Anecdotes about both the making of a businessman and the making of a business, as Bronfman learned at Seagram from the ground up.
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place," Harold Fieldsteel, Seagram's chief financial officer, said to me that Monday morning in July 1981. A sensible realist and a fully seasoned businessman, Harold had remarkable financial instincts, and he never panicked. So when he said we were in trouble, I knew he was not exaggerating.
the terms of our tender offer for the Conoco oil company, we were headed for inevitable defeat. If we changed the bid, however, we faced the frightening risk of spending millions of dollars and ending up with a relatively illiquid asset worth less than what we'd paid for it.
was Du Pont, which also was bidding for the oil company. We knew we couldn't outbid Du Pont; instead, we were trying to get in on the back end of their deal. This would make us a significant shareholder in both Conoco and the much larger Du Pont.
the right decision, Seagram would likely become a massive, powerful company. If I made the wrong one, our future opportunities outside the liquor industry would certainly be curtailed, and our chances of becoming a major factor in the business world greatly reduced.
intuition than on anything else. But they tend to forget that these instincts have been honed by a great deal of experience, both my own and that passed on to me by the extraordinary men and women I have worked with (and occasionally against) in my long career. No doubt I also inherited some of that instinct from my remarkable father, Samuel Bronfman, who founded the Seagram empire. Certainly, I grew up with his business dicta constantly ringing in my ears.
Now both would be put to their greatest test.
The origins of the Conoco/Du Pont drama actually date back to 1947, when Imperial Oil Ltd., a subsidiary of what was then Standard Oil of New Jersey, discovered the Leduc field in Alberta. Suddenly Canada became an oil-producing country, which awakened the ambitions of countless people. One of those people was Samuel Bronfman.
certainly was a risk taker. He also could sense an opportunity and had the guts to claim it. He loved the oil business. "If it's good enough for the Rockefellers, it's good enough for me," he used to say.
You never know what will happen when you spud in the well. In a sense, gushers are like western movies--full of romance, but not based on much fact. People on the periphery forget that, beyond all the excitement, oil exploration is a business with a simple rule: the earnings from selling oil have to be greater than the costs of finding it. If not, you'll slide down a greasy pole to oblivion.
poor accountant. Though he pretended to understand everything about finance, he was actually very naive on the subject. As a result, our oil-exploration business was foolishly placed into various trusts that had been set up to pass on some assets owned by my father and his brother, my uncle Allan, for the benefit of their children. If we succeeded in finding oil, we would reap no tax benefits from depletion allowances; if we didn't succeed and lost money on drilling, we couldn't lower our taxes by writing the losses off against other income.
ablest accountants and lawyers, could have embarked on such a poorly structured venture. The reason, of course, was that it was very difficult to tell Sam Bronfman that he was wrong. No one ever wanted to be on the receiving end of his violent, epithet-laden outbursts. Even Philip Vineberg, a brilliant lawyer whom Father trusted and respected, was a little afraid of him. "If your father wants to do it this way, who's gonna say no?" he asked me.
LaSalle as an assistant blender at the time. As young as I was, I might have seemed the least likely person willing to confront Father. But even then I knew enough about tax law to see the absurdity of the situation, and I could not let it continue. With considerable temerity, I sat down and explained to him the tax implications. Carefully, I argued that the better place to explore for oil was in the United States, and that if the exploration were done by a taxpaying corporation, there could be huge tax advantages. I pointed out that, even if he wanted to continue looking for oil in Canada, our tax benefits would be greater if we arranged for a U.S. company rather than a Canadian one to handle our oil explorations in both countries.
me then (and often later) that, although other people were scared of contradicting him, he was sometimes willing to listen to me--even when I was telling him that he was wrong.
business to the United States was that he could do so without admitting that he had made an error. We were still involved in the Canadian oil and gas business through an investment he had made earlier in Royalite, so moving to the United States could be seen as an expansion of his interests, not as a retreat from his decision to invest in Canadian oil.
1943 for its liquor brands, Four Roses and Paul Jones inter alia) as the operating company. Thus, the oil operation became known as Frankfort Oil.
When they first went into their own oil business, Father and Uncle Allan had hired Ray Shaffer, an Oklahoma oil man, and brought him to Canada. Later, when I persuaded Father to move the business to the United States, Ray set up our offices in Bartlesville, Oklahoma.
commercial oil in Canada, and he found little in the United States. He kept puttering around and Seagram kept losing money, although not in large amounts. But Father--who had an ego beyond belief, and the success to go with it--liked Ray because Ray kissed his ass with considerable panache and also was an amusing fellow. One of the things he taught me was the meaning of an "Oklahoma guarantee." He'd say, "I'll be a son of a bitch if there isn't oil here." When you asked him what that meant, he'd say, "If there isn't any oil, why, you can call me a son of a bitch!"
business. One reason was our eventual success in Forrest Oil, a company I had come across during a period in 1953, when I worked at the Empire Trust Company. Forrest Oil had a program to drill for petroleum with outside investors. At my recommendation, Seagram invested some money in a drilling deal with Forrest, and made out quite well.
was very clever at being charming. The first deal he dreamed up was one he knew would have enormous appeal for Uncle Allan. A company was established to do the drilling for Frankfort Oil, but it was owned by the family, not by Seagram (and, of course, Shaffer had a piece of it). Thus, whether or not Seagram was making money, the Bronfman family was. As soon as I read about this arrangement in Seagram's proxy statement, I realized that, though it was legal, it was nevertheless a clear conflict of interest. At the time, the parameters of business ethics were not as clearly defined as they are today. But I've always had a strong sense of fair play, and I put a stop to it immediately. In the course of my career, I've found that you don't have to abandon your principles in order to make money.
business was only limping along. From time to time, Shaffer would report a success. But nobody ever accused Ray Shaffer of being a trustworthy reporter, and I'm not sure those successes were real. In fact, I think the true reason for the high level of activity was that, by the terms of our agreement with Shaffer, he got 1 percent of all the oil found under his direction. It was a terrible deal for us because there was no penalty for failure; he was encouraged to drill on as many prospects as he could. And drill he did.
Administrative Committee, a Shaffer deal to buy a building in Bartlesville crossed my desk. I had always been suspicious of Shaffer, but this really smelled. A little operation like ours certainly didn't need a building. It seemed to me that Shaffer had finally gone too far, and I promptly called Father to report his latest escapade.
won't authorize any such deal," Father ordered. (He could use the board when it suited him! When I first went on the board of the parent company, I asked Father what directors did. "Why, declare a dividend and have a drink.")
auditors. While they didn't find any smoking guns, the investigation raised more than enough questions for me. I fired him and he disappeared from view, never to be heard from again. It's interesting to note that Ray never made a point, neither then nor later, about his 1 percent. I came to the conclusion that while I knew we hadn't found much auditing the operation, he didn't know that and was more than prepared to let sleeping dogs lie.
see my friend Mark Millard, then a senior executive at Carl M. Loeb, Rhoades & Company and my father-in-law John L. Loeb's partner. I had enjoyed many successful business dealings with Mark over the years, and I trusted him deeply. Originally named Metznetsky, he was a Hungarian Jew, tallish, very broad and thick, with dark, almost black hair and laughing eyes. Of all the people I had met in connection with our oil investments, I thought most highly of him. A brilliant man, he had great vision and clarity of thought, as well as great integrity.
explained that I needed someone I could trust to head the oil company and clean up the mess. It took him very little time to find the solution. He recommended Carroll M. Bennett, an economist from Dallas with plenty of oil experience, Carroll made an excellent impression on me, and then on Father, and I promptly hired him.
Bartlesville to Dallas, where he lived. He pointed out that it would be easier to start from scratch there than to try to turn around the awful reputation that Frankfort Oil had earned in Bartlesville.
him. Carroll was a good, decent man, someone I could trust. We found some oil and the company grew slowly, making a deal here and there and becoming an entity of which we could all be quite proud.
But all that hardly amounted to more than an early learning experience for me in the oil business. It was several years later when my intuition first played a decisive role, setting in motion the series of events that eventually led to the Conoco/Du Pont nail-biter.
Halfway through the meal, Mark proposed that we bid for Texas Pacific Coal and Oil. I agreed that it would be an excellent deal, but of course I had to convince Father.
trying to fix on the proper bid, experts make a huge to-do about analyzing the reserves. But this is never an exact science. Since properties are often put up for secret bid (for example, when the federal government leases offshore properties), if some of the bidders think there are large reserves while others doubt it, the winning bid is often way over the next highest.
he was very concerned that, if he bid too much for Texas Pacific and left a lot on the table, he would look foolish--or at least less than the genius he was supposed to be. His ego couldn't have stood for him to be in that position.
was just a little too low. I was determined to get him to go up. It took a lot of effort--as well as the help of Mark, Carroll, and oil attorney Dick Loftus. But eventually I persuaded him to bid another $0.25 a share. Our bid beat the next highest by about a nickel!
resources. This acronym refers to the corporate setup to make it work--"A" sells to "B" and "B" sells to "C." This meant that we put up $65 million in equity, and the remaining $215 million was financed by the oil itself. The debt, none of which appeared on the balance sheet, was to be retired and the interest was paid as the oil flowed. As far as I know, this was the last oil deal done this way. Interestingly enough, the last natural-resource deal using this system was Conoco's purchase of Consolidation Coal a year or so after. Then the IRS changed the rules.
principal bank from the time we started doing business in the United States, immediately told me that it wanted a major role in the financing. So when Bill Moore, the new chairman of the bank, asked to visit, I assumed this was to be a courtesy call. I couldn't have been more wrong.
told me that Bankers Trust had decided not to lend us the money after all. Their oil people, he explained, had estimated that the deal wouldn't pay out in twelve years, as it was required to do by their rules; they thought it might take thirteen or perhaps even fourteen.
influence over the bank must be trying to foul up our deal. Surely the bank couldn't be stupid enough to pull out of its own accord and risk losing all the business it did with Seagram. Besides, to take that risk because it might require an extra year or so for their money to be repaid beyond the twelve years of their theoretical model was totally absurd. How could Bill Moore think his oil analysts were this accurate?
result, I took away every piece of business we did with Bankers Trust and gave it to those who had helped us. John Loeb, then my father-in-law, implored me not to be vengeful, probably because his good friend Louis Lapham was an officer of Bankers Trust. But I was angry, and I would be just as angry today; nobody does that to us and gets away with it.
Now we were really in the oil business. We changed the name to Texas Pacific Oil Company, and Carroll brought in some very talented people. However, I was soon to learn just how capital intensive the oil business really is.
go into the rubber tire business--remember Atlas tires? The idea was to supply consumers through its vast network of service stations. The boys in Akron got together and sent their spokesman to talk to Esso's chairman and CEO. The spokesman said that if Esso insisted on going forward with its plans to enter the tire business, a consortium of tire companies would invest $100 million in the oil business to compete with Standard Oil of New Jersey. "Do that," the chairman was reported to have said. "You will discover that in the oil business $100 million is one white chip.")
Al Hrubetz, continued to do well. But it was always looking for more capital. For example, they had come up with a new proposal to buy carbon dioxide (God knows from where--Indiana, maybe), pipe it all the way down to our fields in west Texas, and inject it into the wells, thus achieving a higher rate of secondary oil recovery. The deal made economic sense, but it would cost us another $50 million--and at that time, $50 million was a great deal more than it is today. Proposals like this came up constantly.
business's capital requirements. Perhaps I was wary of all the decisionmaking, since my knowledge of oil didn't compare to my expertise in Seagram's base liquor business. I did know enough to be nervous about the accuracy of the figures upon which we were relying. The Seagram debt was climbing, and the Seagram dog was now in danger of being wagged by the Texas Pacific tail.
Pacific was the rising price of oil. It was selling at just over thirty dollars a barrel, and many pundits were predicting it would go to fifty or sixty dollars a barrel. The results of such a climb in the costs of energy could have been disastrous for the Western democracies, especially the United States. Surely the government would have to intervene, which would be bad for small, independent oil companies like ours. I didn't want to do business in that kind of an environment.
Phil Beekman, our president and COO. Charles shared my concerns and was inclined to sell. Phil, however, was worried about replacing the earnings if we left the oil business, and I agreed that this had to be a consideration in anything we did.
like selling businesses--it somehow worried him that others would conclude that he had made a mistake in buying them in the first place.
had come with Frankfort distillers in 1943, and Father didn't know we owned it until ten years later), which marketed Fresh deodorant and Allerest allergy treatment. I realized one day that it was a seasonal business, because what you shipped out often came back. I went to Father and told him that we should sell that company. I could have spoken the words before they left his lips.
then it comes back."
when it's hot. If they don't sell it off during the summer, what's left comes back. And Allerest, that's only for hay fever season. If it doesn't sell during hay fever season, then they ship back what they didn't sell."
free to sell it.
I proved that it is better to be lucky than smart.
I was in the library of my Virginia farm when Mark Millard called to tell me that the Sun Oil Company was willing to pay US $2.1 billion for Texas Pacific.
purchase price of $65 million and the later investments we had made, Texas Pacific was on our books for $566 million. Of course, I knew it was worth a lot more than that, but this offer was amazing. I hardly knew what to say. I could analyze oil and I knew what it was worth. About 80 percent of this oil was secondary-recovery oil, not nearly as valuable as primary reserves. So $2.1 billion, which worked out to be some twelve dollars a barrel in the ground, was a huge sum.
was not nearly enough. In response, Mark went back to Sun Oil and actually managed to get them to increase the price to $2.3 billion, plus a reversionary interest on all unproven land (this meant that, after the purchaser's investment had paid out, part of the future profit would revert to us).
calculated that oil in the ground was worth one dollar a barrel. This was now 1981, and the price of oil had almost quadrupled since then. But twelve dollars a barrel? To this day, no one has received that much per barrel of oil in the ground. As Morgan Stanley senior executive Barry Good said, it was the best example he'd seen of having your cake and eating it too. And as the leader of the negotiations, Steve Banner (then a partner at Simpson Thacher & Bartlett and later, until his untimely death in May 1995, a very senior Seagram executive), put it, "Edgar, it's like stealing candy in a candy shop."
Mark Millard, who negotiated the whole deal. In fact, the only time I ever met the chairman of Sun was when he came to our Montreal headquarters with the check in his pocket. Charles and I picked him up at the airport and brought him back to the office for the signing ceremonies and celebration lunch.
sell the company. I've since learned that the right time to sell anything is when everybody thinks the price is going to keep going up as was the case with oil in 1981. In fact, the price of oil soon started to drop. My instincts had served me well once again.
We sat on that bundle of cash for some time, trying to figure out what to do with it. During the Carter administration, interest rates were over 20 percent--which meant that Phil Beekman did not have to worry about Seagram's income flow! Indeed, the amount of interest we earned was almost sinful. We paid full taxes on that income, however, and clearly these interest rates would not last forever. Sooner or later, we would have to reinvest the money (before we eventually did, it grew from $2.3 billion to $3 billion). In the meantime, our superb treasurer Richard Goeltz, obtained a standby loan so that we would be ready to move.
chaired by Harold Fieldsteel. The group's mission was to look into various industries and, based on its general conclusions, investigate specific companies that we might acquire. We quickly discovered that it was not going to be easy to place our money well. The companies that appeared most promising tended to be overpriced, with unreasonable price-to-earnings multiples. And, of course, if we sought to buy them, it would likely start a bidding war that would drive the prices even higher.
a number of companies, and made quite a bit of money in those transactions. I liked natural-resource companies, probably in part because natural resources were very much on everyone's mind during the early eighties. But I was also interested in buying value and, surprisingly, the natural-resource companies were relatively inexpensive.
considered acquiring the Union Pacific Railroad. I asked W. Averell Harriman, who had been Harry Truman's secretary of commerce and was a major shareholder in that railroad (as well as my neighbor in Yorktown Heights), whether he would have any objections. He said no, but told me that he didn't hold a controlling interest and that management probably wouldn't want to sell. In the end, we shied away from the railroad on the advice of our investment bankers, who indicated that an unfriendly takeover would be terribly difficult.
natural resources, including gold, lead, copper, and zinc, as well as phosphates and other minerals essential to fertilizers.
of refusing to act for hostile bidders. (They had made a lot of money by becoming Wall Street's Oliver Cromwell--"The Great Protector.") Since buying St. Joe would be an unfriendly takeover, we asked Lazard Freres, under the able leadership of my good friend Felix Rohatyn, to act for us in this matter. Felix had a long relationship with our family--he had once dated my sister Phyllis, and had gone into the mergers and acquisitions business at the urging of Father. He's a very bright, decent man, and I knew I could trust him.
to determine the bid. Finally, on March 11, 1981, we offered forty-eight dollars a share against a market price in the low thirties. I was sure we would prevail--but again, I was more lucky than smart, for we did not.
should have leapt at it. For example, we calculated gold at $500 an ounce, and we've never seen such a price since. Instead, their chief executive, John Duncan, refused to meet with me, even though he served on the board of Goodrich, as did our board member John Weinberg. But as it turned out, Duncan's bluff worked, because the Fluor Corporation came up with a higher bid. We wished them luck and backed off.
short their shares. Steve Banner, our lawyer, asked me not to, saying I could be accused of trying to rig the market. For a few thousand shares? I'm still annoyed when I think about this--it would have been like shooting fish in a barrel.)
the bid for St. Joe, saying, "You're a rich company and a rich family."
don't throw our money away," I answered. "We bid everything we thought we could and we, had no further appetite."
In my view, that sort of pride is not only stupid, but sinful. We must always bear in mind that we have associates and shareholders. It is our duty to protect their interests as much as our own.
much better than it has. We had cash to put into the business, and probably could have expanded it. But it never would have been a great investment.
business unless you understand how it operates and thus can improve it. Knowledge doesn't always translate into profits, but it's an important ingredient in the recipe for business success.
I had been lucky--or perhaps intuitive--three times in a row. Persuading my father to add an extra quarter to our Texas Pacific bid had made us players in the oil business. Judging the right time to sell had given us an enviable hoard of cash. And not upping the bid for St. Joe had allowed me to keep that hoard intact. But the question remained, how should we invest the money?
a smallish Canadian oil company, Dome Exploration, made a tender offer for a portion of Conoco stock. Dome had a limited objective, namely to trade the stock it acquired for Conoco's Canadian operations. The bid was enormously oversubscribed, and Dome succeeded in its goal. However, Mark Millard realized that the number of shareholders who had been willing to sell to Dome indicated that Conoco was quite loosely held and represented a golden acquisition opportunity, which he was quick to point out. Clearly, Conoco was up for grabs, and the stock was relatively cheap.
decide how many units of oil and gas they have, then you put a number on what you think each unit is worth, and finally you do some simple multiplication. In this case, the numbers were convincing. Conoco was a company with great expertise in discovering oil. It had found "black gold" not only in the United States, but in Libya, Dubai, the Norwegian and British North Seas, and in Asia, principally Indonesia.
Conoco, even though he knew that, only a year earlier, I had definitely wanted Seagram out of the oil business. In fact, when he first brought up Conoco, my visceral reaction was, "My God, we're out of the oil business, why would we want to go back into it again?"
because I thought it was too capital intensive and because I feared possible government intervention. However, as Mark correctly pointed out, Conoco was big enough to generate its own cash flow; Seagram would not have to invest any money beyond the initial acquisition. As for government intervention, I was no longer concerned, since the price of oil had receded from the dizzying heights of a few years earlier.
whether or not we should get back into oil, my gut was saying, "This looks good, it really looks awfully good." So I agreed to try our hand at a friendly bid, and Goldman Sachs was happy to work with us.
Conoco's CEO, Ralph Bailey. The meeting was held May 29, 1981, at Conoco's head offices, which were in Stamford, Connecticut. The setting made me a bit uneasy--there seemed to be no need for these luxurious offices when the company's oil operations were run from Houston and their coal operations from Pittsburgh.
mid-western, all-American air about him. He loved to play golf, which may have explained the Connecticut offices (lovely golf courses in the Stamford area!).
Conoco outright, we would acquire 25 percent as an investment and agree not to extend our ownership for at least five years. Had they asked us, we would have been willing to lengthen that time period, possibly to ten years. Our goal was to make a sound investment, not necessarily to take over operating control.
their board. We did, but the meeting was not a propitious one. The board members took it upon themselves to grill me for a good half hour asking a battery of what I felt were dumb questions. There was a lack of dignity about it. Why do I have to go through this? I kept wondering There was such an evident lack of trust and faith underlying the whole process. (Perhaps anti-Semitism, too?)
chairman's duplicity. You see, we had found out that while he was talking to us, Bailey was also running back and forth to Du Pont.
planes were kept at the Westchester Airport, and we could easily monitor where their planes were going by listening to the control tower on the radio. Their aircraft kept flying to Wilmington, Delaware. Well, what else is in Wilmington but Du Pont?
office, accepted a drink, and told me that they were not going to go along with our proposal. Evidently, he had decided it would be more lucrative for him and his fellow executives, who all had shares in Conoco, to sell outright than to take in a minority partner.
tender offer for Conoco.
Conoco: Du Pont, Seagram, and Mobil. Mobil made the outlandish bid of $125 a share, but Mark Millard kept telling us that this offer was meaningless, since neither the Federal Trade Commission nor the Justice Department would allow Mobil to buy Conoco without hearings, and probably not even then.
getting extremely rich for our blood, and we decided to back off. I was disappointed, but hardly upset. We had stayed in the bidding up to what we thought the stock was worth; a competitive bidder had offered more; so that was that. I went on vacation to the south of France with my wife and our two little girls.
The Conoco deal, however, continued to occupy my attention. Then I received two telephone calls that profoundly changed the fate of Seagram.
end" of the Du Pont deal, he explained, it was very possible that we could acquire a large share of Du Pont.
finest companies in America and, in my judgment, had a great future before it. If we could somehow become a major Du Pont shareholder, Seagram would become a huge enterprise.
dollars cash per share for 51 percent of Conoco, and a fixed number of Du Pont common shares for the remaining 49 percent. Mark reasoned that the arbitrageurs, who by now held almost all the Conoco stock, would much prefer cash to Du Pont stock, which would probably fall a bit as a result of the dilution. Mark therefore felt--and I agreed--that we didn't have to compete with the Du Pont bid. We only had to be close enough to make our cash more appealing than their stock, especially after brokerage fees.
That way, we could consolidate our Du Pont earnings into Seagram's and show the full profitability of the combined company. Also, with a share of 20 percent or more, we would play a meaningful role in the strategic direction of Du Pont.
me to fly back to Montreal for a board meeting, where we would decide what to do about Conoco and Du Pont.
Montreal, a record distance for us. By this time, company planes were by no means a novelty at Seagram, but a daily working tool. But it had not always been so.
Originally, our fledgling oil company had owned a small Aero-Commander, a two-engine propeller plane used to visit drilling sites. Once in a while, I used it to go to an island in the St. Lawrence River for a weekend of hunting. Father knew that I used the plane, and sometimes asked about its safety. I think he had a vision of string and chewing gum. I finally told him that he just didn't understand. "I'm not so stupid as to put my life in that kind of danger," I had said. We agreed not to discuss it again.
Father called to say that he and Mother had to go to Charlottetown (the capital of the Canadian province of Prince Edward Island, where the Articles of Confederation had been signed). It was a difficult place to get to commercially, he explained, but fortunately Miss Shanks, his Montreal secretary, had found a charter plane that was quite reasonable. The clear implication was that I should be proud of my father for being willing to fly on a private plane.
how good their maintenance is. "But it doesn't matter," I said, "I'll send the corporate jet to fly you there."
he would be pleased. Then, to stop further argument, I quickly added, "I have to run now. Let's discuss it after the flight."
Montreal. Who knew Edgar had bought a jet? It appeared that everyone was in on the plot. Why, he inquired, had he not been told? Mother saved the day by replying that it was because everyone thought he would cancel the order. He heartily agreed.
Charlottetown on Seagram's first corporate jet. After that, except for overseas flights, there were no more commercial flights for Sam Bronfman. He loved it so much that at one point he came into my office wanting to know why he couldn't have the plane that day for a trip. I told him that it was in St. Louis being serviced, and nothing ever interfered with that.
oil company was now using, a Beechcraft 18.
to Montreal versus an hour in a commercial plane. But that was what he wanted.
Ronald Cumming, the chairman of the giant Scottish spirits combine DCL. Much to my amusement, Father gave Ronnie a half-hour lecture on why he, the chairman of such a great company, should have his own airplane. A man in his position, Father said, "shouldn't fly around with the common herd."
It was fortunate now that I had prevailed on the matter of corporate airplanes so long before. Only because I had the right craft at my disposal was I able to arrive at 1430 Peel Street, Seagram's Montreal headquarters, in plenty of time.
situations rarely affects me, and this occasion was no different. I had had a smoked-meat sandwich, a glass of red wine, and a nap.
Grandpa Rosner used to take us to Ben's Delicatessen, a small restaurant that specialized in this delightful dish. It's basically brisket of beef, lightly smoked with garlic and other spices and served with a mild mustard on rye bread. To this day, when I'm in Montreal for a board meeting, I always have one and a half smoked-meat sandwiches. One time in the early seventies, I missed a board meeting, and Charles neglected to order smoked meat. The American directors put up a fuss, and from then on we've always had them at meetings. It's a tradition!)
Lazard Freres explained that if we wanted to stay in the running for the back-end deal, we should increase our bid from ninety to ninety-two dollars. Their figures showed that, for many sellers, ninety-two dollars in cash would be just enough to be preferable to the Du Pont stock. Offer any less, they told us, and most Conoco shareholders would decide that Du Pont stock was the better value. Halfway through the explanation, Charles and Leo Kolber arrived.
own father had died when he was a kid, and his mother had struggled to bring up Leo and his younger brother, Sam, and educate them as best she could. Leo was a lawyer, but his claim to fame would come as a real estate magnate. He was ambitious, but not to a fault. Father was very fond of him, and would point out to Mother--and, of course, to Charles and me--that we were fortunate to be influenced by a guy like Leo who had to count his pennies and earn a living.
business together, investing in real estate. The sums were relatively small, but we did well, and much of the credit goes to Leo. He had therefore earned our trust very early on, and felt quite free to say whatever he thought.
directors arrived. It was now perhaps eight P.M., and time to call the meeting to order. I explained why our goal should be not to acquire Conoco, but rather to end up with a significant position in Du Pont. Our two leading experts, Mark Millard and Felix Rohatyn, were peppered with questions. Gradually, however, everyone understood our intention, and they agreed. Only the price remained an issue. Should we bid ninety or ninety-two dollars?
you put the question to a vote?"
to a figure."
passed a resolution to bid ninety-two dollars for the stock of Conoco.
would not be obliged to take any stock unless we received more than 50 percent of the total shares outstanding. We should have set it at 20 percent since that was our goal, because the worst thing that could happen would be for us to receive, say, 5 percent of the outstanding Conoco shares and be obliged to sit on a meaningless minority of Du Pont equity, but the 50 percent slipped through the cracks.
Everything progressed smoothly until that fateful moment when I entered Harold Fieldsteel's office. Typically solemn, almost taciturn, his face was even longer than usual. Through constant conversations with the "arbs" and the investment funds who now held most of Conoco's stock, Harold had come to realize that our so-called safety net of 50 percent was working against us. Investors were not going to commit their stock to us unless they knew we were going to accept it. Many of them preferred our cash to Du Pont stock. But if our cash did not materialize, they would lose a chance to be prorated between Du Pont stock and Du Pont cash, and would end up with only Du Pont stock. They wouldn't risk that.
percent we need for equity accounting," Harold said. "But if we don't drop the net, we have virtually no chance of picking up much stock at all."
shrewdest, toughest firms in the oil investment business.
It was decision time.
contrary advice from the experts. Would my luck hold up, or had I overreached myself this time?
back to advise that we should drop the net after all. They were surprised to learn that we had already done so (and no doubt chagrined when I pointed out that they couldn't charge us for this advice).
percent of the Du Pont shares. As Ed Jefferson, then the chairman and CEO of Du Pont, said later, "Edgar, the day you dropped the net, I knew we were going to have a new, big shareholder."
Seagram's original investment in Texas Pacific Coal and Oil. With our 20 percent share of Du Pont, we now owned 20 percent of Conoco, which represented far more oil and gas in the ground than all of Texas Pacific's reserves when we had sold it to Sun Oil. And we owned 20 percent of the rest of Du Pont to boot!
Week, for example, claimed that, when the news was announced, one Du Pont senior executive boastfully ordered "Seagram on the rocks." But the truth was quite different. Only the inimitable Malcolm Forbes really understood the deal. "Who Lost the Battle for Conoco?" the headline of his article demanded. "Certainly Not Seagram." For the foreseeable future, Du Pont dividends would be extremely important to Seagram, and as Du Pont grew, so would our shares appreciate enormously.
learned that once a deal is made, there's no point in worrying about it. In fact, one of the worst mistakes managers make is that they try to make a bad decision look good.
flow would be great, and with the influence we now had over management decisions at Du Pont, I was confident we could help make the company even more profitable.
and I would be so closely associated, it was clear that I had made the right choice in dropping the safety net. But I had no inkling that, with this single decision, I had set off a series of events that would ultimately make Seagram larger, more powerful, and more diverse than even my father could ever have imagined.
luck, or the solid judgment of an experienced businessman? Probably a mixture of all three. In a sense, my whole life had been a training ground for making this sort of decision--and getting it right.
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