Due Diligence: A Thriller (7 page)

“What do you think, Frank?” asked the Captain, putting the letter down. “Has Pete run this past you?”

“He mentioned the deal to me, I don’t know, Thursday, Friday. Told me it’s an eleven-billion-dollar play. Said he was counting on getting forty bips.” Frank Nardini shrugged. “I thought he was kidding.”

“Looks like he’s got it,” said the Captain.

“Looks like he does.”

“So it’s kosher?”

“Bob, all I know is what I know. He told me he was going to get it and it looks like he got it.”

The Captain looked at Lou. “What do you think, Lou?”

Caplan hesitated. As the in-house lawyer at an investment bank, Lou Caplan lived his entire life under fire. Investment bankers hate lawyers, even the ones they pay themselves. Lawyers are cautious. They’re paid to point out obstacles, pitfalls, and any other reason they can find to back off from an opportunity because of problems that might arise later. To investment bankers, caution is poison. It’s the toxic sludge that separates them from their fees, and if they had a choice, they’d hose it away along with every lawyer on Wall Street.

“I don’t know, Bob,” said Lou diplomatically. “The client didn’t change the letter, but on the other hand, we propose those indemnities because we think those are the ones we think we should have.” Lou allowed himself a wry smile. “Maybe this particular client just saw how fair that was.”

That was so ridiculous the Captain decided to ignore it.

“Frank,” he said, “you know anything about this client?”

“Not really,” said Nardini, whose own area of expertise was aerospace and defense. He glanced at the letter. “Some electricity company in Louisiana, I think.”

“Any of you guys know anything about it?”

There was silence for a moment.

“I’m not so sure we don’t have a problem,” said Tom Dixon.

The Captain looked at him sharply. “What kind of problem?”

Tom shrugged.

“Do you know this client?” asked Frank.

“John Deeming does. He says there might be something going on. The client has a relationship with Merrill Lynch. It’s done all its acquisitions through them. This is a substantial deal, their biggest deal ever by a mile, and they come directly to us.”

The Captain shot a glance at Nardini. Nardini shrugged. They both knew about the situation between John Deeming and Pete Stanzy. If Pete was about to pull off an eleven-billion-dollar deal at forty bips, you couldn’t trust anything John said. And John, as everyone knew, was one of Tom Dixon’s protégés.

“Tom, I think you’d better declare an interest here,” said the Captain.

Tom Dixon grinned. “All right, I declare it. But that’s what John said. He does know the industry. He knows it as well as Pete.”

“Yeah, but he didn’t get the deal, did he?” said Nardini. “What was John’s last deal? A couple of hundred mil? What was it? Milwaukee Sewage or something?”

“All right,” said Dixon. “Jeez, I don’t know. I’m just saying what he said, all right? By the way, he asked me not to let Pete know he’d spoken to me.”

“Tom, hold on,” said the Captain. “That’s not good enough. Are you saying there’s a problem or not? Let’s get this clear. What you’re saying is John says the client’s got a relationship with Merrill. Is that it, Tom? Is that all you’ve got?”

Tom shrugged. “That’s it. I just felt I had to raise it.”

Nardini glanced at the Captain and rolled his eyes.

Bruce Rubinstein coughed. “I don’t mean to intervene…”

“What is it?” asked the Captain.

“Well, normally I wouldn’t comment on the matter if it was just an advisory fee on an acquisition…” Rubinstein paused, turning the pages of his copy of the letter. The Captain watched him impatiently. Rubinstein was the kind of guy who made a thing of the fact that he couldn’t be hurried. “It does appear that we’ll be raising a considerable amount of debt to get this deal off the ground.”

John Golanksy grinned. “Looks like it,” he said. Stanzy, knowing he needed an ally at the committee table, had given John Golansky the lowdown in some detail.

“In which case,” said Rubinstein, “I agree with Tom.”

Dixon’s eyes narrowed. He rarely found himself in agreement with Rubinstein, and it didn’t make him feel too comfortable when he did. As head of credit risk, it was Bruce Rubinstein’s job to make sure that the bank’s exposure to the portfolio of debt it was selling on behalf of its clients didn’t pose a threat to Dyson Whitney itself, and if necessary to advise restrictions. It was also his role to cast an eye over the long-term quality of that debt. Not because it would hurt Dyson Whitney financially if the client later defaulted—the loss would hit the investors and other banks to whom they had sold the bonds—but because of the damage it would do to Dyson’s reputation and ability to sell further debt in the future. This role was an essential part of the checks and balances in any bank, as were Lou Caplan and his in-house lawyers, but it put Bruce Rubinstein and his team in conflict with just about every other executive at Dyson Whitney, whose sole aim was to get transactions completed. And there was no one with whom Bruce’s role put him in greater conflict than John Golansky, the head of capital markets. Golanksy’s guys were the ones out there selling bonds into the market. They got their bonuses according to how much debt they could shift, and so did Golansky. They wanted as much debt as they could get, and once it was off their hands, they couldn’t care less if the client defaulted.

But that wasn’t the only reason for the hostility between Rubinstein and Golansky. Until recently, Bruce Rubinstein had been head of capital markets himself. His greatest success was handling a bond placement for a pharmaceutical company called Alesco, a $3.2 billion placement that was completed under intense pressure of a deal that was in danger of collapse, and he never stopped reminding people about it. But the Alesco placement, and just about everything else that succeeded in capital markets, had in reality been managed by Rubinstein’s deputy, a fast-talking Nebraskan called Joe Allen. The Captain had been planning to move Allen into Rubinstein’s job when Allen suddenly announced that he was going to Morgan Stanley. The Captain would have kicked Rubinstein out and put Allen behind his desk the same day if he could have persuaded the Nebraskan to stay. Instead, Allen walked—together with half the capital markets team—and the Captain was left with Rubinstein running the operation, minus Joe Allen, just when the Alesco deal had finally gotten Dyson some credibility in the corporate debt market. As fast as he could, the Captain sidelined Rubinstein into credit risk and recruited John Golansky from Deutsche Bank, giving him double Rubinstein’s salary and a huge incentive package to build the debt business.

“Are you saying you know something about this client?” said Golansky

“No,” said Rubinstein. He looked Golansky in the eye. “I’m saying I’d like to.”

Rubinstein and Golansky squared up to each other across the table. Golansky was a big, powerful guy who had played college football and looked like he still had the physique under his shirt to throw a tackle. Rubinstein was a small, balding, dapper man with a large pinky ring on his right hand. Golanksy looked as if he should have been running a gym; Rubinstein looked as if he should have been running an antiques shop.

Golansky turned to the Captain. “Are we seriously saying we’re going to refuse this mandate? Are we saying we’re even considering that?”

“Delay it,” said Rubinstein, “until we can do a little research.”

“Yeah, which the client’s likely to accept. That’s going to make him real happy.” Golansky shook his head in disbelief. “Let’s just stop to think what we’re talking about here. This would be the biggest deal Dyson Whitney has handled since … I’m relatively new, so I may not know all the history, but would that be the Transcom deal back in 2003, Frank?”

“This is bigger,” muttered Nardini.

“Bigger? Really?” said John, as if he hadn’t realized. “And it’s not as if deals are exactly falling out of the sky. And if we’re talking about selling two-point-eight billion dollars of debt, well, I
have
handled bigger debt placements than that—”

“The Alesco loan was bigger,” said Bruce Rubinstein sniffily. “Three-point-two billion, and we placed it in four days.”

“As I was about to say,” continued Golanksy pointedly, “I have handled bigger debt placements, but not since I came to Dyson Whitney.”

“Precisely my point,” said Rubinstein smugly.

“Like hell it is!” retorted Golansky. “Excuse me, but I seem to be hearing that we’re thinking about refusing a mandate because some client signs the letter and gives us the fee and the indemnities we want. Like that’s some kind of crime! So let’s be clear. Is that what this comes down to? Is that the bottom line? Because if it is, I honestly don’t know what we’re doing here. And to be frank, Bob, I certainly don’t know what
I’m
doing here.”

Golansky looked directly at the Captain. Bob Browning was perfectly well aware of his meaning.

There was a troubled silence at the table.

“Lou?” said the Captain eventually. “What do you think?”

Lou Caplan frowned. “I think we ought to get Pete Stanzy up here.”

*   *   *

Stanzy was ready. He was expecting the call. He went down to the boardroom, and when he saw they were looking at his letter of engagement, he gave them a grin. “That’s some letter, huh?”

The Captain nodded. “Pete, we just want to clarify a couple of things.”

“Shoot.”

“There are a number of things about this letter that are unusual.”

“You like the fee, Bob?”

“Yes,” said the Captain, “I like the fee. How did you get it?”

“Negotiation,” replied Pete smoothly.

“Tough negotiation?”

“Not unreasonably. The client’s looking for us to be extremely fast and responsive on this.”

“Did you ever see a client who isn’t?” said Rubinstein. “Doesn’t mean they pay forty bips.”

“He likes what we offer and he’s prepared to pay for it.”

“And no quibbles over the indemnity clauses?” asked Lou Caplan.

“Not really. My client’s very focused on the things that really matter.”

“And these don’t?”

Stanzy didn’t reply. He allowed himself a tiny smile. That was for the Captain. Browning, he knew, would have allowed himself a smile at that question as well—or a belly laugh, more likely—if he hadn’t been sitting there as CEO.

“Okay.” The Captain frowned. “That’s a little unusual, isn’t it? Wouldn’t you say that?”

“I’d say it’s very unusual,” said Pete, as if there were nothing more agreeable to him than to admit it. “Mike Wilson wants this done very quickly and very quietly.”

“Show me a client who doesn’t,” said Nardini.

“No, this is for real, Frank. This wasn’t a competitive pitch.”

“I was going to ask you about that,” said the Captain.

“It wasn’t,” said Stanzy. “That’s what I mean, Bob. Wilson wants this done quick and quiet. I’ve told him we can do it exactly the way he wants it done and he’s prepared to pay for that.”

“I understand the client has a relationship with Merrill,” said Bruce Rubinstein.

“Who told you that? John Deeming? Well, Bruce, they do have a relationship with Merrill. And you know what they say, places like Merrill leak like a sieve. I told you Mike Wilson wants this done with the absolute most confidentiality. That’s why he’s gone away from Merrill and Morgan and Goldman and anyone else you’d expect him to go to with for a deal this size. He’s very strategic. He wants to blindside the competition. He wants this coming from a direction no one’s going to expect.”

“Why us?” asked the Captain.

“He knows me. I pitched a few things to him at the start of the year. It’s not for me to say … I guess maybe he was impressed.”

“Did you pitch him this one?” asked Nardini. “BritEnergy?”

“Absolutely,” said Stanzy without hesitation. “You should see the fit. If you know anything about the industry and if you’ve got a global perspective, you’d have to be blind not to see it.”

“Why didn’t he do it then?” asked Tom Dixon.

“When I pitched it? That, Tom, I don’t know. You’d have to ask him.”

“Why did he decide to do it now?”

“Ditto. Maybe he saw the light.”

“Do you think it’s a good deal for the client?” asked the Captain.

“That’s a good question, Bob. Yes. Unreservedly. I think this is a very good deal for the client. The strategy’s rock solid.”

“Would you recommend this to a shareholder?”

“Yes, Bob, I would. Again, unreservedly. There’s an extremely compelling rationale for this deal. Like I said to Mike Wilson when I pitched it to him, put the assets of these two companies together and you’ve got a map of the known world.”

The room was silent. Pete Stanzy emanated certainty, confidence, control.

“I’d like to add,” said Golanksy, “that I think this is a very good deal for the bank. Personally, Pete, I think you ought to be congratulated. It’s not just the fees, it’s what it’ll do for Dyson Whitney’s reputation. We can all build on this. We’ve needed something like this for a long time.”

“Thank you, John,” said Stanzy. “I think it’s a good deal for Dyson, too. I have a first-class team on the engagement. I met the client yesterday with the initial outputs and he was very impressed with what we’d achieved. That’s why he signed.”

There was silence again.

“Do you think this deal will succeed?” asked Nardini.

“I think it has a very good chance, Frank.”

“I notice we have no retainer,” said Tom Dixon. “We get no fee at all if they don’t complete the acquisition?”

“That’s correct.”

“And what’s the threshold they need to achieve?”

“In the UK, it’s ninety percent of the shares, I believe.”

“Ninety percent? And we get nothing if they don’t reach that?”

“Like I said,” said Pete, “I think this deal has a very good chance. The logic is extremely strong. Most important, Mike Wilson is determined to make it happen. He’s a strong leader and he’s absolutely committed to it.”

Pete Stanzy waited.

There was silence. Everyone at the table knew there was something questionable in the story they were hearing. The size of the fee made no sense, nor did Pete Stanzy’s explanation of it. Yet they also knew how badly the bank needed a deal that was big enough to remind people that Dyson Whitney existed, to make them sit up and take notice. This was the one.