Too Big to Fail [174]
The number took Lewis aback. At first he almost ended the conversation. But then he allowed that he would continue the talks, but suggested if O’Neal wanted more money, “it would require more cuts.”
“How much cost reduction do you have baked into the numbers that you have?” O’Neal asked.
Lewis’s presentation projected $6 billion in cuts over two years.
To O’Neal that was a huge number, even for someone who had been famous for his own cost cutting. And if he wanted $100 a share, it would be even more.
O’Neal asked, “So, how would you see me fitting into this?”
“Well, you’d be part of the management team, but I haven’t really thought about a structure,” Lewis told him.
That answer clearly was unsatisfactory. If they were going to have to reduce costs by as much as Lewis was saying, O’Neal said, he’d want to be the president of the firm so that at least somebody would be looking out for the Merrill employees. Lewis now became angry. “So, what you’re sayin’ is, you want me to sell out my management team to get this deal done for your benefit?”
For a moment O’Neal only stared down at his feet, until finally saying, “I appreciate you spending the time. I appreciate the presentation and the thought that went into it. I’ve always thought that, on paper, that if Merrill were to do a strategic merger you are the most compelling partner.” As he turned to the door, O’Neal said, “I’ll think about everything you said.”
Lewis never heard from him again.
What he didn’t know was that the next day O’Neal confided in Alberto Cribiore, a Merrill board member, that he had gone to see Lewis, and told him about the meeting. Cribiore, always a good proxy for the rest of the board, was clearly not receptive to the merger idea, quickly brushing it aside,
In his heavy Italian accent, Cribiore said, “But Stan, Ken Lewis is an asshole!”
The sixteenth floor of AIG was already a beehive of activity, with hundreds of bankers and lawyers roaming the floors, darting into the various rooms that had been set up to perform due diligence on different AIG assets up for sale.
Before the high-end tire-kickers arrived, Douglas Braunstein of JP Morgan, fresh off a conference call with Dimon, pulled Bob Willumstad aside to confide, “You need to think about more than the $20 or $30 billion we were talking about before, because Lehman could go bankrupt this weekend.”
“The market’s going to be bad,” Braunstein warned. “We should probably be thinking about $40 billion.”
Willumstad was flabbergasted; the challenge he faced had almost immediately doubled in size.
A minute later, Sir Deryck Maughan, the former head of Salomon Brothers emerged from an elevator. Maughan—who was working for KKR, one of the bidders in the AIG fire sale—and Willumstad had known each other well but hadn’t been in touch for years. The last time they had seen each other was in 2004, when Maughan was being fired by Charles Prince, literally in Willumstad’s presence. It was Maughan, too, who had snubbed Steve Black’s wife on the dance floor more than a decade ago, resulting in a confrontation with Dimon, and his eventual ousting by Sandy Weill.
And now, on a weekend when the entire financial system hung in the balance, Willumstad, Dimon, and Black were all looking to Maughan for help. Ah, Willumstad thought as he greeted Maughan with a wide smile, life is rich with irony.
A few minutes earlier David Bonderman of Texas Pacific Group, one of the wealthiest private-equity moguls in the nation, had arrived with his own team. Bonderman, who was known for turnarounds, thanks to successful projects like fixing Continental Airlines, had also become increasingly leery of financial companies. He had acquired a $1.35 billion stake in Washington Mutual in April 2008 and