Too Big to Fail [120]
When both sides reconvened several hours later, a surprise guest arrived: Fuld. The goal for the Lehman team was to press Min to sign a letter of intent ahead of the final agreement, even if it meant it would take several more weeks to hammer out the details. That gesture, everyone agreed, would take some pressure off Lehman’s stock.
Fuld took a seat alongside McDade, McGee, and Kunho, an inexplicable scowl on his face. Across from them at the table were Min and his banker, Gary Barancik of Perella Weinberg Partners.
“Look, we hear you. We understand what you want to do,” McDade said, referring to Min’s plan to acquire a controlling stake in Lehman after it spun off the real estate assets. “Let’s start—”
Fuld interjected. “I think you’re making a big mistake,” he told Min. “You’re going to miss a great opportunity. There’s a lot of value in these real estate assets,” pressing Min to buy at least some of them. As the conversation continued, Fuld suggested that Min’s plan to pay 1.25 times book value was “too low,” instead recommending they negotiate on the basis of 1.5 times book value.
McDade and McGee couldn’t believe what they were witnessing. They had spent the past two days orchestrating a deal based on spinning off the real estate assets, and now Fuld was trying to retrade on their work. Worse, a look of horror crossed Min’s face. Min pulled Barancik aside and whispered, “I’m not comfortable with this,” and in response, Barancik spoke up on behalf of KDB. He said they would only negotiate on the basis of 1.25 times the book value valuation, and then, as his aggravation mounted, started questioning Lehman’s accounting. “I don’t believe that you’ve taken all the write-downs,” he said, reiterating why they weren’t interested in the real estate assets.
“Okay,” Fuld said, his frustration showing. “What do you think our real estate portfolio should be marked at?”
Before Barancik could answer, McDade piped up. “Well, we have a term sheet,” he interjected, trying to steer the conversation back in a more productive direction. “Why don’t we look at that?”
“Look, I just think we need to take a break,” Barancik said, sensing the tension could topple the talks.
As they stepped into the hallway, Fuld, having misread Min’s mood, approached him and again started promoting the idea of selling him the real estate.
McGee, who was standing behind Min and could see this conversation was only antagonizing him, tried to signal Fuld, slicing his finger across his throat to urge him to stop badgering the Korean.
Finally managing to break free of Fuld, Min took Barancik to a small room to study the term sheet—which was more a list of broad principles than a formal agreement. As they reviewed it, Min nodded at each bullet point until he reached the final one, which stipulated that KDB would provide credit to Lehman to help support it. To Min that was an instant red flag. Was Lehman seeking an open-ended credit line, hoping to leverage KDB’s balance sheet to bolster its own standing?
Min, looking pained, grabbed Kunho Cho, his friend when they worked at Lehman together, and asked to talk with him privately. Even before Min spoke a word, Cho could tell it wasn’t going to be good.
“There is a serious credibility problem here,” he said in Korean. “All of this time we have negotiated in good faith consistently, and we were moving toward the goal we all wanted, and now, all of sudden, it’s a new picture.”
Clearly frustrated, Min continued, “Look, it’s not about 1.25 versus 1.5 times book, or a $2 billion versus a $4 billion credit line. It’s none of that. It’s the way you conducted the meeting. I just feel uncomfortable about the way this whole thing