The Billionaire Who Wasn't (37 page)

Pilaro had one more card to play. He revived the unresolved and contentious dispute over the retail stores in Hawaii. The Wise Man Agreement of February 20, 1991, stipulated that Feeney cede control of his Hawaiian Retail Group to a third party by January 31, 1993. He had done nothing, however, and had gotten the deadline extended to January 31, 1994. Again nothing had happened. After further false starts and delays, Pilaro had
asked the Wise Man in January 1996 to direct General Atlantic to transfer its interest in the Hawaiian Retail Group to DFS. Feeney responded by signing an agreement in principle on March 25, 1996, to sell the Hawaiian Retail Group to an entity owned by the four DFS shareholders. But ten months had passed since then, again without anything happening.

“From day one, Chuck simply ignored that part of the Wise Man Agreement,” said Chris Oechsli. “It just dragged on and on. We spent many, many hours on how the retail group would be restructured—and we never did it. We were very clever. I remember doing lots of machinations that ultimately didn't go anywhere.”

Mike Windsor, who ran the Hawaiian Retail Group from 1996, recalled that Feeney offered at one point to give the group to a special charity of the DFS owners' choosing. “But they turned us down. They wanted to rub Chuck's nose in this; the other three wanted to win, rather than a rational solution. We never did sell the Hawaiian Retail Group because he didn't want to. And I always asked Chuck, when this fight was going on, ‘Look, we're not making any money out of the retail stuff. It's not worth it. Why don't we get rid of them?' And he said, ‘They've got my Irish up, I'm not going to give in.'”

On January 2, 1997, Pilaro instructed Anthony Genovese of his second legal team to write to Ira Millstein, demanding that he force Feeney to transfer the Hawaii stores to the four DFS shareholders or face a fine of $50,000 a day, retroactive to March 25, 1996, if he did not transfer the retail stores as a going concern within two weeks. Miller followed Pilaro's lead, making the same demands in a letter the following day. Feeney told Oechsli to set up a meeting with a representative of Pilaro and Miller before January 17 to implement the transfer. This time, he said, there would be no problem.

This sideshow was soon overtaken by more dramatic events. Pilaro flew to London, booked into Claridge's and on Wednesday, January 15, the day when Arnault's offer to buy them out would expire, invited Miller to lunch. They went to Mark's Club, just off Berkeley Square, a private dining club where Pilaro was a member, and were joined by Pilaro's nominated director on the DFS board, Rick Braddock.

As they worked their way through the main course, at an antique table overhung by oil paintings on fabric-covered walls, Tony Pilaro told Miller he had decided after all to accept Bernard Arnault's offer for his 2.5 percent shareholding, which in his case amounted to $110 million cash. Miller was stunned. “You have to do what you've got to do” was all he could say.

“Right in the middle of the lunch, Tony said, ‘Bob, I am going to sell,'” Miller recalled. His mind went back to the day thirty-two years earlier when Pilaro had left the company, thinking it was going bankrupt. “Unfortunately, this is Tony's way of doing things: He gets all excited and then at the last moment can change his mind completely,” he said.

Pilaro urged Bob to sell as well. He had been the “pit bull” fighting Arnault, he pointed out. Was he sure he wanted to stay? They might also get more for their shares than Feeney and Parker. Arnault had talked about adding on a premium if they made the jump. “Let's call him up and see if the premium is still around,” he said.

They finished their lunch and went to the offices of Morgan Stanley on Cabot Square to make the call to Arnault. With so much at stake, an office room was provided, and Anthony J. Tennant, a senior adviser at Morgan Stanley, was recruited to make the call on their behalf. Tennant had been a director of Christie's International PLC and would later be charged in a U.S. court with conspiring to fix auction commission rates with A. Alfred Taubman, chairman of the board of directors of Sotheby's: Taubman was convicted but Tennant, who denied the charges, could not be extradited and avoided trial.

“Tennant calls up,” said Pilaro. “He says, ‘I have Mr. Pilaro and Mr. Miller here. And they have got some questions. They would like to know about the premium that you offered them. Is there a premium?' Mr. Arnault said, ‘I understand the significance of the premium.' Tennant said, ‘Will there be a premium?' He said, ‘I cannot answer that at this time.' I said to Tennant, ‘Ask him when you will be able to answer that.' And Mr. Arnault said, ‘Friday.' It was Wednesday. Our put was expiring that day. I said, ‘Mr. Tennant, will you ask Mr. Arnault if he will extend the deadline of our put to Friday.' Arnault said, ‘No.' I said, ‘Tell Mr. Arnault I'm exercising my put today, and he will hear from my lawyer.'”

Arnault was overheard to remark, “At least we got one of them.” Pilaro interpreted that to mean “At least we got Pilaro to sell,” but later he thought he may have meant, “At least we got Miller to stay, and I don't have to spend another billion six to get control.”

Miller that day was “very to himself, very oriental, not an easy read,” recalled Pilaro. “He may have thought Arnault disliked me so much that maybe with me gone, there would be a more friendly relationship between the two.” Pilaro offered to sell him his 2.5 percent for $110 million, but Miller wasn't interested.
He was subsequently asked by LVMH to sign a non-compete agreement. “I said, ‘Jesus Christ, I'll sign anything.' I washed my hands of Duty Free.”

The day Pilaro sold, Chuck Feeney and Alan Parker were in Paris for a celebration dinner with Arnault in one of the city's top restaurants. Before the dinner, the pair stopped at Arnault's office. A banker from Lazard came hurrying down the stairs to say, “You won't believe what has just happened. Tony has just signed.”

The mood at the dinner, attended by about twenty people, was euphoric. Feeney sat in the place of honor, between Arnault and his slim, blonde wife, Hélène Mercier, a Canadian-born concert pianist.

Harvey Dale got word almost immediately of Pilaro's decision to exercise his put. “I couldn't believe it, he had bad-mouthed the deal,” he recalled. Dale phoned Ira Millstein. The Wise Man was at a meeting, but the lawyer insisted that he take the call. Millstein came on the line. “Tony ‘put'!” said Harvey Dale. “The fuck!” said Millstein.

There was never a question in his mind about staying in DFS, Pilaro recalled one spring day over coffee at his chalet in Gstaad, Switzerland. “When the deal was done, why would I want to be a minority partner to Bernard? He had control.” Pilaro was aware that Arnault regarded him as a troublemaker. He conceded that he had been wrong to oppose the sale all along. “Chuck was a genius on timing. He had a great sense of the unknown, a feel that something wasn't right somewhere. It happened more than once in our company that he came in and said, ‘Let's do something,' and we took a different tack, and he was right.”

The relationship between Miller and Pilaro never recovered. “To say the least, I was disappointed with Tony and I haven't really spoken to him since,” said Miller. The friendship between Pilaro and the Wise Man also came to an end. Several years later, Millstein wrote to Pilaro to say that while he had never done any work for Arnault, he wanted to inform him that the LVMH chairman had now asked him to represent him in a legal matter. Pilaro said he replied along the lines of, “We are big guys, we have known each other for long enough, let me tell you, I do believe that what you did [allowing the DFS sale] violated the power in trust that you owed to me.” They never communicated after that.

In New York that same day, Chris Oechsli met Pilaro's lawyer, Craig Leonard, to negotiate the sale of Feeney's Hawaii stores. “Then we heard that Tony had just decided to sell and from that moment on, we did virtually
nothing on the Hawaiian Retail Group,” said Oechsli. Nobody was interested any more. The Hawaiian stores stayed in the possession of General Atlantic.

With Pilaro gone and Arnault in effective ownership of DFS, Miller and Pilaro's court case went nowhere. When it came up for hearing in February, Pilaro's name was deleted from the appeal “with prejudice.” It was adjourned to March 27, when Miller's lawyers told the court he would not pursue the action any further.

Miller meanwhile pressed Arnault for a higher price for his 38.75 percent, and thought he had a deal at one point but the LVMH boss turned it down. There was no premium after all. He resigned himself to his status as minority shareholder.

“The whole issue affected me quite traumatically,” reflected Miller years later at his shooting lodge in Yorkshire, England. “My health suffered, I got the shingles, I guess as a result of the emotional turmoil I suffered at the time.” He worried whether he had done the right thing, and how he would relate to Bernard Arnault, whose business practices his lawyers had excoriated. He realized that “once Alan decided to sell, then the game was pretty well over,” and Tony had left him in the cold. He said he stayed on because he did not want to break his connection with DFS and because he thought he could get a higher price out of Arnault.

The
Wall Street Journal
reported that Miller had been left “a disgruntled minority shareholder openly at odds with a large supplier and controlling shareholder.” French economics writer Airy Routier wrote that Arnault “flipped the amiable Robert Miller like a pancake,” and that Miller decided to remain a shareholder “to his own discomfort.”
⁵

But some felt that Arnault himself had been turned over like
un bleu
—a rookie—by Chuck Feeney, reported Routier, citing one prominent businessman whose opinion it was that the French fashion mogul made a veritable
erreur stratégique
by buying DFS just before the Asian financial crisis of 1996-1997.

Arnault had in fact acquired a declining asset. In the eighteen months while the sale was being negotiated, DFS sales dropped from $3 billion to $1.5 billion. With Japan's recession, Asia's economic downturn, and the weakening of European currencies, the core DFS customers were spending less.
Dividends dried up. A year after the sale, 320 staff were laid off, and Hong Kong had its first ever loss. Sales in the DFS mother ship in Hawaii dropped from $426 million in 1995-1996 to $229 million in 1999-2000. By 2000, quarterly profits were reported to be running at less than $20 million, despite the installation of Louis Vuitton and Celine boutiques in the DFS Gallerias.

On the plus side for Miller, he had significant veto checks over Arnault. The Wise Man had ensured that LVMH would not interfere with DFS for ten years. Nor could the French company take on major new strategies or debt without Miller's consent. Miller took the attitude that he and his new partner were in bed together, and they might as well make the best of it. He told Bernard Arnault that he would do whatever he could to ensure that the price he paid was justified one day. It was in his interest to do so as well. They now worked well together, he said.

As for his relationship with Chuck Feeney, the split had little bearing on him. “We were distant at that time in any case. I really haven't seen Chuck since 1996. All partnerships break up at some stage, even the Beatles. Arguments start about who contributed most to the success of the partnerships. And then the wives get involved, and it gets extremely complicated. We've got more money than we know what to do with. So everybody's happy. Forget it. It's not worth worrying about. LVMH bought out Chuck and Alan at a very good price. God bless them if they are happy with their monies. Do I regret not selling out at the same time? I don't know. I have thought about it a lot. I don't know if all that money in a lump sum would have made me any happier than I am now. I really love DFS and the company. But all the legal things we did with the Wise Man, Ira Millstein, to be quite frank, all of that was pure bullshit. We didn't really need all that fancy legal stuff. The lawyers have a way of dragging you in and making things more complicated than they are. We were paying huge legal bills at that time, and I don't think any of that would have affected the outcome. When the dust settles, you find out it was all just a huge waste of time, energy, and money.”

The success of DFS arose from the fact that they were in the right place at the right time, reflected Alan Parker at his mansion on the shores of Lake Geneva. “Nobody ever put a penny in the business: We took out $8 billion or whatever it was. Nobody is that smart. You have just got to have a lot of things going your way.” It was Chuck's foresight in seeing the downturn that led to the greatest decision of the lot, he believed. The best thing they did was to sell DFS before it contracted and layoffs became inevitable.

“It would have been an awful experience for us to have gone through, and we wouldn't have done any better. It would really have got to me and to Chuck to lay off thousands of people. They have laid off probably 5,000 people since 1997. It would have to have been a disaster, particularly for people who have been generous like we have been. I think it would have had a very dramatic effect on Chuck.”

“I always thought the most fascinating thing about Chuck was how he came to decisions about things,” reflected Adrian Bellamy, looking back years later in London where he was executive chairman of The Body Shop. “If you analyze Chuck, there seems to be no coherent way that he comes at a particular decision, in the sense of the way most of us come to a decision, talking it through with people in a fairly rational sort of way. He would ask a tremendous number of questions of a tremendous number of people. You would have no idea where he was ending up. All of a sudden he would be in that space. The most interesting one—how he got to the position of believing he should sell the company, and how he managed the LVMH situation—that wasn't a case of ‘Let's sit down in the room, guys, and decide if we should sell.' He was down the road long before most of the others. How did Chuck think that through? I have come to the conclusion that somewhere in his intuition is a brilliance that we don't see easily. Because it is not transparent, and yet it is very, very sure-footed. He had this capacity to push the right buttons at the right time without coming to it in a normal intellectual way.”