The Predators’ Ball (34 page)

“I said, ‘Then you shouldn't be afraid of a tender offer.' ”

Bergerac was, indeed, confident that he would prevail, and his confidence sprang from his advisers'. “They all were totally convinced that if we did the exchange, Perelman would be finished,” Bergerac said later.

In addition to turning one quarter of the company's equity into debt, the exchange offer contained covenants which, among other things, precluded most asset sales and the incurring of other indebtedness—which any Pantry Pride deal would require. These covenants, however, could be waived by the directors.

The rest of the watching world seemed to agree with Bergerac and his optimistic advisers. Two articles appeared in the business
section of
The New York Times
two days after the exchange offer was announced: “A Victory by Revlon Seen Near,” in which Revlon's buyback was likened to CBS's recent successful buyback, which had thwarted Ted Turner; and “Pantry Pride Chairman Pursues Elusive Quest,” in which Perelman was portrayed as tilting at windmills—an almost sure loser.

According to one source, “Depression set in at Morgan Stanley. People were going around the firm saying this hostile tender was not the firm's idea, that Gleacher had given assurances at the start that it would be friendly. Eric was being put in a pretty unpleasant position.”

For nearly two weeks, Brownstein recalled, “Perelman looked like he was dead in the water. All through the period of the exchange offer, he did nothing.”

Then, on September 16, four days after the conclusion of the exchange offer, Pantry Pride came back—with a $42 bid, the equivalent of its $47.50 bid with the debt that Revlon's exchange offer had incurred factored in. This bid was not conditioned, as the first offer had been, on the redemption or invalidation of the poison pill, but was conditioned on 90 percent of the stock's being tendered, so as to diminish the pill's impact. But the real point of this offer, qualifications and all, was that Perelman was still coming.

Perelman's initial offer, rather surprisingly, had stated that the $725 million from junk bonds would be raised in the public market. This set Revlon apart from most of the buyouts and the few hostiles that Drexel had backed, where the debt was raised (or commitments were made) in a private placement. These had the advantage of speed: while a private placement can be completed within twenty days, public offerings take as long as forty-five to sixty days to complete. And since public offerings have to be registered with the SEC, they can be held up even longer by regulators' objections.

But Milken's private placement distribution system was heavily stocked at this point. Some speculated, too, that Milken wanted to show the world the scope of his powers, show that even in a hostile deal the public capital markets would lend themselves to his instrumentation. “It would have been a feather in his cap, to raise the money for a hostile deal in a public offering—it would have been a first,” declared Stuart Shapiro of Skadden, Arps.

A few of the Pantry Pride lawyers, however, had been unhappy about the initial plan to raise the money publicly, believing it far
too slow and unwieldy a process. Now, in Perelman's revised offer, Milken had switched from public to private placement. It seemed to signal that the deal would be done expeditiously.

The Revlon advisers and directors now resigned themselves to the fact that the company would not remain independent. They began to consider either finding a white knight or liquidating the company—doing something similar to what Perelman wanted to do, but giving the premium to the shareholders instead of allowing it to fall to him.

Meanwhile, in Pantry Pride's “war room”—Perelman's office on the second floor of his MacAndrews town house, an elaborate sitting room with several large pieces of sculpture and with a Modigliani and a Léger on the walls—there was anxiety. The team frequently repaired to Perelman's haunt, the famous Le Cirque restaurant two blocks away, which one participant referred to as “our cafeteria.” Don Engel tried to ease the tension, likening this contest to the color wars at Camp Winaukee, where he and Drapkin had been campers, and telling Perelman, “The blue team will win.”

Perelman and Drapkin walked around the block, debating the merits of raising the bid. Perelman's new wife, Claudia Cohen, formerly a gossip columnist for
The New York Post,
was now a television entertainment reporter. Whatever else was happening, the group, led by Perelman, gathered in front of the TV set to watch her morning program. Perelman, who is about five foot five, would sometimes make Drexel investment banker Paul Abecassis take off his shoes and stand back to back with him, and then summon one of his executives and demand to be told who was the taller.

As such pastimes suggest, the Pantry Pride team was feeling stymied. True, Perelman could afford to wait it out. He was not at risk of losing more than his fees and carrying costs. He had not purchased stock, in large part because of the Delaware State Supreme Court's decision in Unocal, which had validated that company's discriminatory offer to buy back stock from everyone but Pickens. But Perelman had conditioned his new tender offer upon 90 percent of the shares being tendered. And 90 percent seemed like a lot to expect. “We spent days yelling at each other about what would happen,” said one lawyer.

Revlon could, of course, have “played chicken” and simply let Perelman try to get his 90 percent—but Revlon's advisers felt that the risk of his succeeding, and thereby getting the company at $42
a share, was too great. Or Perelman might raise enough money to take over just 51 percent, in which case the shareholders in the back end would be hurt. There were any number of disastrous scenarios. The problem with Revlon's finding a white knight, on the other hand, was that no company wanted to take the polyglot Revlon whole—and no one wanted the cosmetics business, which had been in the doldrums for a few years.

Several days after Perelman made his $42 offer, a little-known private investment partnership that specializes in leveraged buyouts, Adler and Shaykin, appeared as a buyer for the beauty business that no one other than Perelman wanted—at a price that ultimately reached a staggering $900 million.

Adler and Shaykin's entrance galvanized the situation. Now the leveraged-buyout firm of Forstmann Little emerged as a buyer for the rest of Revlon. Peter Jaquith, with whom Bergerac had explored the possibility of a management buyout of Revlon a year earlier when Jaquith was at Lazard, had moved to Forstmann Little and was eager to revive the old plan. Within the next ten days or so, a deal was hammered out in which Adler and Shaykin, in a transaction that stood independent of the rest, would buy cosmetics; Forstmann Little, joined by Bergerac and other members of management, would then acquire the rest of Revlon for about $1.4 billion (giving the shareholders $56 a share), selling off a division to American Home Products and keeping the health-care business.

While this deal was being negotiated, however, Pantry Pride was neither oblivious nor idle. The Revlon directors were kept apprised of the negotiations, and, it seemed, so was Pantry Pride. Many of the participants on the Revlon–Forstmann Little side were firmly convinced that there was at least one channel from the board of directors to the other side. Wherever the leaks to Pantry Pride came from, they were constant and handicapping for Revlon. “I have never been in a deal where there were leaks like this,” asserted Loomis of Lazard. “The transmission of information was
immediate.
And it reached the point where the people we were negotiating with didn't trust some of us, so they wanted to talk to some of us and not others, and felt they had to restrict their conversations generally. For example, when Forstmann Little finally made its bid at the October third board meeting, they didn't tell any of us they were at fifty-six dollars a share until one hour before the meeting.”

Pantry Pride, meanwhile, cognizant of the deal that was in the
works, was desperately trying to entice Bergerac. Don Engel enlisted Harold Geneen, Bergerac's old boss at ITT, to pay Bergerac a visit. Geneen, on behalf of Pantry Pride, offered to give Bergerac his parachute, as Perelman had offered before; to give him a second one, which he would be able to cash in in two years; and then to sell him a division, one of the health divisions of his choice, at a favorable price, and finance it for him. “He didn't spell out favorable price, but these things are understood,” said Bergerac. “So the package they were offering came to close to a hundred million dollars.”

Bergerac's account of Geneen's offer was confirmed by a Perelman adviser—though flatly denied by both Perelman and his lawyer, Drapkin. Bergerac's continued rejection of all financial enticement, however, was mystifying to Perelman and his advisers. One went so far as to call it “irrational.”

“Some people think that for one hundred million dollars you have to be crazy not to accept,” Bergerac acknowledged. “But I chose to fight these characters because I found them to be undesirable.”

After Geneen's failed visit, Robert Greenhill of Morgan Stanley, the firm that was playing handmaiden to Drexel in this deal, tried the emissary role. “I remember Greenhill saying he could swing it, he'd go see Michel,” scoffed one Perelman team member. “If anything, he made it worse.”

So in order to combat Forstmann Little, Pantry Pride had no choice but to give more money to the shareholders. On September 27 it raised its bid from $42 to $50, and then, on October 1, to $53. Stuart Shapiro of the Pantry Pride legal team remembered, “We were all standing around that afternoon, we knew they were going to have the board meeting at six
P.M
. And we'd heard all these rumors. We'd heard Forstmann Little was coming in at fifty-two. So in an hour and a half we convinced each other we should go up another three dollars to fifty-three.

“We drafted this letter, and since it was already six
P.M
. we needed somebody to bring it over. We decided that it should be Dennis Levine—it's hard to get into the Revlon building at night, and Dennis is so ingenious we figured he'd find a way. So we told him he was the messenger. He was mortified. We put him in a Rolls Royce, to make him feel better. And he got it to them.”

Shapiro said that in August they had not believed that the company had these values. But since then they had learned that the
divestitures could bring prices several hundred million dollars in excess of what they had estimated. And they had seen Philip Morris Companies Inc. buy General Foods Corporation for nearly $5.8 billion, and Procter and Gamble pay $1.55 billion for Richardson-Vicks, Inc., showing that established, big-name consumer-products companies were worth much more than Wall Street analysts had thought just a few weeks earlier.

“From the start, some of Perelman's advisers thought he was overpaying at forty-seven fifty,” Shapiro said. “But Perelman's view was always that everyone else was being too conservative in their valuations, and that the assets were going to be worth much more.”

Told by Bergerac that a management buyout at a superior price was in the works, the board made no decision on Pantry Pride's $53 offer. Two days later it met again and voted for the management buyout with Forstmann Little at $56 a share. Bergerac's parachute would be triggered, and he would invest it in the deal; management would have 25 percent of the equity. There was no lock-up (an agreement which so favors one bidder that it makes the acquisition of the target by any other bidder uneconomic) given to guard against any other bidder, but there was a provision promising Forstmann Little a bust-up fee of $25 million if it was topped by another bidder.

That was on Thursday, October 3. Finally, after close to two months of running the emotional gamut, Revlon's advisers breathed a sigh of relief. The Forstmann Little–Adler and Shaykin deal had been extremely complex, and those involved had doubted that they would succeed in putting it together with the speed that was required, but, in just ten days, they had done it. And while the company would be broken up, they had—this time for sure, they believed—escaped the unsavory Perelman.

The following Monday, Pantry Pride was back, with a $56.25 offer.

And within forty-eight hours, by Wednesday, Drexel had obtained commitments for $350 million of the next $700 million and announced it was “highly confident” of obtaining the remaining $350 million. Perelman paid a little more than $5 million in commitment fees.

On Wednesday, Arthur Liman—who had always been more open to the idea of negotiating with Perelman than his two co-defenders, Lipton and Rohatyn, and who had, after all, attempted
to broker the deal at its inception in June—instigated a meeting between Bergerac, Theodore Forstmann, and Perelman, in an attempt to work out a three-way solution.

At around midnight on October 9, Perelman and his entourage arrived, for the first time, in Revlon's gilded, rococo foyer on the thirty-ninth floor of the General Motors Building. “I'll never forget those twenty or thirty guys coming off the elevators,” recalled Bergerac. “All short, bald, with big cigars! It was incredible! If central casting had had to produce thirty guys like that, they couldn't do it. They looked like they were in a grade-D movie that took place in Mississippi or Louisiana, about guys fixing elections in a back room.”

“What a scene,” Liman concurred. “All the Drexels were in one room—these guys with their feet up on Michel's tables, spilling their cigar ashes onto his rugs.”

For their part, Perelman's group thought little of Bergerac's décor: the animal heads from his safaris mounted on the walls, the elephant-leg stools, the Abercrombie and Fitch-type murals of lions and tigers, the antique commode, thronelike, in Bergerac's private bathroom. As Drapkin commented, “It was the tackiest.”

The three parties met, in various groupings, until 4
A.M
. At the end, there was a deal on the table in which Perelman would take over the company and then sell one of the health-care companies to Forstmann Little at a price that Forstmann now set (which Perelman would later claim was far too low). But Theodore Forstmann made clear that he would do it only if it was what Bergerac—who would run this one company—wanted; and by the next morning Bergerac said it was not.