Why Should White Guys Have All the Fun? (25 page)

Looking unimpressed, Smilow took the letter, read it briefly, and then turned to Lewis and said, “I’m sorry, but I can’t sell you the business based on this statement. The deal would be too leveraged and that would be unfair to my employees.”

Lewis looked at Smilow in astonishment. Lewis had pulled off a minor miracle to get Bankers Trust to commit $19 million to his first major deal, and here Smilow was telling him that the transaction would carry too much debt . . . ridiculous! Smilow was playing some kind of game, and everyone in the room knew it. His goal was to keep Lewis off balance so Smilow could shop Lewis’s offer around in search of a better one. By now, Lewis was smoldering.

Straining to control his temper, Lewis informed Smilow in measured, yet forceful tones that they’d had a gentleman’s agreement and that Lewis had abided by the terms of their pact. By rights, he ought to be able to cement his bid to buy McCall. Nothing new had been put on the table—why was Lewis’s offer suddenly unacceptable?

Other members of Lewis’s team also began to chime in with objections. At this point, Lewis and Smilow repaired into another room for a private discussion. Lewis was furious to think he had been a mere stalking horse, but he was mindful of the fact that Smilow controlled the business and Lewis’s ability to take control of it.

Choosing his words with care, Lewis argued that Smilow should accept his deal. However, Smilow wouldn’t budge, so Lewis and the TLC team left Playtex and climbed into their limo for a glum ride back to New York City.

“It was like coming back from a funeral,” Kevin Wright says. “The ride back was tough—there was just a pervasive sadness in the car. It was the first time I ever heard Reg talk about something he was involved in being ‘unfair.’”

They stopped at a restaurant along the way for a cup of coffee and a despondent post mortem. Lewis asked each member of his team why they thought Smilow had turned them away.

Lewis mulled over each response, saving Wright’s for last. Wright had a two-fold answer: First, Smilow feared that McCall was going
for too low a price. Second, Wright wondered whether race hadn’t played a part. Years afterward, Lewis would harken back to Wright’s response and remark that he’d hit the nail on the head when none of Lewis’s high-priced advisers had; Smilow says he was only motivated by business.

Lewis was bitterly disappointed. From Wall Street came whispers of what Lewis had already suspected—Playtex was shopping McCall around in search of a higher offer. He even found out that an investment banker he’d approached early on was now quietly trying to buy McCall behind his back!

Lewis was in limbo, and the day-to-day uncertainty was grinding on him and his acquisition group.

One night, after working at 99 Wall Street until 1
A.M.
, Lewis and Wright were on their way out together. They had something of a late-night ritual where Lewis would drop Wright off at the World Trade Center to catch a commuter train to New Jersey.

As they waited for the elevator, Lewis looked Wright in the eye and asked, “Do you think we’re going to get this done?” Wright answered unhesitatingly, “Yeah, Reg. I do.”

Lewis smiled and replied, “I do, too.” Wright’s vote of confidence had been reassuring.

In the meantime, the calendar was inexorably moving forward. November gave way to December and still there was no word from Smilow. All the while the meter was running among Lewis’s business advisers, lawyers, and accountants, who were accumulating fees by the bushelful as Smilow continued to beat the bushes for a more lucrative offer.

Acutely aware that the passage of time was costing him a small fortune, Lewis responded with an interesting gambit. He ushered Phyllis Schless, Doug Walter, and Tom Lamia into a conference room and laid a very big carrot on the table to encourage them to get the wheels turning on his transaction once again.

“I don’t know what you guys can do that you aren’t already doing,” he said, “but I want to be sure you do it. So I’m going to double your fees on the deal if we get this thing closed in a reasonable time frame.”

Bankers Trust was also eyeballing the calendar. Financial institutions pledging millions of dollars for corporate transactions can’t sit by forever. Bankers Trust had their lawyers send Lewis a letter that
essentially said, “You haven’t done what you said you were going to do and Bankers Trust is no longer committed to providing you with $19 million.”

Worried, Lewis began to approach other potential financial backers. Christmas was approaching and he could feel the deal slipping away. Lewis might wind up having to ante up hundreds of thousands of dollars in expenses with nothing to show for it. Each passing day solidified Lewis’s and Wright’s view that Lewis was being jerked around because he’d pulled off his end of the bargain too skillfully and stood to make too much money for himself if the transaction was consummated.

One evening, Lewis was working in the study of his home with the television on when Jesse Jackson appeared on the screen. Jackson was talking about running for President. Lewis would later relate to a close confidant that a single thought ran through his head, “If this man can run for president of the United States, I can buy the McCall Pattern Company.”

By January 1984, it was clear to Smilow that Lewis held the most attractive offer. Smilow asked for a meeting, this time agreeing to come to Manhattan.

The meeting was held at the Yale Club, to which Smilow belonged. Years later, Smilow and Lewis would become good friends and even discussed the idea of combining Playtex and TLC Beatrice. But as the McCall deal was being finalized, Smilow was not Lewis’s favorite person.

Smilow sought more advantageous terms than he’d originally requested: Now he demanded a 7.5 percent stake in TLC Pattern, Inc., the holding company Lewis had established to control McCall Pattern Co. Lewis was not pleased by Smilow’s new demand, but he was anxious to close the McCall deal, so he acquiesced.

“You reach a stage where you almost have to close,” Doug Walter explained. “You’ve got to make the last concession because you’ve got so much money invested in it that the only way you can get it back is to get the company. It doesn’t give you a whole lot of leverage.”

Bankers Trust said that it would stand by its commitment of $19 million, prompting relieved sighs all around.

The final terms of the agreement called for Lewis to pay a cash price of $20 million and give a note worth $2.5 million as well as the warrant for 7.5 percent of the new entity. The deal required McCall to have at least $1,855,000 in cash on its balance sheet by a specific date. Anything less than $1,855,000 would be subtracted from the purchase price; anything more would be added to the purchase price.

The McCall transaction was back on track but Lewis was still not at the finish line. From a logistics standpoint, a corporate buyout is one of the most complicated human endeavors imaginable. The point man, in this case Reginald Lewis, has to ride herd on scores of major and minor transactions and crises, any one of which could be a potential deal breaker. Equity has to be raised at the same time banks are being contacted about how much money they’ll give and what their lending requirements are. Due diligence has to be conducted on the target company, which entails burrowing through mountains of records and making sure everything is in order. Armies of lawyers, accountants, and investment bankers are all working simultaneously at a fever pitch, sometimes at cross purposes due to miscommunication or petty rivalries.

Someone must act as a conductor to orchestrate the efforts of these hundreds of players into a smooth and efficient exercise. The role of maestro fell to Lewis. Everyone looked to him for their cues. He was stepping into a role unlike any he had played as an attorney, and he had to remain calm and upbeat when situations were particularly tense or bleak. Lewis rose to the challenge magnificently.

When Lewis was under intense pressure, his palms tended to sweat and they remained moist throughout the final stages of the McCall transaction. Otherwise, Lewis showed no outward signs of concern or worry. He had worked out this deal in his head many times, gauged the strengths and weaknesses of his team, and formulated a game plan for making an intricate and unwieldy transaction manageable. So when closing time came on the McCall deal, Lewis had his various players and their roles already assigned.

Tom Lamia was to be Lewis’s quarterback. Lamia was responsible for handling negotiations, tax planning, and the drafting of documents during the course of the negotiation. Doug Walter would be a
backup quarterback who would serve as a second pair of eyes for Lamia’s work. Charles Clarkson was assigned the role of document control, keeping tabs on the blizzard of paperwork the deal was manufacturing and making sure that documents wound up in the right place at the right time. Laurie Nelson was responsible for intellectual property agreements, which govern things such as trademarks. Kevin Wright was to review all employment agreements for key McCall personnel.

Originally tasked with finding bank financing, Phyllis Schless served as a Lewis confidante who helped keep him focused on the big picture as the deal progressed. Lewis’s role was that of field general and big kahuna.

“He didn’t want any sloppy work,” Lamia recalls. “He didn’t want any confusion. He didn’t want anybody stepping on his lines. He wanted to be the star of the occasion.”

Lewis never lost sight of one simple fact throughout the complex buyout: He wanted the McCall Pattern Company. Period. He made full use of his ability to cut to the heart of a problem and to understand interpersonal relationships. Also, once Lewis staked out a position on some point, he never publicly wavered on it. He entertained plenty of second thoughts in private about the McCall deal and tended to agonize—even procrastinate—when it came to major decisions. But that process wasn’t for public consumption.

His outward appearance of making a decision, focusing on it in the face of myriad distractions and not displaying any doubt would prove invaluable.

Toward the end of the transaction to acquire McCall, Lewis began to follow a pattern of behavior that first surfaced during the failed Almet transaction. Until he was reasonably certain the target firm was within his grasp, Lewis would unfailingly appear at every meeting, every negotiation, every brainstorming session. However, once it appeared that he would prevail, he kept a low profile until the actual closing. Lewis would give his troops their marching orders via the telephone in the meantime. Although not present physically, Lewis stayed on top of developments like a hawk and was intimately familiar with the smallest setback or bit of progress.

When obstacles were encountered, Lewis generally had a Plan B already at hand and waiting to be implemented. “He was very unusual
in his ability, or desire, to keep his options open until the very last minute,” Doug Walter says. “He was constantly keeping alternatives in front of him in order to sort of be able to rearrange them at the last minute.”

As Lamia and Playtex’s attorney negotiated the purchase agreement for McCall, Lamia reported back to Lewis by phone, walking Lewis through a 40-item checklist issue by issue. After conferring with Lewis, Lamia would then go back to the seller’s lawyer and the issues were gradually narrowed until an agreement was at hand.

The process took about four days. In the course of negotiating one contract, Lamia made a concession on a confidentiality agreement that Lamia assumed he had the authority to make. When told of the concession, Lewis was livid. “You mean to tell me you would just take it upon yourself to do something like this without asking your client?” Lewis screamed at Lamia.

“Reg, either I have the authority to negotiate or I don’t,” Lamia countered. “This is the kind of thing I’ve got to have some discretion about.” The explosion caught Lamia off guard, because it was the first time he had experienced the legendary Lewis temper directed at him.

In the meantime, Lewis had a pressing matter to deal with prior to closing: He needed $1 million in cash. He was very methodical in his approach. Who would be a logical person to hit up for that kind of money? A good place to start would be with McCall’s top managers: Giving them an equity stake in the company would stimulate them to seek optimum results. Plus, who would be easier to sell on McCall than someone already intimately familiar with it? Lewis put the touch on Earle Angstadt and Angstadt’s second in command, Bob Hermann.

“He had acquired cash elsewhere, but he was very anxious for my check,” Angstadt says. “I put in about $110,000. My associate at McCall, Bob Hermann, put in $67,000. Reg was very anxious to get that money, because I think he was on the hook for it.”

Lewis already had $15,000 from friends Sam Peabody and Ricardo Olivarez. He then turned to one of his MESBIC contacts, Equico Capital Corp., and came away with a loan of $500,000.

Finally, Lewis asked his banker, Robert Winters of the Morgan Bank, for a personal loan of $500,000 which Lewis promised to repay within a month. Such was Winters’ faith in Lewis that the loan was made on an
unsecured basis. Lewis now had more than he needed to close the deal, but kept that little piece of information to himself. And true to his word, Lewis repaid the Morgan loan in a month’s time.

It was raining and snowing in Manhattan the Friday before the McCall transaction closed. Lewis, Kevin Wright, and Jean Fugett, Jr. had just come from Equico and they were standing at an intersection waiting for the light to change as a slate-colored sky drenched them with chilling precipitation. All three men were weary from working round-the-clock on the McCall closing. Looking at Wright and seeing that he was clearly fatigued, Lewis said, “You don’t have to come in tomorrow, take Saturday off. Just come ready to deal on Monday.”