Due Diligence: A Thriller (12 page)

Another red flag they had been told about was when a client accepted your terms too quickly. Rob didn’t know how quickly Leopard had accepted Dyson Whitney’s terms, but how much negotiation could there be if you walked away with forty bips?

And offering above the valuation range? The MD hadn’t mentioned that one, but it seemed like a red flag to Rob.

Yet Sammy and Phil Menendez claimed not to think so. It was just a range, they said. The client could do what he wanted. He could go above or below. It was just a range.

It didn’t seem right. You could explain one red flag as a coincidence. Maybe two. But he had three.

If he could spot them—a rookie six weeks on the job—then so could everyone else. All Cynthia cared about was getting a good review. And he didn’t expect anything from Phil Menendez, who was clearly pathological. But for some reason he expected more from Sammy. But why? What did he really know about Sammy Weiss? A week on a team working together under such intensity can make you think you know someone, but you don’t really know them at all. The only thing he could really say about Sammy Weiss was that he was obviously a star producer, someone that even a psycho like Phil Menendez grudgingly respected. And what makes you a star producer in a place where an associate is supposed to focus on his work and not bother anyone with questions?

Rob knew what Sammy had been saying to him that afternoon. Focus on your work, and the collective animal that was the team would protect you. Ask the wrong questions, and you were on your own. No one would shield you.

But that didn’t take the red flags away. They were still there, all around, brighter, redder the more he thought about them.

They pointed to one clear conclusion: Louisiana Light was desperate to do this deal. Why would they be desperate? Because a deal was the only way out. Of what? What could be so wrong that a deal was the only thing that could save you?

Rob thought about it. Who were these people at Louisiana Light? He opened the computer again. At the start of the report was a message from the chairman. Some guy named Edward Leary. His face was at the top of the page. An old guy with kind of a flat, almost bald head. On the next page was the message from the president, Michael T. Wilson. Rob skimmed it. All about how great they’d done in navigating through the downturn. Managing their costs, but not being blind to opportunity. Using it to position the company for the next stage of its growth by investing selectively in high-potential assets that came to the market.

Over the past week, Rob had heard Wilson’s name about a thousand times. There was a picture of him at the top of the page. Healthy, fleshy face, full head of silver hair. Usual kind of corporate shot, half left profile, middle-distance gaze.

Rob turned a couple of pages. There he was again, with his executive team around him. Arms crossed, chin up.

He didn’t look desperate. He looked confident and strong.

But what if, behind that facade, he
was
desperate? What would be his next move?

Louisiana Light was filing its quarterly results later in the week. Anyone doing a deal would want to put out a good set of results. But if you were desperate, thought Rob, you’d put out a set that were extraordinary.

No. That would be too obvious. It would raise suspicion on the part of Buffalo. You’d put out a set that were good, above trend. Not extraordinary. Solid. Enough to keep the stock price up, maybe bump it a little.

He looked over Louisiana Light’s earnings results for the past few quarters. Growth of a very attractive six to eight percent, excluding the Hungarian writedown.

Nine percent, thought Rob. If Mike Wilson was desperate, that’s what he’d want to put out.

13

Ed Leary sipped his coffee, trying to concentrate. He was sitting in the Houston boardroom of SRK Exploration, and John Sadower, CEO of SRK, was giving his management update to the board. Sadower droned on, showing charts with columns of dense little numbers that no one wanted to have to look through.

SRK was an independent petroleum exploration outfit that did most of its work on contract with the oil majors. The S in the name stood for Sadower, who was one of the founders. The other two, Bill Robertson and Hugh Koch, had cashed out of the business years earlier. John was seventy-one, but he showed no signs of leaving or even thinking about succession. For the board, that was becoming an issue.

Sadower was a small, neat man with a trim, white beard. Originally from Minnesota, he had turned himself more Texan than John Wayne, string ties and cowboy hats and big buckles on his belts. Not only was he the CEO of SRK, he was also the chairman of the board. This made getting the succession question on the agenda a doubly tricky proposition. A couple of the other directors had called Leary up before the meeting. They wanted to force the issue. Ed agreed that it needed to be raised, but he wasn’t going to go out on a limb to do it. Eventually, they concluded that one of them should talk to Sadower privately after the meeting to make sure it was on the agenda next quarter. Ed didn’t volunteer. In the end, Doug Anderson, another nonexecutive director, agreed to do it. Doug had arranged to stay over in Houston and have dinner with Sadower after the board.

SRK was one of five directorships that Ed Leary held. The others included Louisiana Light, where Ed was chairman. At sixty-nine, three years after retiring as CEO of Holt Engineering, Ed was content to play his part as one of the battalion of elder statesmen who criss-cross the country to sit on boards and run the governance of America’s corporations. Custodians of American capitalism. That’s how Ed thought of himself. He also had a three-hundred-thousand-dollar consultancy arrangement with Holt that took a day or two of his time each month. Ed had no desire to return to the trials and tribulations of day-to-day management. He marveled that John Sadower still had the stomach for it.

Sadower continued talking. Ed’s mind wandered. He was flying home that night to Boston, then the next night he had to fly down to Baton Rouge to be ready for a Louisiana Light board on Wednesday morning at which they were going to review the results for the quarterly filing. Maybe he should have stayed in Houston, he thought, and gone on to Baton Rouge the next day. As it was, he wouldn’t get home much before one in the morning, and he would be leaving at four the same afternoon. He grimaced. Maybe he ought to cut out these Houston meetings. He had been on the SRK board six years. Six years was enough. There was a fight coming with John Sadower. It wasn’t going to be much fun. Ed had a feeling that Sadower was going to have to be pried kicking and screaming from the chairmanship of the company he had founded.

Maybe he should change his flight, he mused. Maybe stay in Houston tonight. But he didn’t want to do that. His wife, Catherine, had breast cancer. The breast had been removed four years ago but the cancer had come back in all kinds of places. She was fighting it. Thin, weak. Ed didn’t like to be away. He knew, when he dared to think ahead, there’d be time for that later. Too much time.

A secretary slipped into the room. Everyone glanced at her, hoping she was looking for them. Anything to have a break from listening to Sadower. She caught Ed’s eye and moved quickly around the table. She slipped a note into his hand and waited as Ed read it.

“Tell him I’ll call when we break for lunch,” he whispered.

The secretary nodded. She slipped out of the room.

It sounded as if John Sadower was finally wrapping up his presentation. Ed glanced at the note again.

Mike Wilson needs to speak with you.

*   *   *

The secretary found Ed an office he could use. He called Mike Wilson’s number.

“Mike?”

“Hold on, Ed,” said Mike. “I don’t want to talk on the cell phone. I’ll call you back.”

“Can’t we—”

“What’s your number? You still at SRK? You got a land line?”

“Yeah, I’m in some office. Hold on…” He read the extension number off the phone.

“Got it,” said Wilson. “I’ll call.”

Ed put the phone down, wondering what this was all about. After about a minute the phone rang.

“Mike?”

“That’s better,” said Wilson. “Ed, guess where I am.”

Ed shrugged. How should he know?

“London!”

“London, England?”

“The same.” Wilson laughed.

“What are you doing there?”

“That’s what I’ve called about. Ed, get ready. Are you sitting down?”

“Yes.”

“Ed, I’ve done us a deal.”

Ed frowned.

“Ed?”

“Yeah, I’m here, Mike.”

“I’ve done a deal like you asked me to.”

“When did I ask—”

Wilson laughed. “Not
you
. The board, Ed. Hell, you guys already changed my contract so I’d do a deal.”

“Oh.” Finally Leary realized what Mike Wilson was talking about. “The new strategy.”

“That’s right, Ed. I’ve done it!”

“That’s fine, but…” Leary frowned. “We haven’t formally talked about what kind of deal we’re looking for, have we? What kind of target we want.”

“Ed, you don’t think I know what kind of target we want? Come on, who else is going to know?”

“How advanced is this thing?”

“I told you, Ed. It’s done.” Wilson laughed again. “Pending board approval, of course.”

“You mean you’ve already…” Ed stopped, trying to get it straight in his mind. “Hold on, you mean you’ve
already
done it?”

“I’ve been meeting with the target CEO here in London today.”

“You mean they’re British?”

“You bet they are, Ed.”

Leary shook his head in confusion. He didn’t know whether a CEO was meant to do that, go as far as talking to the CEO of a target company without talking to his own board first, or at least to the chairman. Mike Wilson ran things at Louisiana Light pretty much the way he liked, Ed knew, which was fine by him, because the stock price showed that Mike obviously knew what he was doing. Ed Leary didn’t understand too much about the electricity industry or the way Louisiana Light did business and he didn’t think it was his role to get in the way, as long as everything was going smoothly. But he didn’t want to be some kind of a lame duck, either. He didn’t want to be taken for granted.

“Ed, listen. I’ve had to do this in a hurry. Literally days. Out of my control. I’ll explain it all when I see you. The important thing is, they like the deal and you will, too. They’re happy. The price is right. It’s going to their board Thursday. And you know what? Get this! We get a break fee of a hundred and twenty-five million if they approve and then another bidder comes over the top.”

Ed almost dropped the phone. “A hundred and twenty-five million? That’s the break fee?”

“Yeah. Standard. One percent.”

“Jesus, Joseph, and Mary, Mike! How much are we offering?”

“Twelve-point-five billion.”

Ed did drop the phone. He scrambled to pick it up.

“Ed? You okay?”

“They’re bigger than us!”

Wilson laughed.

“No, wait.” Ed tried to get his thoughts together. “You’ve already met them? You’ve agreed?”

“It goes to their board Thursday. They’ll approve. It’s in the bag.”

“Who’s doing the work for us?”

“Dyson Whitney.”

“Who?”

“Dyson Whitney.”

“But we use Merrill Lynch.”

“Not for this.”

“Why?”

“Look, Ed. I’m moving fast. Their board’s going to approve Thursday. Our board’s meeting Wednesday, right? It’s on our agenda.”

“No, it’s not.”

“It is now.”

“How can it be?” demanded Ed. “We haven’t seen anything. We’ve got no papers. Something like this … we can’t just talk about it. We’ve gotta … we need—”

“Relax, Ed. You’ll get everything. Everyone will get a paper first thing when the meeting starts. You’ll have time to read it, then we’ll talk about it.”

“And you expect us to vote?”

“We have to. Time’s of the essence here. Listen, Ed, this is a fantastic deal. The strategic fit is perfect. Wait till you see it. You don’t get an opportunity like this every day of the week.”

“And you’re sure it’s okay to give us a paper and expect us to read it and then—”

“Ed, I’ve talked it through with Doug Earl. He says this is the way to do it. Give him a call to check it out. He’s on his way back from London now. Give him a few hours and give him a call. It’s all above board.”

Leary was silent.

“Now, Ed,” said Wilson. His tone turned admonitory. “You’re going to back me on this one, aren’t you?”

Ed knew that tone in Mike Wilson’s voice. There were times when there was no way to say no to Mike Wilson. At least he couldn’t do it.

“Ed?”

“Yeah, Mike. I guess. If this deal’s really as good as you say.”

“I’m going to be counting on your support, Ed.”

Leary nodded. “But…”

“What?”

“Twelve-point-five billion, Mike. Where are we going to get that?”

“It’s all taken care of. Don’t worry. You’ll see all the details on Wednesday. You know what, Ed?”

“What?”

“This’ll make you chairman of a twenty-three-billion-dollar company!”

Ed thought about that. Holt Engineering, at its height, had been worth maybe a tenth of that. No, less.

“Now, how does that make you feel?” said Wilson.

“That…” Ed shook his head. The truth was, it was absurd.

“Twenty-three billion, Ed. I like the look of your stock options now.”

Ed Leary felt like laughing, it was so ridiculous. He did laugh. “What about you, Mike? What did we agree in your new contract? What was the bonus for doing a deal?”

“Oh, I really couldn’t remember, Ed,” said Wilson, joining in the laughter.

Ed Leary laughed again. He didn’t know why. Something seemed tremendously funny. He just wasn’t sure what. “How much was it? Ten million in cash for you and another ten in options?”

“Something like that,” said Wilson. “Not that I want it. Twelve million, I think. Ed, I wouldn’t even know. Last thing on my mind.”

They were still laughing. Suddenly Ed stopped. “How are the results? For the quarterly?”

“The results are good, Ed. You’re gonna be very happy.”