The Takeover Read online

  “What do you mean they won’t be able to touch it?”

  “Hands off. No meddling. Management gets to keep operating Penn-Mar the way they want to even though the Germans own it. It’s called the Delaware Statute in M&A parlance.”

  “So what does that mean for us?”

  “It means that we’ll have to make this an all-cash offer. No security-for-security deal. Those deals have much less chance of getting more than eighty-five percent in the initial tender because shareholders are leery of what you’re trying to pawn off on them. Everybody knows what cash is worth. Especially the arbitrageurs. And they’ll be the only ones left at the end. You’ll need them.”

  “So it’s an all-cash deal. Good, I like that. I assumed it would be all cash anyway. What else?”

  “I checked their SEC documents for poison pills, staggered terms for the directors, and lockup provisions, the normal shark repellents. They don’t have any. That’s good. I also looked at what we might be able to sell after the transaction to reduce the debt. They’ve got a couple of noncore divisions. I love these big companies. When you start digging, you find they’re into everything. Anyway, I think we could probably raise about three or four billion dollars from the sale of divisions which have nothing to do with chemicals. And we could do it quickly, within four to six months. I know people who would buy those divisions.”

  “Falcon, you’ve been busy. I’m impressed.” Barksdale relaxed. Falcon had come to terms with the price. There would be no further trouble. “I knew there was a reason I wanted you involved with this thing. Anything else?”

  “Not right now.”

  “All right. I’m going to let you get back to work. You will be ready for Friday?”

  “I’ll be ready, Phil. But before you go, I’ve got a couple of questions.”

  “Yes?”

  “Well, we need to line up the financing internally and externally.”

  “I’m taking care of that. The equity is ready to go. The Germans have already deposited their billion at NASO, and Boreman has made arrangements for our three billion from the funds we manage. Hennings thinks he can do at least six billion in junk bonds. And I’m talking to the head of the credit department, Ron Jones, with respect to the senior debt NASO will commit.”

  “Four billion?”

  “What’s that?”

  “Four billion. That’s what you said NASO would commit in senior debt when we talked about it last week. Four billion.”

  “Right, four billion.”

  “And Ron Jones is going to approve four billion dollars on top of six billion in junk bonds even though four billion is way over our legal lending limit?”

  “Let Boreman and me worry about that.”

  “Okay. But that’s still only thirteen to fourteen billion dollars of financing in place. If we’re really going to pay seventy-five dollars a share for Penn-Mar, we’re going to need a lot more. Like another eighteen billion.”

  “We are talking to ten other banks. Several here in the United States, a couple in Europe, and a few in Tokyo. We are talking to these institutions only at the very top levels. We’re looking for three billion dollars from each. They are all interested. Very interested. But they need your leveraged buyout analysis and you to talk them through it. I need you to finish that analysis as quickly as possible.”

  “Then let me get back to work.”

  “My thoughts exactly, Falcon.”

  “One more thing, Phil.”

  “What’s that?” Barksdale said, starting to become exasperated.

  “What are we going to assume for fees in this deal?”

  “You tell me, Falcon. You’re the investment banker.”

  “The commercial banks will need at least two percent up front. I’m sure Hennings will charge three to four percent up front on the junk bonds. That leaves just the advisory fee. My fee for the bank.”

  “What’s typical?”

  “One percent.”

  “One percent of what?”

  “One percent of the deal amount, including any existing debt that is refinanced.”

  “That would be one percent of thirty-two billion dollars. Is that what you’re telling me your fee is?”

  “Yes. That’s the standard fee.”

  “That would be three hundred twenty million dollars. That’s outrageous. Besides, I told you. You will get five million personally if this thing goes through. Not a penny more.”

  Falcon was relieved. They were still planning on paying him the five million. That was why he had raised the fee discussion in the first place. “I know. The rest would go to NASO.”

  “I think Boreman would have a hard time convincing the Germans that the advice of you or NASO was worth three hundred twenty million. How about fifty million?”

  “You’re the boss.”

  “Anything else, Falcon?”

  “No.”

  “Good. If you need me, don’t hesitate to call. I’ll be here until around four-thirty. I’ve got a dinner at Remi.”

  “You lead a tough life, Phil.”

  “Someone has to do the dirty work. Bye, Falcon.”

  “Bye.”

  Falcon clicked off the phone. As he gazed out the window down at 82nd Street, the little voice that had murmured to him that day he had come face to face with Boreman in the executive washroom whispered to him again. Except it was more insistent now. Something didn’t smell right.

  Falcon removed the internal NASO telephone book from the top left-hand drawer of the desk. He found the number he was looking for and began to press the sequence onto the pad. Abruptly he stopped. This was stupid. Barksdale had been emphatic about not talking to Hennings, or anyone else from NASO, except Jenny. As Barksdale had said, they didn’t know him very well yet—which meant they didn’t trust him. The line could easily be tapped, or there could be a bug in the equipment they had delivered.

  Five minutes later, Falcon was standing at a pay phone in the lobby of the Portland Hotel, across the street from his apartment building.

  “National Southern Bank. Funds Transfer Group.”

  “Eddie Martinez, please.”

  “Just a minute.”

  As Falcon glanced casually around the lobby, he caught a man staring at him. Or perhaps their gazes had simply crossed for a second? Falcon watched as the man turned to speak to a Barbie doll look-alike behind the front desk. There seemed to be nothing unusual in his actions.

  “Eddie Martinez.”

  “Eddie, this is Andrew Falcon.” He spoke in a subdued voice, not quite certain why.

  “Mr. Falcon. How are ya?”

  “Eddie, call me Andrew.”

  “Sure.”

  “Eddie, I need a favor.”

  “Anything for you, Mr. Falcon.”

  Falcon did not bother correcting Martinez again. “I hate to make this so secretive, but you’ve got to keep this very confidential. Just between the two of us. Can you do that?”

  “Of course.”

  Falcon listened carefully to Eddie’s voice for any sign of discomfort about the confidentiality issue. But there was nothing. “I’m very serious about that.”

  “Not a problem,” Martinez said quickly.

  “Okay. Look, I need you to find a wire that would have come into the bank in the last month or so. The total amount is a billion dollars. It wouldn’t surprise me if the money came in as several different wires, maybe lots of them. So as not to attract attention.”

  “Wouldn’t surprise me either, Mr. Falcon. A billion-dollar wire. Hell, yeah. Somebody would’ve said something. Where was this money coming from?”

  “Supposedly from Germany. But again, it wouldn’t surprise me if it came from several different places. Look, I know I’m not giving you much to go on, but I need your help on this one.” Falcon checked the front de
sk again, but the man was gone.

  “S’okay. I’ll do what I can. I got some ideas. What exactly do you want to know about the money if I find it?”

  “One very simple thing. The wire’s source. Who sent the money. I don’t care if you talk to people at other institutions, but don’t talk to anyone else at NASO. Okay?”

  “Yeah, sure. I gotcha. I’ll call you when I find something.”

  “No. I’m not going to be in the bank for a couple of weeks. I’m at a, uh, seminar. Don’t call me, I’ll call you. All right?”

  “Uh-huh.”

  Falcon could hear the slightest apprehension creep into Eddie’s voice. Eddie wanted to ask questions, but didn’t. “Thanks, Eddie. I’ll be in touch.”

  Falcon hung up the phone. He checked the NASO phone list he had brought with him from the apartment. He wanted to call Hennings and Jones to see if Barksdale and Boreman were really working with them. But that was too risky. If in fact they were working with Barksdale, they would call him immediately to let him know that Falcon had breached confidentiality. He glanced one more time about the lobby and headed for the door.

  * * *

  —

  Jenny hurried down Seventh Avenue toward Penn Station. She glanced at her watch as she waited on the corner of 39th Street for the light to change: 5:32. Eight minutes to make the New Jersey Transit train back to New Brunswick.

  She had missed Falcon at the office lately. As difficult as it was to admit, the place seemed empty without his crackling energy. Most of the people in the building walked around like zombies. For the hundredth time she wondered why he was suddenly working out of his apartment. It seemed so strange. After all, he hadn’t been working at NASO all that long.

  The light changed, and she darted across the street. The sidewalk was thick with office workers scurrying toward trains, buses, and cabs. Making progress in the melee was difficult.

  Suddenly a man bumped into her, sending her large black handbag spinning to the pavement. The contents of the bag spilled across the sidewalk.

  “Damn!” It had not been a good day. As she knelt to retrieve her belongings, she turned to curse the man, but then realized that he had stopped to help her.

  He knelt beside her. “I’m very sorry,” he said in a gravelly voice.

  Jenny stared at the man. He was nondescript: average height, average build, average everything. “It’s okay.”

  In seconds they had reloaded the articles into Jenny’s bag. She turned to go, but the man caught her by the arm. “We want to know about Falcon. Everything he does. Everywhere he goes. Your phone is tapped at the office and at your home. But if Falcon tries to reach you some other way, we want to know about it. Immediately. Don’t try to find the wires, and don’t tell anyone about this conversation either. That is, if you value your life. Here is a number.” The man pressed a small piece of paper into Jenny’s palm, then closed her fingers around it. “Call this number if there is anything you think we would be even remotely interested in. Don’t tell Falcon about this conversation. And don’t try to resign from NASO. I’ll kill you if you do.” She gasped in shock, and Phoenix Grey smiled harshly. “By the way, this could turn out to be very profitable for you if you cooperate. You hate Falcon anyway. At least you ought to. He used you very badly.”

  Jenny stared at the man as he melted into the crowd. She gazed down at the piece of paper the man had pressed into her hand. She noticed the familiar pattern, the familiar color. It was a dollar bill. No, not a one-dollar bill. She unfolded it fully. A thousand-dollar bill. Jenny searched the crowd. But he was gone.

  “I’ll kill you if you do.” He had said it that casually. Like “Have a nice day.” She began shaking. What was Falcon involved in? She stared down at the thousand-dollar bill. What was she involved in?

  * * *

  —

  “Falcon left his apartment to make a call this morning. He went to the hotel across the street.”

  “What?”

  “Yes.”

  “Why in the hell would he do that? Could he have found the bug? He must have. That’s the only explanation.”

  “He couldn’t have found the bug. That would be impossible. It’s inside the computer. He knows nothing about electronics.”

  “Then why did he leave the apartment?”

  “I don’t know.”

  “What did he say on the phone?”

  “I’m not certain. I couldn’t get close enough to hear. I don’t know who he called either. But I put a wire into that phone after he left.”

  “Good. Let me know if anything else comes up.”

  “Right.”

  Rutherford scowled as he replaced the receiver. Perhaps Turner Prescott was right. Perhaps he should have resisted Granville’s decision to take Falcon down as part of this. He stared out at the sunset over Boston’s South End. Time could not move fast enough now.

  13

  “Do you honestly believe Penn-Mar is an attractive stock?” Victor Farinholt stared out the window past Peter Lane, toward the Capitol’s huge dome rising above Washington.

  “I do.” Lane was insistent. He was pressing too hard. Farinholt would hear that in his voice. “I really do,” he said more Soothingly. It had to be a softer sell. Otherwise, Farinholt might become suspicious.

  “And you think Penn-Mar should be part of the President’s portfolio?”

  “I think it should be part of his and several of the Senators’ portfolios as well. Look, you know we are extremely restricted in terms of what we can put any of these elected officials into. No foreign stocks, no defense stocks, no this, no that. The list is endless. But Penn-Mar isn’t restricted. It’s just a basic manufacturing company, a chemical company located right here in the good old U.S. of A. Sure, the company has some foreign operations, but almost eighty percent of revenues are generated in this country. It’s headquartered in Toledo, Ohio, for Christ’s sake. How much more American can you get?”

  “Fine, but is it a good investment?”

  “I think it is. In the last couple of months the share price has run up a bit, but there’s still a great deal of upside left in the stock.”

  “What do you mean, ‘it has run up a bit’?”

  “At the beginning of the year, the stock was around twenty-four dollars a share. It closed yesterday at thirty-one.”

  “Peter, that’s a twenty-percent increase in six months. That’s a lot. And we’re not talking about a high-technology stock here. Penn-Mar isn’t going to have the kind of dramatic earnings growth that a computer company might have. It might be out of gas by now.”

  “I understand your reaction. But Penn-Mar’s management has cut production costs and increased efficiency dramatically. They could increase the top line another fifteen percent and not hire another factory worker or buy another piece of capital equipment. It’s amazing and it hasn’t been widely publicized. Yet. But I think the word is starting to get out. And with the economy beginning to come around, Penn-Mar will see significant increases in revenues because chemical companies traditionally lead the economy.”

  “I know…I know.” Farinholt had heard the same arguments hundreds of times before. He had been in the money-management business for thirty years, since graduating from Yale in 1966. Farinholt peered down at the charts Lane had prepared. “Let’s see, since January one the Dow Jones average is up eight percent and the S&P 500 Index is up nine percent. Christ, you’re right. Penn-Mar is up over twenty. I don’t know, Peter…”

  “But look at DuPont and Dow. Both of those stocks are up over fifteen percent. And compare the price-earnings ratios of DuPont and Dow versus that of Penn-Mar. Penn-Mar is a strong opportunity, Victor.”

  Farinholt relaxed into the chair and considered the argument. He had founded Lodestar Investment Management twenty years ago, after ten laborious years at a large Boston money-management firm. For mos
t of those twenty years Lodestar had languished as a small-time financial advisory firm, barely generating enough fee income to stay in business. But three years ago the President had called Farinholt and asked him to manage his money. By law, elected officials were not allowed to invest themselves, because of the possibility of conflicts of interest, so they entrusted the money to third parties. Blind trusts, they were called. The President and Farinholt had attended prep school together in the early sixties and had maintained a professional friendship ever since. But it was still a shock to Farinholt when the newly elected President, the toast of Washington, called for his help.

  Word spread that Lodestar was managing the President’s money, and suddenly the whole world wanted Farinholt to manage its money too. Farinholt moved the office from Atlanta to Washington two years ago to accommodate the growth in business. Now, besides the President, Lodestar counted as its clients seven Senators, thirty-two Representatives, a Supreme Court justice, and hundreds of institutions. And Farinholt was worth millions. He rather liked this sudden success, and he was not about to foolishly endanger his gravy train.

  “Any scabs on this thing, Peter?” Farinholt tapped the table. He had hired Lane away from Merrill Lynch a year ago. He was a helluva securities analyst. But you had to be careful with Peter. Sometimes he told half-truths. Of course, that was the trouble with the securities industry as a whole. Everyone told half-truths—and thought nothing of it.

  “Not of any substance. They’ve got a lot of environmental litigation pending against them. In fact, there was some news about a suit against them in Baltimore this morning. That little tidbit came across the wire just before I came in here. But shit, Penn-Mar’s a fucking chemical company. They’re bound to have environmental problems.”

  Farinholt winced. Lane had a terrible mouth. That was another thing he didn’t like about people in the securities business. “What are the particulars of the suit you mentioned?” Farinholt didn’t really care about the specifics of the action. Who knew how legal action that had just begun was going to turn out? But he did want to see how well Lane had researched Penn-Mar.