris, Bernard Arnault sent a sworn declaration that he would maintain DFS as an independent business. He pointed to the experience of Le Bon Marché, the French department-store chain that LVMH had acquired in 1988 and which he claimed was left to its own devices. He enclosed a floor plan to show that competing boutiques were located as prominently in the Le Bon Marché stores as LVMH affiliates.