Due Diligence

1

It was raining in Memphis, where the Delta flight out of LaGuardia connected for the leg to Baton Rouge. Pete Stanzy sat in the executive lounge and made some calls. The layover was meant to be an hour, but a delay on the Baton Rouge flight had stretched it to an hour thirty. Then it stretched to an hour forty-five.

Stanzy was a tall man with dark curly hair running to gray, dressed in a charcoal gray suit. His copy of The Wall Street Journal was on top of his briefcase on the seat beside him. He couldn’t help glancing at it. In the cab to LaGuardia at six in the morning he had gotten a text message from John Deeming. “Seen page 12 of the Journal yet?” Great start to the day. Pete had just about been able to hear the cackle of John’s laughter coming off the screen of the cell phone.

Pete Stanzy and John Deeming were managing directors at Dyson Whitney, a New York investment bank. Dyson Whitney didn’t have much in the way of its own capital to gamble and had therefore avoided the trading losses and toxic loans that had brought down the big Wall Street names during the credit crunch. It lived off the fees it earned for advising on corporate deals and selling the bonds for the company debt that financed them. But deals had been hard to come by and the competition was fierce. Dyson Whitney had survived the chaos of the financial crisis, but it had come through it like a hungry dog on the prowl—lean, anxious, sniffing for scraps in a world that had turned meager and bleak.

Within that world, Pete Stanzy and John Deeming covered similar sectors, energy, electricity, utilities. They were both about the same age, early forties, with the same career options, looking for the same promotion. There wasn’t much love lost between them.

Stanzy finished his calls and picked up the paper. The article on page twelve was a short piece, like fifty other articles in the Journal every week. Pete looked at it for probably the hundredth time that morning. The headline said it all: HALE ENERGY TO PAY $800 MILLION FOR FLORIDA GAS & LIGHT.

It was an open secret that Florida Gas & Light had been on the block for months. Pete himself had been pitching it to just about anyone who’d stand still long enough to hear his spiel. And now it looked as if someone had actually gone and bought it. Pete did the math. Eight hundred million. Assuming the usual cut of around thirty basis points for a deal of this size, three-tenths of a percent of the price, that would yield a fee of around $2.4 million. According to the article, Citibank was handling the deal. Two-point-four million was chicken feed to a bank like Citibank, even with deals hard to come by. And the guys at Citibank who had put the transaction together—and Pete had a pretty good idea who they might be—couldn’t possibly need a deal as badly as he did.

Pete reread the article. He was sick of looking at it. He got up and threw the paper away.

The executive lounge was about a quarter full. People waiting on flights in Memphis on a Thursday morning. Laptops were out. In one corner, three men and a woman were sitting around a low table covered with papers and Coke cans. Other people were watching CNN on a flat screen. Over by the buffet, there was a big guy with long ashy-blond curls wearing a red suit. Pete watched him, wondering what the suit was about, until the man happened to look around and catch his eye. He looked away. Outside, a plane took off and disappeared into the gray sky. Rain fell on the tarmac. Pete tried to put Florida Gas & Light out of his mind. He tried to focus on the reason for his trip to Baton Rouge.

He was going down there to meet with a CEO called Mike Wilson. In ten years Wilson had taken a sleepy little electricity company down in the bayous called Lousiana Light and grown it into an outfit with operations in seven states and an international portfolio of plants that took in a clutch of countries in Eastern Europe and Latin America. Not the biggest utility company in the country, but one of the most exciting. Wilson’s strategy was to pick up old, undervalued electricity plants with scope for large efficiency improvements, bidding aggressively and borrowing to finance the acquisitions. Wall Street loved the Louisiana Light story and the stock price reflected it. Mike Wilson had a golden touch, always in the right place at the right time. After Katrina sunk half of New Orleans, Louisiana Light picked up a half-billion-dollar federal grant to fix a network that would have needed upgrading anyway. Not even the financial crisis burst the bubble. Lousiana Light kept on acquiring. Even in the worst days of the crunch there had been credit available for companies Wall Street believed in.

A few months back, Stanzy had been talking to Wilson regularly, pitching a whole bunch of deals. Even thought he might hook him. Wilson showed interest for a while, asked him to keep showing him stuff. Then it all dried up. The Louisiana Light CEO hadn’t even returned his calls.

Then yesterday afternoon, out of nowhere, Stanzy got a call from Wilson asking if he could come down to talk. Wouldn’t tell him what it was about, just asked if he could get himself down to Baton Rouge. Told him he wouldn’t be wasting his time.

Stanzy went through his files and reviewed the deals he had pitched to Wilson, made a few calls to check the state of play. A couple of the targets were out of reach now. Some of the deals might still be on the table. But he doubted Wilson wanted to hear about them. Stanzy figured Mike Wilson was like just about every other CEO he’d ever met. They’d tell you they weren’t going to waste your time and then they’d go right ahead and do just that. Call you up every six months or so and ask you to come see them about some kind of fictitious deal they had no intention of doing, just to hear what people were saying about their own company and get a little free advice on the state of the industry. Maybe the morning’s news about Florida Gas & Light was coloring Stanzy’s thoughts a little, but this was going to be one of those trips, Pete could feel it.

Sullenly, Stanzy watched the rain fall outside. The longer he sat in that lounge, the less he felt like getting on the plane to Baton Rouge. Bottom line, he needed a deal—he needed one now—and unless Wilson was going to give him one, every minute he spent with him was a minute wasted. He had been to Baton Rouge too many times and wasted way too much time with Mike Wilson already. Stanzy was half-tempted to turn right around and go back to New York. Maybe the delay was some kind of sign. Pete glanced at his watch. If they pushed back the flight any longer, he decided, that’s what he’d do. He’d get on the first flight back to LaGuardia and give Mike Wilson a call and say they’d canceled the flight.

A minute later, they called it.

The guy in the red suit got up and walked out. No briefcase, no hand luggage, nothing. Stanzy picked up his briefcase and followed him.

Ninety minutes later, Pete Stanzy was in Baton Rouge. Wilson’s secretary had sent a driver. They headed downtown.

He tried to think positive, get himself in the right frame of mind for the meeting. Maybe Wilson was going to throw him a bone, give Dyson Whitney a junior share in selling the bonds to finance some kind of transaction, raise a couple of hundred million in debt. Pete did the math. Say a hundred million. That would be a fee of a half million for raising the finance. Realistically, say a quarter million. A quarter million … it was hard to stay positive over that. Wilson could have told him about it on the phone. For a quarter million, he thought in disgust, he didn’t have to spend a day coming down here.

Away on his right, the tower of the state capitol came into view, the insane skyscraper built by Huey Long. If there was anything Katrina should have blown down in the entire state of Louisiana, thought Stanzy irritably, that was it. From the previous times he had come to see Mike Wilson, Pete knew you couldn’t make a trip down here without someone reminding you at least once. Tallest state capitol in the United States.

“See that over there?” said the driver, right on cue. “That’s the tallest state capitol in the United States.”

“Really?” said Pete drily.

“Yes, sir. Thirty-four stories. Huey Long, he was assassinated there. Yes, sir,” said the driver, nodding to himself. “Nineteen thirty-five. Shot to death right there.”

Served him right, thought Pete, for building the thing.

“You can see the bullet holes in the walls,” said the driver, still nodding.

Stanzy watched it go past. His thoughts drifted back to the Journal, to page twelve. He wondered if there was some way to cut into the Florida G&L deal. The article said it was an agreed bid, but if he could find another bidder, someone who’d offer more, he might be able to put Florida G&L back in play. It would mean fighting dirty, but Pete Stanzy was desperate enough for a deal to fight any way he had to. It was a long shot, but not impossible. The world of mergers and acquisitions was full of the ghosts of apparently rock-solid bids that had dissolved like a spring snowflake on Wall Street the minute a higher bid appeared.

He’d need someone tough, someone credible, someone with a reputation in the industry as an aggressive acquirer who was prepared to bid fast, and bid high.

Mike Wilson? Stanzy frowned. That was an interesting idea.

The driver turned off the highway they had followed in from the airport. Then they swung left at a corner in front of some kind of a church with a tall, thin spire. Two minutes later the car pulled up.

Pete Stanzy was deep in thought.

The driver glanced back at him. “Here we are, sir.”

Copyright © 2011 by Jonathan Rush