Why Should White Guys Have All the Fun? (39 page)

Invigorated after his second walk, Lewis was feeling his oats and ready to rejoin his long-running battle with Drexel over his transaction fee. Once he was back in the building, the sound of his raised voice could soon be heard emanating from a corner office as he gave hell to representatives of Drexel, primarily Dean Kehler. Lewis’s objective was
to get a $7.6 million transaction fee. Drexel’s objective was to thwart Lewis. Both sides had been going around and around on the issue for months and with the closing now actually under way, Lewis began pressing his arguments in earnest. Invoking the names of buyout kings Henry Kravis and Ted Forstmann, Lewis threatened to walk away from the deal if he couldn’t get what he wanted.

In light of his make-or-break 5 percent rule, Lewis’s threat to sink the entire transaction over $7.6 million was probably a bluff. Then again, given that Lewis could be unpredictable, he may have been dead serious.

“I gotta be paid,” Lewis bellowed. “Henry Kravis gets paid for his work, Ted Forstmann gets paid for his work. What am I, chicken liver? I gotta be paid for my goddamn work!”

Prior to closing there had been a number of occasions when Tom Lamia and Cleve Christophe had gone to Drexel to hash over the fee issue. At one point, Lewis, Christophe, Lamia, and Leon Black and Dean Kehler came over to 99 Wall Street, where a shouting contest over the fees ensued.

“It was really brinkmanship on Reg’s part, right down to the final hour,” Christophe says.

Drexel argued that there was an important distinction between what Lewis wanted to do and the princely transaction fees routinely reaped by Kravis and financier Ted Forstmann. Lewis was going to gain control of a billion-dollar company and have almost half of the equity interest after putting up only $15 million of his own money, Drexel said. But when the KKRs and Forstmann Littles came to the table and wound up taking home large deal fees, they had also put substantially greater dollars into play.

But it incensed Lewis that the $7.6 million he was seeking was a mere fraction of what Kravis and Forstmann were making in transaction fees during the 1980s. In the end, Lewis and Drexel arrived at a compromise: Lewis didn’t get his cash fee, but he got a considerable amount of Class C preferred stock that he was able to transfer to liquid assets some years later.

But the agreement on Lewis’s fee didn’t occur until the deal closed. And the deal didn’t close until recurring snafus with the bank piece of the transaction was solved. The first indication of a problem initially appeared to be a pleasant surprise.

Two lawyers from Paul, Weiss approached Lewis around 5
P.M
. and informed him that the bank closing section of the Beatrice transaction was finished, meaning the entire deal had closed.

There were celebratory handshakes and Paul, Weiss even received a check from Lewis to cover the law firm’s legal fee for nearly $2 million.

The only problem was, the deal hadn’t closed. There had been a miscommunication between the people working on the bank financing part of the deal and those working with divestitures. As a result, one of the banks involved, Manufacturer’s Hanover, was not going to transfer its money until it was satisfied that all of the conditions necessary for the bank closing had been met.

Someone had to wade in the middle of the gigantic mess, put on a detective’s hat and find out what the problem was. Since Lamia was running the show, that unenviable task fell to him.

He found out that Manufacturer’s law firm simply hadn’t read through all of the securities documents that had been prepared in order to perfect Manufacturer’s lien. That meant there were hundreds of financing statements and security agreements that would have to be scrutinized on the spot.

Everyone had been under the impression that Manufacturer’s law firm had already checked the documents when in fact it hadn’t. So Lewis had little choice except to wait for the lawyers to read all of the documents, a herculean task that lasted six hours and went right up to 11
P.M
., giving Lewis one hour to spare on the deadline to close the Beatrice transaction or watch it fall apart. The agreement to sell the international food company was only binding on KKR up to midnight!

Lewis was understandably furious at having been told the deal was closed when it wasn’t, and at seeing his deadline nearly broken because work that should have been done wasn’t, but his fury was mitigated by the realization that the complicated transaction was all but finished. Once Lewis was aware the wire transfer had been confirmed, there were slaps on the back and kind words in the conference room where Lewis and Lamia were. Then Lewis got on a speaker phone and made a speech in which he thanked everyone for their hard work and dedication. He also went to the various closing rooms and personally thanked some of the people working on the closing for their hard work.

“Reg did not like people touching him,” Kevin Wright says. “We were walking down Sixth Avenue after leaving the Paul, Weiss offices where we’d signed the contract to buy TLC Beatrice International Foods. I put my arm around his waist and just patted him on the back and he did the same to me, and that was very special. You didn’t see that often with Reg.”

Just as he had done after closing the McCall transaction and after he had won the bid for Beatrice, Lewis accompanied a small group of his closest advisers to the Harvard Club for celebratory drinks.

Lewis would have to meet a whole new set of requirements that went with being the chairman and CEO of a billion-dollar, multinational company. He was now on an international playing field, which would call for a new level of sophistication on his part. Also, there was much work to do in terms of refinancings and selling off assets.

“He saw a need to rise to the occasion and meet the new challenges that he had inherited, which he did,” Everett Grant says.

Going forward, Lewis’s strategy was basically to sell off certain operating units and leave himself with a residual core of assets focused on doing business in Europe.

Lewis’s tab for investment banking fees, bank fees, and related costs came to $53.5 million.

After the closing, I took a couple of days and I went to Europe. I put together a package of assets for $350 million and offered it to Nestlé and an outfit called Bon Grain, which had been the losing bidder. I offered them a package, which they should have taken because it consisted of the Latin American division and the ice cream division and one or two other small pieces.

Now the idea was to sell that for $350 million, which would have taken out all of our high yield debt right away, before the interest rates kicked in. We would have still been left with a big distribution business of close to $2 billion. But they were smart. They decided they didn’t want to do it.

Well now, those businesses would cost a lot more money, $140 million for Latin America alone. But that didn’t work, so then I came back and took the family for a short vacation down to St. Thomas. Bill Mowry was able to get the Beatrice plane for me, so that was the
first time I took the family on a private aircraft. St. Thomas was very relaxing. I needed the break.

When I came back I immediately went to Europe again, spent some time in Chicago and began selling assets like crazy. I started working on my Latin America deal. I ended up getting a huge price, $140 million and $11 million of that came to me personally because of the way the deal had to be structured. So of the $15 million I personally invested, I was able to get $11 million back within about six months. And within nine months, we paid the bank back its entire $260 million in bank financing.

Then we sold a British candy company called Callard & Bowser that had great returns, something like $36 million, to Sir Hector Laing and Bob Clark of United Biscuits. We then started selling the Asian businesses, had extensive negotiations with the Chinese and extensive negotiations with the Japanese, as well as with Singapore and Malaysia. The sale of the Latin American assets was done with Venezuelans (Organizacion Polar). Then we sold our poultry operations to the Brits (Hillsdown Holdings).

Lewis thought the Latin American assets had tremendous potential and wasn’t keen on selling them. But due to the difficulty of getting cash out of Latin America and his own need for cash, Lewis pulled the trigger on that deal, a move he regretted afterward. In any event, the Latin American sale brought Beatrice’s debt down to comfortable levels.

“There were quite a few discussions about the pros and cons of selling Latin America, although fundamentally Reg always knew that it would have to go,” says Everett Grant, who was responsible for structuring the divestiture in such a way that it generated $11.3 million for Lewis. He’d used $200,000 of his own money and $1.8 million borrowed from Beatrice to acquire a 25 percent interest in Beatrice’s Latin American division for $2 million. Based on his original investment of $200,000, Lewis reaped an impressive 57 to 1 return on that one deal alone.

Lewis had also planned to hold on to the S.E.S. hypermarket chain in northeastern France and was looking into the possibility of a public debt offering for S.E.S. However, the chain didn’t have sufficient cash
flow to justify that move and it put a lot of debt on the balance sheet, so Lewis eventually sold it to the Bouriez family of France’s Cora-Revillon business group.

Not long after the Beatrice deal closed, the company’s general counsel in Chicago resigned, to Lewis’s delight. “My god, more manna from heaven has fallen into our lap,” he exclaimed to Kevin Wright. “Kevin, you’ve got to get out to Chicago and fill the vacuum.”

Wright, who had a wife in medical school and was taking care of a four-year-old son at the time, demurred, saying his responsibilities compelled him to stay in New York.

“Well, you’ve got to be two places at once, then,” Lewis said, only half joking. But Wright held fast, putting his family over Lewis and TLC Beatrice. “Clearly, that was one of the aspects in which I failed in his eyes, by not figuring out a way to get out to Chicago and become indispensable to the operating management of Beatrice International,” Wright says.

With TLC Beatrice secured, in January of 1988 Lewis began directing some of his energies toward a matter of a more personal nature: His frayed relationship with Cleve Christophe. He gave Christophe a bonus of $300,000 in early January, an amount Christophe terms an insulting “pittance” although it was double Christophe’s annual salary. Chaffing over their previous run-ins over the Drexel private placement memorandum and the mixup that resulted in Lewis losing $15 million on the Onex deal—as well as the worldwide acclaim Lewis was getting and the fact that he never mentioned Christophe’s name—Christophe had made up his mind to leave.

The two men had a talk at 99 Wall Street, where Lewis was still doing most of his business. When Christophe told Lewis he was leaving, that prompted an hour-long conversation. Among other things, Lewis told Christophe that they’d come a long way together and had accomplished quite a bit. Lewis admitted that he had shortcomings, but assured his friend that he was working on addressing them. In the meantime, Christophe’s patience and forbearance would be greatly
appreciated. Lewis argued he should be given the opportunity to come the distance. But when Christophe still insisted on leaving, Lewis abruptly changed his tack.

He accused his colleague of being too naive to understand what the deal-making process was all about, as well as the emotional strains it can produce. It all had to do with Christophe’s immaturity, basically, as well as his inability to understand that Rome wasn’t built in a day.

“Well, if you’re hellbent on committing economic suicide, when do you want to leave?” Lewis asked heatedly.

“I don’t want to do anything that’s disruptive,” Christophe answered. “There are still a number of things that need to be done and I am part of that transition. So, I’m prepared to stick around for a reasonable period of time in order to withdraw in an orderly fashion.”

“Don’t do me any favors,” Lewis responded. “Make it easy on yourself.”

“Fine,” Christophe answered brusquely. “Two weeks.”

“Okay, get the fuck out of here in two weeks, then,” Lewis snarled.

About two hours later, Lewis’s secretary, Deidra Wilson, summoned Christophe back into Lewis’s office. Lewis’s demeanor was as though the earlier conversation had never taken place.

“Cleve, we’ve got this problem over in France with S.E.S.,” Lewis said. It seemed that one of the managers had sold some Beatrice property that he was not authorized to sell. “This is a mess and I’m concerned about the banks,” Lewis said affably. “You’re good at this stuff—would you go over to France and see if you can get to the bottom of it? You and Tom Lamia?”

“When do you want me to go?” Christophe asked noncommittally.

“I’ve already got you booked on a flight three hours from now,” Lewis answered.

Christophe was gone for two weeks. After he returned, another week went by without Lewis making any mention of Christophe’s desire to quit. Christophe decided to make another visit to Lewis’s office.

“Reg, what I told you back in January is still valid,” he told Lewis. “And more than two weeks have passed.”

“Oh, I thought you had forgotten about that,” Lewis said.

“No.”

Lewis walked over to the door of his office, closed it and then took a seat on his couch, rather than behind his desk.

“Cleve, I really wish you would reconsider,” he said. “You mean the world to me. I know what we can do, but I guess at the end of the day you’ve got to make your own mind up. If you are that intent, then what’s the timing?”