Too Big to Fail [119]
McDade also had become increasingly anxious that Fuld’s fragile state wouldn’t help the negotiations. McDade was beginning to fear that Fuld suspected him of attempting to take over the firm. Often when he was in conversation with Gelband and Kirk, his protégés, Fuld would emerge seeming apprehensive, as if imagining they were plotting his ouster. Fuld’s paranoia was only further encouraged when McDade refused to inhabit Joe Gregory’s old office directly next to Fuld’s, citing its “bad karma” instead, he took an office farther down the hall, where it was harder for Fuld to monitor him.
In truth, McDade was increasingly in control of Lehman. He was in the process of putting together a document called “The Gameplan,” a detailed examination of the firm’s finances and a vision for a way forward. It included a half dozen possible scenarios, most of which included some variation on dividing Lehman in two: a “good bank” that they’d keep and a “bad bank” that they’d spin off, thereby ridding themselves, at least on paper, of their worst real estate assets. The plan would enable Lehman to make a fresh start, unencumbered by assets that continued to fall in value. McDade also had pressed Fuld to put Neuberger Berman and the firm’s investment management business up for sale, and an auction was already under way among a series of private-equity firms.
While the rumors about Lehman may have continued unabated, the leaks coming out of the company appeared to be shrinking in volume. A few weeks after McDade was appointed president, McGee gave him a T-shirt with the inscription: “A Person Familiar with the Situation”—a wry reference to how the financial press generically referred to its sources. McGee had told him, “Give it to Scott!” a not-so-subtle dig at Scott Freidheim, who managed much of the firm’s media strategy.
The first meeting that morning at Sullivan & Cromwell was to allow the Koreans an opportunity to review Lehman’s commercial real estate assets. Mark Walsh, the architect of the firm’s foray into the commercial real estate market, gave a presentation to the group. But Min quickly found Walsh unprepared and pulled aside Kunho to tell him as much. “I need to understand this better,” he told him in Korean. “I feel very uncomfortable with the valuations.”
It quickly became clear that Min wanted nothing to do with Lehman’s commercial real estate holdings. For at least an hour it looked like the talks could collapse. But that afternoon the two sides started working on a new structure: Min said he was interested in buying a majority stake in Lehman, but only if it were to spin off its commercial and residential real estate assets into a separate company so that KDB’s investment couldn’t be impacted. The discussions seemed to be going well, except for the fact that Fuld kept calling McDade’s and McGee’s cell phones every twenty minutes to ask for an update.
By the next morning, at 11:00, Min said he had received authorization for Korean regulators to make an initial offer. He said he was prepared to pay 1.25 times Lehman’s “book value”—or the value at which Lehman held its assets on its balance sheet. The deal, which was still subject to a discussion about the firm’s true book value and would have included Lehman spinning off the real estate business, meant that KDB was valuing Lehman somewhere between $20 and $25 a share, a premium over its current share price, which had closed the day before at $15.57.
Whether Min