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Do you want to learn how the best
dealmakers in the world do it?
Everyone — and certainly every business — makes deals. Whether you are an automobile dealer negotiating to buy another, or Exxon merging with Mobil in a $76 billion transaction, the craft of dealmaking is everywhere. And like any craft, dealmaking has its apprentices, its journeymen...and its masters. Leo Hindery, Jr., is one ...
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Do you want to learn how the best
dealmakers in the world do it?
Everyone — and certainly every business — makes deals. Whether you are an automobile dealer negotiating to buy another, or Exxon merging with Mobil in a $76 billion transaction, the craft of dealmaking is everywhere. And like any craft, dealmaking has its apprentices, its journeymen...and its masters. Leo Hindery, Jr., is one of those masters of the negotiating table — a man who has steered home more than 240 business deals over the last twenty-five years, deals worth well in excess of $150 billion. In The Biggest Game of All, he brings readers inside the rooms where he has worked his wizardry, sometimes in partnership with, and sometimes against, the best dealmaking businessmen of our time, including General Electric's Jack Welch, Jerry Levin of AOL Time Warner, TCI's John Malone, George Steinbrenner, Barry Diller, and Rupert Murdoch.
Through detailed narratives of the key moments in some of the biggest deals of our time — including AT&T's $60 billion purchase of the cable giant MediaOne, the $54 billion sale of TeleCommunications, Inc. (a deal done in only twelve days), and the USA Networks/Seagram swap — The Biggest Game of All is a true master class in dealmaking, showing all the inside strategies, tactics, and temperaments that make great dealmakers great. And at the center of the master class are Leo Hindery's ten commandments of dealmaking:
#1. Do more homework than the other guy.
#2. Look before you leap to the altar. You may love him, but you can't change him.
#3. Deals should be done as fast as possible...butno faster.
#4. Remember that you are only as good as the women and men around you. (And so is the other guy.)
#5. Learn how to walk away.
#6. Have adversaries, if need be. But don't have enemies.
#7. Read the fine print.
#8. Don't keep score on things that don't matter.
#9. Hang in there.
#10. Learn to keep your mouth shut.
Leo Hindery's vantage point from the very peak of the dealmaking pyramid is the ideal place to observe, and therefore to understand, what separates good deals — those intended to improve a company's strategic prospects — from bad. At a time when the costs of business decisions made out of fear, confusion, and greed have never been higher or more newsworthy, knowing good from bad might be the most important dealmaking skill of all.
No one who reads this insider's look at the incredible speed with which these human calculators make billion- dollar decisions, and at their fundamental, almost intuitive understanding of their own and other enterprises, will look at American business the same way again. The Biggest Game of All is that rarest of business books, instructive, enlightening, and just plain fun...a ringside seat at the real World Series of Poker, where the chips are worth a billion dollars each.
I was looking across the negotiating table and thinking to myself: This stops right now.
As CEO of AT&T Broadband, I had told the world a few weeks earlier that AT&T planned to buy MediaOne Group for $62.5 billion. Our offer blindsided Brian Roberts, the president of Comcast, who had announced his own plans to buy MediaOne just a month before that. Now Brian, who was seated across the table from me, was in a tough spot. He had to decide if he was going to stand down and lose MediaOne, or hang tough and fight us with a counter-offer.
The situation was tense, and growing more strained by the minute. Microsoft by then had already offered to help Brian if he decided to counter. A senior Microsoft executive, Greg Maffei, was waiting in an office a few floors down. Paul Allen, the software billionaire, had also offered financial assistance. Paul was in Seattle waiting for a call from his go-to guy, Bill Savoy, who was standing by in an office across the street. All Brian had to do was pick up the phone and call Greg or Bill (who would then call Paul) and I was dead meat.
Brian was edgy and probably a littleembarrassed that we were trying to take MediaOne away from him, so he was liable to do anything. That scared the bejesus out of me. We couldn't afford not to buy MediaOne. The big cable TV operator was critical to AT&T's long-term business plans. But we couldn't afford to pay a stupid price, either. Though Brian had no way of knowing it, we had just announced our best -- and only -- offer for MediaOne. Unlike Microsoft and Paul, we didn't have the money for a bidding war. But we did have something they didn't have: Philadelphia.
Comcast, which is based in Philadelphia, had been trying for years to buy Lenfest Communications, which owned the cable systems in suburban Philadelphia. Gerry Lenfest, the company's founder and namesake, had always refused to sell. Luckily for me, AT&T owned 50 percent of Lenfest. To entice Brian to stand down on MediaOne, I decided to offer him Lenfest Communications. There was just one hitch: Lenfest wasn't mine to give away. Gerry still owned 50 percent and had veto rights over big deals affecting the company. I knew that Gerry would never sell his company to Brian. The two had competed for years, so there was a lot of bad blood. But right then I didn't care about that. All I cared about was holding on to MediaOne and getting Brian off my back.
I rolled the dice and made my move. I told Brian flat out that he could have Lenfest, and therefore the Philadelphia systems he'd wanted for so long, on one condition. He had to promise right then and there not to fight me on MediaOne. He had to agree to take Lenfest as a consolation prize and walk away. By then, Brian and I had been holed up for two days in AT&T's attorneys' offices haggling, so we were both exhausted. Brian considered my offer, then extended his hand to shake on the deal. My nightmare was finally over. MediaOne was ours.
I couldn't gloat right then, but in my stomach I knew I'd just hit the ball right out of the park. I'd managed to use a handful of relatively insignificant cable TV systems that technically weren't mine to give away to lock down one of the biggest and most important media deals of the century. I'd have to work things out with Gerry, of course, who still didn't have a clue. But that was just a cleanup detail. By the time it was all over, I'd make sure that everybody, including Gerry, walked away as huge winners. For a high-stakes dealmaker, that's about as good as it ever gets.
Dealmakers are found at every level of American business. But at the peak -- the very peak -- of the dealmaking universe are the ultimate wheeler-dealers. These are the dealmaking pros whose mere presence at a negotiating table is a sure sign that a big deal is about to go down -- a deal from which they will most likely emerge as winners.
Pushing the dealmaking edge isn't for everybody. You have to be able to think fast, move fast, and bluff with impunity. You also have to have an iron stomach and an iron will. It doesn't hurt to have a sense of humor, which can come in handy on those occasions when everything blows up in your face. (And if you do enough deals, it does happen, believe me.) Much of the time, however, these super-dealmakers do succeed, often in spectacular fashion.
So who, exactly, are these business warriors? If you're breathing and live on planet Earth, they're hard to miss. Chances are you're already familiar with at least some of their handiwork.
There's Rupert Murdoch, the chairman of News Corp., which brought the world Fox Broadcasting, The Simpsons, Fox News, Fox Sports, and, overseas, BSkyB satellite TV. There's also Sumner Redstone, the chairman of Viacom, who turned MTV and VH1 into household names, then merged with CBS to produce a content-driven entertainment house that continues to push the borders of programming. Another dealmaking superstar is Gerald "Jerry" Levin, the former CEO of AOL Time Warner, the world's largest media company. AOL Time Warner is home to CNN, Home Box Office, Time magazine and, of course, Web giant AOL.
And then there is John F. Welch, Jr., the former CEO of General Electric. I consider Jack, as he is known to just about everybody, to be the finest CEO of the last century. During Jack's remarkable twenty-year run as CEO, the S&P 500 grew by a very respectable 15 percent return. Respectable, but puny by comparison to GE, whose shareholders during that same period enjoyed an astonishing 23 percent compounded annual growth rate. Jack Welch will be remembered for dozens of high-profile achievements: the growth rate, the introduction of the hugely innovative Six-Sigma approach to product defects; GE's management "college." But Jack's biggest accomplishment, bar none, was permeating GE with a dealmaking culture that will benefit the company for generations to come. At its core, GE still does a lot of relatively boring stuff. They still make locomotives, washing machines, and light bulbs. Yet, even as investors everywhere continue to chase the "next new thing," GE is still the yardstick by which other companies are measured. That's largely because of Jack's dealmaking credo.
Other members of this exclusive club include Mel Karmazin, the former CEO of CBS and current chief operating officer of Viacom; John Malone, the former chairman of Tele-Communications, Inc., and current chairman of Liberty Media; and Brian Roberts, the president of Comcast. All earned their dealmaking stripes the old-fashioned way: by making bold deals with bold moves intended to shake up the status quo. Mel engineered the blockbuster merger of CBS and Viacom, a marriage that would have been unthinkable just a few years ago. John dreamed up the groundbreaking merger between TCI and AT&T, a watershed event that kicked off a whole wave of consolidation in the cable and telecom industries. Brian grabbed headlines by making an unsolicited bid for AT&T Broadband in 2001, even as AT&T was attempting to spin off its cable and Internet assets in an initial public offering, or IPO. At the time AT&T Broadband was nearly twice Comcast's size. Talk about moxie.
Part of this group's notoriety stems from their collective style of dealmaking. It's big, it's bold -- it's transforming. These dealmakers think way out of the box. (So far out, in fact, that at times it might seem as if they're on another planet.) Speed is their hallmark. They think fast, move fast, and pull the trigger on momentous deals faster than anyone -- especially their competitors -- would ever think possible. No committees here: These guys are singular Leaders with a capital L. They make decisions quickly, and with conviction. Sometimes they crash and burn spectacularly. Most times they soar, and in the process inspire us all to test our own wings.
Then there are the deals themselves. Like the men behind them, they're attention-grabbing. The deals put forth by this group tend to fire our imaginations and challenge our concepts about whole industries. These deals aren't neat and polite. They're big, loud, and often upset people, especially other CEOs. If you're a CEO and happen to bump up against one of these deals, either by design or by chance, you can almost count on having some sleepless nights. Just ask anybody who's ever tried to take on John Malone, Rupert Murdoch, or Sumner Redstone.
How to spot one of these transforming deals? You could start with what Potter Stewart, former Supreme Court justice, once said about pornography: You'll know it when you see it. Transforming deals have a tendency to jangle your senses. They have an aura about them that is almost palpable. They just feel different.
There are other, more worldly signs. Take regulators. What they say and how they say it can telegraph a lot about a deal's relative importance. Do they yawn? (Softball deal.) Or do they start hoisting red flags and talking tough immediately? (Tranforming deal.) Another indicator is the press. Does the national press -- The Wall Street Journal, The New York Times, Fortune, Forbes, Newsweek, and cable and TV networks -- pay attention? (Transforming deal.) Or do they refer to your deal in an abbreviated or, worse yet, humorous manner, or even take a pass altogether? (Softball deal.) Then there are the numbers themselves: They're huge. To qualify as a really big deal these days, you're usually talking about a transaction that is worth at least $5 billion or so. Anything less, at least in today's world, isn't a certified head-smacker. (As in slapping your forehead because you just can't believe that so-and-so is doing the deal you just heard about.)
The real telltale sign, of course, is the substance of the deal itself. Transforming deals tend to influence whole industries by their mere existence. Forget about closing one of these suckers, which can, in some cases, easily take a year or longer to accomplish. The mere announcement of a transforming deal tends to set off a chain reaction in the marketplace that can, in itself, lead to rather dramatic changes. When Bell Atlantic announced plans to buy Tele-Communications, Inc., in 1993, for example, cable and phone companies rushed to court one another. Almost overnight, companies that had practically ignored one another before suddenly couldn't say enough about how they might work together constructively going forward. Never mind that the Bell Atlantic-TCI deal would have taken a year to close, at least. Reaction to the deal was substantive and immediate. The Bell Atlantic-TCI deal ultimately died, but by then the seeds of a new way of thinking had already been planted.
Another measure of a deal's import is its impact. Size certainly counts. But size alone isn't the distinguishing factor. Daimler's acquisition of Chrysler, for example, was huge by any measure. So was Exxon's acquisition of Mobil, and Bell Atlantic's acquisition of Nynex. But did any of these transactions push the limits of our imagination, or cause us, as a society, to rethink the affected industries in new and exciting ways? Not really. At the end of the day, these marriages were all about making big, entrenched incumbents even bigger. The battle lines were fundamentally the same before these deals as after. The only thing that changed, really, was the relative size of the players. All the Goliaths just got a little bigger.
Now consider the Viacom-CBS deal. These two marriage partners were profoundly different on almost every level. Viacom was one of the most dynamic media companies on the planet; CBS was a traditional broadcaster with aging demographics and a mature radio business. In doing that deal, Sumner Redstone and Mel Karmazin were betting that the sum parts of Viacom and CBS -- strategically, financially, and otherwise -- were worth far more together than they were individually. It was a bold, even audacious, move that was fraught with risk. The early signs were most encouraging. Soon after teaming up with Viacom, CBS starting seeing some gains in the prime-time ratings race. It also started making some headway -- slight but still there -- in attracting younger viewers. To be sure, Viacom-CBS still got pounded along with the rest of the media world by the advertising dropoff in the aftermath of 9/11 and the general economic downturn. And Viacom's future management is something of a question mark, given Sumner's advancing years and Mel's short-term management contract, which expires in 2003. But these things will work themselves out over time. The point here is that Sumner and Mel had the foresight and courage to do the deal at all.
Same goes for AOL-Time Warner. Though a lot of CEOs had talked -- for years -- about buying AOL, Jerry was the only one who had the coconuts to actually do it. The pairing wasn't without its risks. Time Warner and AOL hailed from opposite ends of the universe. One was an entertainment conglomerate; the other a maverick Web giant. One had a Hollywood tradition that dated back decades. The other was a New Age kid still feeling its way around the Internet block. The day the merger was announced, the old rules of engagement flew out the window; a new competitive dynamic was born. Like it or hate it, the AOL-Time Warner deal was that transforming. That's the sort of creative, over-the-top dealmaking that separates Sumner and Jerry from the rest of the pack.
That brings me to another basic characteristic of the überdealmaker: He has "vision." As a leadership characteristic, "vision" has become so overused that it's practically devoid of meaning. A lot of CEOs seem to think the label comes along with the title, like a company car or a golf club membership. But in my mind the meaning is clear. True visionaries anticipate; they don't just react. (Benjamin Franklin put it like this: "Genius is the ability to hold one's vision steady until it becomes reality.") Visionaries set their course according to their own mental image of the future, no matter how contrary that view might be to popular opinion. Nonvisionaries tend to let events of the day pull them along. It's a key difference, and one that gets overlooked a lot whenever the subject of "vision" gets raised.
Consider Bernie Ebbers, the former CEO of WorldCom. In the late 1990s, WorldCom was a growing telecommunications carrier on a tear to dominate the sector. Bernie rightly recognized that WorldCom's strategy and assets had some serious holes and set out to fill them. In short order he bought MCI, America's No. 2 long distance company -- he had to wrestle it away from British Telecommunications, which had already announced plans to buy MCI -- then turned around and laid plans to buy Sprint, the No. 3 player. In addition to having a solid base of long distance customers, Sprint had a growing wireless business and a very profitable local phone operation. Bernie figured the combination of all those assets would make WorldCom a particularly formidable competitor going forward. Sprint, a perennial No. 3 behind AT&T and MCI, quickly accepted his offer.
Enter BellSouth, the big Atlanta-based regional phone company. BellSouth had been eying Sprint for years but could never quite seem to pull the trigger. Once Bernie made his move, however, BellSouth scrambled and jumped in with a counter-bid. Like Bernie, BellSouth argued that a Sprint-BellSouth merger would leave both companies stronger. It also argued that the natural synergies between the two companies would accrue to the benefit of BellSouth shareholders. BellSouth said the deal was a hand-in-glove fit -- strategically, managerially, and otherwise -- on almost every level. So what happened? BellSouth got turned down flat, then turned on its heel and went home. Instead of hanging in there and fighting, BellSouth's CEO said, in essence, "Call me if you change your mind," and that was it. The BellSouth minidrama ended as quickly as it began.
Bernie ultimately wasn't successful in buying Sprint, either. Regulators later nixed the deal, claiming that a combination of America's No. 2 and No. 3 long distance companies was anticompetitive. But to this day Bernie will argue that the deal made a ton of sense strategically and should have been approved. And BellSouth? It later suggested that it was fortunate that its Sprint deal didn't work out, given the dramatic downturn in the telecom sector that followed. That is classic Visionary (Bernie) versus Nonvisionary (BellSouth) behavior. One sets his course according to an unflagging vision of the future. The other tends to get pulled along by events of the day.
Unfortunately, Bernie later got caught up in his own dealmaking web. Bernie was ultimately forced out by his own board amid growing concern about WorldCom's finances. The second shoe dropped in June 2002, when WorldCom announced that it had hidden almost $4 billion in expenses -- a figure that later ballooned to more than $7 billion -- and posted bogus profits over a five-quarter period beginning in 2000. As this is being written, WorldCom has filed for bankruptcy, and the Securities and Exchange Commission is investigating the company for a variety of alleged offenses. Bernie's successor at WorldCom, John Sidgmore, is working on a restructuring plan, but the outlook isn't good. Unless John is particularly good at pulling rabbits out of his hat, WorldCom could be history by the time you are reading this. So could John, for that matter. The WorldCom board began searching for a new CEO in September 2002 after John let it be known that he no longer wanted the job. One can only wonder if things might have turned out different -- for WorldCom and Bernie -- if regulators had approved the Sprint deal. In buying Sprint, Bernie had hoped to turn WorldCom into a major player in wireless. After the Sprint deal died, however, Bernie gave up on that idea. The rest, as they say, is history.
BellSouth, to its credit, managed to avoid getting ravaged by the telecom meltdown. As of August 2002, BellSouth's stock price was basically unchanged from where it was five years earlier. That's not bad at all when you consider the fate of companies like WorldCom. But vision, as I said, isn't just about the short-term -- or even the five-year -- performance of your stock price. It's about looking into the future -- years, or even decades -- and having the guts to make big changes based on what you see. When Bell Atlantic and SBC Communications went on buying sprees a few years ago, BellSouth sat it out. BellSouth argued, as it had so many times before, that it couldn't -- and wouldn't -- expose its shareholders to undue financial risk. BellSouth also said it didn't need a merger partner to be successful going forward. It was big enough to go it alone.
True to form, BellSouth took a seat in the stands and watched...as Bell Atlantic and SBC made history and redefined the competitive landscape. In rapid succession, Bell Atlantic bought Nynex, the New York-based Bell, and then GTE. Not to be outdone, SBC snapped up Ameritech, the midwestern Bell, and Pacific Telesis, which provides phone service throughout California. By the time it was all over, SBC controlled the Midwest, Southwest, and California, and Bell Atlantic (now called Verizon) dominated the East Coast and large pockets in other parts of the country. The shopping spree left BellSouth, which formerly had bragging rights to being the biggest of the Bells, looking puny and badly in need of a growth plan. As this is being written, many people on Wall Street consider BellSouth takeover bait, even as the company continues to insist that it can go it alone.
Ivan Seidenberg, the CEO (and soon-to-be chairman) of Verizon, and Ed Whitacre, SBC's longstanding chairman and CEO, both deserve a lot of credit for having the foresight and courage to turn their regional companies into important national players. As of 2002, Ivan and Ed were still trolling hard for new acquisition targets. Verizon at one point contemplated teaming up with John Malone of Liberty Media (with me assisting on the side) to make a run at AT&T Broadband, AT&T's cable and Internet arm. They ultimately decided to take a pass, mainly because they didn't want the regulatory and political hassles that go along with trying to do a deal of that scale. SBC also considered making a run at AT&T on its own, but lost interest for similar reasons. No matter. Just the fact that Ivan and Ed contemplated those deals is confirmation of their creativity.
That's not to say that a CEO necessarily has to do big deals to achieve fame. Lee Iacocca, the former head of General Motors, is probably one of the best-known CEOs in history. Lee had a nice design sense for automobiles and tons of charisma, and he could certainly lead and inspire people. But Lee never did any business transactions of any significance. I also doubt that many people will be talking about Lee's contributions to his industry or to the world even a decade from now. That's not a criticism of Lee, mind you. But it is a strong reminder that fame, in and of itself, does not confer greatness or even importance. (Any time you need a reminder of this, just read People magazine.)
Sticking to a vision isn't necessarily easy. At times, in fact, it can be downright painful. Jerry Levin, the former chairman of AOL Time Warner, is a case in point. Shortly after the $165 billion AOL-Time Warner deal closed, the Internet boom went bust. Internet stock prices plunged. Jerry, who bought AOL near the top of the Internet bubble, took a lot of heat. In hindsight, critics said Jerry paid way too much for AOL. The company had to take a $54 billion noncash charge in the first quarter of 2002 to cover the plunge in AOL Time Warner's value. Even though it was a noncash charge, the perception that AOL was worthless hurt.
I don't know if Jerry paid too much for AOL, and I would argue that nobody else does, either. As this is being written, only God knows if Jerry overpaid. It will take the rest of us four or five years to find out. Regardless, the strategic logic of combining AOL and Time Warner is undeniable. Jerry, a longtime believer in the idea of convergence, figured the long-term benefits of buying AOL would far outweigh any short-term risks, including fluctuations in the marketplace. Bold? You bet. Risky? Of course. But if Jerry was right -- and I believe that he was -- AOL Time Warner will triumph once convergence turns real.
Jerry's vision has gotten him into hot water before. Back in the mid-1990s when cable TV stocks were in the tank, Jerry was under tremendous pressure to bail out of the cable TV business. "Jerry-bashing" on Wall Street (and even among some Time Warner executives) practically became a blood sport. Some analysts quietly began calling for his head. Jerry, to his eternal credit, refused to budge. He believed, in his heart and in his head, that cable was a powerful conduit for delivering all sorts of video and interactive services to consumers, including video-on-demand and Internet services. Jerry's optimism seemed like a bit of a stretch. At the time it was all some cable operators could do just to maintain halfway decent cable service.
Jerry was eventually proven right. Just as he had predicted, the cable industry got its act together and began attracting a slew of big new investors, including Microsoft. Convergence became the industry mantra. Wall Street joined in and pushed cable stocks to new highs. And Jerry? The guy whose head had once been on the chopping block was suddenly hailed as a hero.
It remains to be seen if Jerry will be hailed as a hero on the AOL-Time Warner deal. Jerry retired from AOL Time Warner in 2002 after thirty years with the company in all its various forms, the last ten as CEO. By the time Jerry left, cable stocks were again treading water and Internet stocks were, as I said, blasted. Investors are understandably upset. Though the ad market has lately been perking up, the short-term outlook is still rather dismal. All that said, I continue to believe that the AOL-Time Warner deal was smart strategically.
CEOs devise all sorts of clever cover-ups for their lack of vision and real convictions. When he was appointed CEO of IBM in 1993, Lou Gerstner attracted a lot of attention by saying that the last thing IBM needed was a "vision." Lou made that assertion at a time when IBM's shares were trading at historical lows and the longtime CEO whom Lou succeeded had just been pushed out. Lou was wrong, of course. If IBM ever needed a vision, it was right then. But Lou, who had never run a computer company in his life, much less a Queen Mary like IBM, didn't have one handy. So Lou did what most CEOs do who don't have a game plan: He said it didn't matter, and soldiered on. IBM eventually turned into a well-run organization under Lou, who retired in 2002. During his tenure, Lou cut more than a billion dollars of expenses from IBM's bloated structure and revived the company's tradition of treating customers well. He also took advantage of some opportunities created by the swelling popularity of the Internet. But I don't think you could say that Lou Gerstner was particularly prescient, and he certainly wasn't visionary.
My guess is that if you were to talk to any of the dinosaurs out there today -- Bethlehem Steel, Xerox, Ford -- they'd all tell you a version of what Lou so famously told his shareholders back in 1993. And the reason is quite simple: They don't have a vision handy, either. These are all big, substantial organizations. And they essentially have no vision. Some of them, such as IBM, are quite well run. Others, such as BellSouth, have been incredibly lucky. (BellSouth, which was created by the court-ordered breakup of AT&T in 1984, inherited its monopoly local phone business.) Most of them even have a strategy, or at least the semblance of one. But they have no vision. And to be a really successful, leading-edge company in the emerging world of New Media, you need both.
Hailing from the world of New Media, in and of itself, isn't enough. If that were the sole criterion, technology would surely win hands-down. Technology has become the lubricant of our society, and in the process it has become a fundamental part of our lives. Technology affects virtually every aspect of our existence, from the way we bank and shop to the way we socialize, look for jobs, and keep in touch with our families and friends. And yet, just try to name even a single successful dealmaker who has emerged from this community. Can't think of any? Neither can I. An industry that can produce microscopic computer chips, voice recognition technology, and encryption systems sophisticated enough to confuse the Kremlin should be able to triumph at the negotiating table. And yet, that is not the case.
Bill Gates of Microsoft, America's technology leader, is probably the most famous technology CEO in the world. Bill's genius, however, was never about dealmaking. It wasn't even about technology. Bill's genius was his laserlike ability to look into the future and envision a New World developing that embraced nonproprietary software standards. At a time when Apple was zealously guarding its proprietary software system, Bill smartly ran as hard and as fast as he could to license Microsoft's operating system to anybody and everybody. In the process, Bill ignited a computer revolution and secured Microsoft's -- and his -- place in history. And Apple? It chose to keep its operating system proprietary -- and nearly killed the company.
Praise for Bill aside, let's be brutally honest here -- the guy is no dealmaker. As of 2001, Microsoft's biggest business transaction consisted of investing $5 billion for a small stake in AT&T. And even that wasn't particularly well done. (See Chapter 5.) Other investments haven't fared so well, either. Trying to catch the Internet wave, Microsoft aggressively invested in an assortment of cable, telecom, and technology companies in the United States and abroad. When the Internet bubble burst, Microsoft got caught flat-footed like everybody else. In 2001, Microsoft was forced to write down more than $5 billion in bad investments, much of it related to cable, telecom, and the Internet. Microsoft, of course, is still an incredibly valuable company. But who knows what Microsoft might have looked like today if Bill had been able to leverage some of his famous smarts into prescient, forward-looking technology deals? What if Microsoft had bought Cisco Systems, Amazon, or AOL -- or even all three -- early on? Instead of just being a formidable software power, Microsoft today might be a media conglomerate leading the planet into a new Information Age. You can only wonder.
But taking Bill to task for not shining as a deal negotiator is like criticizing Tiger Woods because his bowling game isn't so great. Bill Gates is one of the true visionaries of our time. He is somebody we'll all be discussing not just a decade from now, but generations from now -- and maybe for all time. His intellectual contributions have fundamentally and forever changed our lives, and in the process changed the world. That is, and always has been, the hallmark of a true visionary.
To be sure, a few technology stars did manage, at least for a while, to grow their businesses by acquisition. Most of them eventually bombed out. Cisco Systems, the hot maker of Internet networking gear, was classic. Using its soaring stock price as deal currency, Cisco acquired more than seventy companies between 1993 and 2000. By 2001, fully half of Cisco's revenues came from acquired technology or companies. That should have set off alarms -- nobody can assimilate seventy companies in that short space of time. But it didn't. Wall Street was so enamored of Cisco's growth-by-acquisition strategy that it drove up Cisco's stock price even further. That, of course, just emboldened Cisco even more.
Then the Internet bubble went bust -- and Cisco blew up like an overinflated balloon. The company's lunar-bound stock price promptly went into a free fall, wiping tens of billions of dollars off Cisco's market value. Cisco's acquisition binge promptly screeched to a halt. As dazed investors tried to sort out what had just happened, Cisco got down to the difficult business of trying to sort through its bulging portfolio of new companies to figure out exactly how they all worked together. The short answer: A lot of them didn't. Cisco's famous nose for deals, so it seemed, was an illusion -- just like the Internet bubble itself.
The high-speed Internet company controlled by AT&T, @Home, didn't do much better. Tom Jermoluk, @Home's CEO, decided to turn @Home into a bigger, better version of AOL. Never mind, apparently, that @Home was a distribution play that was never intended to be a content-driven company. In 1999, @Home acquired Excite, a big Web portal akin to Yahoo!, for $7 billion. @Home also bought Blue Mountain, an electronic greeting card company, for $780 million, including $350 million in cash. I was on the @Home board during this time (from 1997 to 1999) and frequently butted heads with Tom about the company's strategic direction. Out of twelve directors, I was the only one who voted against the Excite and Blue Mountain acquisitions. Tom basically ignored my concerns, and who could blame him? The more @Home invested in other Internet startups, the more Wall Street cheered. Investors eventually pushed @Home's stock price to near the $200 mark. It was a heady time for a company whose shares had started trading just two years earlier for $10.50 apiece.
By fall 2001, the party was over. Ravaged by the Internet bust, @Home's expected revenues from Excite never materialized. Service quality deteriorated under AT&T, which committed an extra $3 billion to take control of @Home on the belief that it could provide a handy platform for high-speed and interactive services. @Home's other cable benefactors, who sold @Home exclusively, soon started talking about withdrawing their support. In fall 2001, @Home finally threw in the towel. It filed for bankruptcy and began auctioning off its assets. And Excite? By then, @Home had been trying for months to literally give the portal to anyone who would take it. (And when I say "literally" I mean just that: @Home had figured out it would cost a couple of hundred million dollars to shut down Excite and was willing to give it away to avoid incurring those costs.) As for Blue Mountain, @Home did manage to sell that -- for $35 million, about 5 percent of the original purchase price. So much for creating the next AOL.
The dealmaking report card for the U.S. telecom sector was even worse. Global Crossing, where I briefly served as interim CEO in mid-2000, spent billions of dollars to construct an international fiber-optic telecommunications network in the belief that demand for transport capacity would far outstrip availability. Unfortunately, a lot of other carriers had the same idea. It soon became apparent that the market was, in fact, being flooded with millions of miles of fiber-optic capacity that weren't being used. Prices for fiber-optic capacity plummeted. So did the fortunes of Global, which eventually filed for bankruptcy court protection.
Global might have been one of the more notable telecom flameouts, but it was by no means the only one. Winstar, an acquisition-prone wireless upstart, essentially got a $700 million loan from Lucent, a big U.S. equipment provider, to get its business going. Then Winstar went belly up, leaving Lucent to eat its $700 million in so-called vendor financing. Lucent wound up writing off most of Winstar's loan, then got hit again and again as other small carriers flamed out -- taking Lucent equipment and contracts with them. Lucent's management got blindsided by the telecom meltdown. Trying to right itself, Lucent's management cut costs to the bone. More than half of Lucent's employees were let go or resigned in less than six months -- and still the reductions continued. Nortel, the big Canadian telecom equipment maker, also got socked. It announced a $19 billion write-off in 2001, one of the biggest in corporate history. Those moves, for the telecom sector, were only the canaries in the coal mine.
Carrier after carrier crashed and burned. Billions in investors' money went straight down the tubes. In the thirty-six months ending December 2000, a breathtaking $1.24 trillion was lent to telecom carriers of all sizes for plant and infrastructure development. (And that didn't even include the billions of dollars of vendor financing that were extended to technology start-ups such as Winstar that eventually went under.) Roughly 30 percent of the growth in the U.S. economy -- jobs and capital -- during this remarkable three-year period was due to companies in this sector. When the sector went under, so did those investment dollars. Hundreds of thousands of people lost their jobs.
By the time September 2001 rolled around, the economy was already flirting with a recession, and 9/11 tipped the scale. After the attacks, there seemed to be little doubt that America was in a full-tilt recession. The airline, hotel, and tourism industries got pounded. Tens of thousands of employees were almost immediately laid off. Congress had to come to the rescue with a large economic aid package. Within weeks the United States retaliated by unleashing bombs, and then troops, on Afghanistan, the country where the terrorists who had planned these awful attacks were believed to be hiding. As if all that wasn't enough, an anthrax scare soon followed. Several people died from exposure to the deadly disease. Fear gripped the nation.
Corporate America blinked hard. The New York Stock Exchange, which was closed on the day of the attacks, reopened a few days later. When the opening bell rang, the Dow headed straight for a cliff and jumped off, finishing down a gut-wrenching 700 points for the day. The steep drop in the stock market caused all of us to catch our collective breath and wonder what the next day would look like. And the day after that, and the day after that. A lot of CEOs, quite understandably, were positively reeling. So were investors. Many saw their portfolios, along with their retirement incomes and life savings, plummet in value. Even seasoned investors were shaken. It was a painful, uneasy period for our country and for the world we live in.
But America's dealmaking giants, to the man, held their ground. On the same day the newspapers were talking about America's gloomy economic outlook, Rupert Murdoch was still in there pounding on GM's door trying to buy DirecTV. Brian Roberts of Comcast was still running hard after AT&T Broadband, and John Malone, being John Malone, was still figuring out new ways to conquer the world. Times might have been uncertain, but these titans of business were, in fact, still very certain of their respective places in the world. And even the horrific events of September 11, and all the awful implications of that singularly devastating day, couldn't shake their fundamental beliefs and hopes about the future.
And that, in a nutshell, is why I'm such a fan of Rupert, Brian, John, and the others. It's not because they're famous. It's not because they are influential. It's not even because they are successful. Quite the opposite: They're successful, influential, famous -- and different -- precisely because they have a clear-eyed vision of the future. They have an indelible road map in their brains of how they want to get there and they stay the course. They don't panic when the stock market tanks. They don't wring their hands when the economy takes a dive, or even when a global response to terrorism threatens. They don't lose their cool, period. Instead, they do what great business leaders should do -- they lead. And that, at the end of the day, is what being a successful CEO in today's global environment is all about.
As a dealmaking veteran myself, I've had the honor and pleasure of spending time with all of these remarkable executives. Sometimes we've been on the same side of the negotiating table; other times not. But I've learned an awful lot from each of them over the years, which is one reason I decided to write this book. My hope is that somewhere in here you'll find something relevant to your own life and career, or maybe both. And maybe, just maybe, even a little bit of inspiration as you navigate your own chosen path in life. With that in mind, I'd like to offer some brief observations about the people to whom this book is dedicated, America's true dealmaking giants.
Rupert Murdoch, Chairman, News Corp.: (Okay, so he's not American-born. But he is Australian, which is close enough.) I hear young executives all the time talk about "Rupert," even though most have never even met him. It's that kind of suggested familiarity that defines this small but influential group of CEOs, and Rupert is right at the head of the pack.
Rupert has one of the most formidable creative minds on the planet. He is also one of the most long-reaching deal guys you'll ever meet in your life. His sense of continuity is remarkable. Rupert is building something for the generations that haven't even been born yet. Because of that, he is willing to take huge risks and suffer tremendous downturns, all for the sake of the out years. Rupert is allowed to be the visionary of the sort he is -- commanding, forward-looking, and stunningly creative -- because he controls News Corp. Otherwise, he could have been fired three or four times by now. Every time his stock price took a serious dive, he might have been whacked.
Rupert is a certified genius when it comes to programming and marketing. That's why so many people fear him. As of 2002, Rupert's satellite TV ventures in Europe, Asia, Latin America, and Australia reached more than 85 million homes. As he looks to expand even further into the United States, cable television operators are rightly worried. Cable operators complain that Rupert plays dirty in the market -- favoring his own content over that of others is the biggest complaint. But that's just a lot of bunk. The real reason cable operators don't want Rupert to come into the U.S. market is that nobody wants to compete against him. The guy is just that good, and everybody knows it.
Rupert spent more than a year trying to buy DirecTV, the big domestic satellite TV company controlled by General Motors, only to get outdone at the last minute by his archrival, Charlie Ergen of EchoStar, another satellite TV provider. DirecTV prospered under GM. But in the hands of a true programming master like Rupert, DirecTV might really take off at the expense of traditional cable TV operators. (Bingo: This is the real reason cable operators fret about Rupert.) Though Rupert lost the first round to Charlie, don't count him out just yet. As this is being written in the fall of 2002, regulators have turned down EchoStar's bid to buy DirecTV, paving the way for Rupert to swoop back in and buy the company. So stay tuned.
Sumner Redstone, Chairman, Viacom: Sumner's ability to peer into the future and set strategies, then execute brilliantly, continues to amaze. He may be in his seventies, but Sumner is one of the quickest son of a guns you'll ever meet. His willpower is also legendary: Sumner famously survived a hotel fire by literally hanging by one hand off the third-story ledge until he could be rescued.
In business (as on that ledge), Sumner has demonstrated an enormous amount of courage. He had the temerity to combine Viacom, his longtime baby and one of the most vibrant media empires on the planet, with the blue-haired lady of broadcast, CBS. The $37 billion merger recast the competitive landscape and pushed the boundaries of our thinking about the role of traditional broadcasters in the emerging world of New Media. The union, not insignificantly, left Sumner (and his No. 2, Mel Karmazin -- see below) in charge of a stunning collection of assets: Blockbuster, Paramount Pictures, Simon & Schuster (Free Press, the publisher of this book, is a unit of Simon & Schuster), radio and TV stations, outdoor billboard advertising, and, of course, CBS. Not bad for a guy who started out with a string of movie theaters.
Mel Karmazin, Chief Operating Officer, Viacom: Mel merged himself right to the top of the media world. He engineered the merger of his former company, Infinity Broadcasting, into CBS, then became CBS's CEO. That would have been a career-capping transaction for many guys -- but not Mel. Right after he did the CBS deal, Mel proceeded to up the ante by proposing to Sumner that they merge CBS into Viacom.
Some critics considered the marriage a stretch. CBS, after all, was a traditional broadcaster with seriously aging demographics. The network was known for such TV classics as 60 Minutes, On the Road with Charles Kuralt, and Walter Cronkite, the famous CBS news anchor. Viacom, in contrast, was anything but classic. It had urban edge all over the place. Viacom's stable of (new) cable classics include MTV, VH1, and Nickelodeon. Many also doubted that Sumner, who is the heart and soul of Viacom, would ever be willing to share power with anyone, much less the grande dame of traditional broadcasters.
To be sure, Mel and Sumner had their run-ins. Whenever you get two large personalities like that in the same room conflicts are bound to occur. But I also think it's fair to say that Sumner and Mel had an enormous amount of respect for each other's talents and contributions. In any event, how Sumner and Mel fare as a management team is almost beside the point. What does matter is this: Their shared vision of the future is what brought Viacom and CBS together. The combination, at one time considered unthinkable, not only profoundly changed the two companies, it altered the direction of an entire industry.
Gerald "Jerry" Levin, (former) Chairman, AOL Time Warner: Jerry engineered the $165 billion merger of his company, Time Warner, with America Online. The deal, breathtaking in its size and scope, radically redefined the competitive landscape. It also made Time Warner the biggest mountain in that landscape. (This media mountain range, it goes without saying, also includes Mount Viacom and News Corp.)
This deal, at the time, was counter-intuitive. Up until the day the deal was announced, AOL was the cable industry's chief nemesis. AOL has basically declared war on cable operators over the "open access" issue. That is the notion that cable TV operators should be forced to provide access to their systems at greatly reduced fees. AOL argued that such access was necessary in order for AOL and others of its ilk to exist going forward. Cable operators balked and promptly labeled open access nothing more than "forced access" designed to enrich AOL and cripple them. AOL refused to take no for an answer and turned to the government for help. Cable operators stood firm, but in truth many were quite worried.
Enter Jerry Levin. Once the AOL-Time Warner merger was announced, AOL did the equivalent of an about-face on the issue of open access. Almost overnight, the issue that seemed to define AOL's very existence became a nonstarter. Once it switched sides and became a cable TV operator itself, AOL, so it seemed, no longer wanted to discuss open access, much less broach the issue with regulators. A lot of smaller players tried to carry on the fight. But absent a well-funded mouthpiece like AOL, the issue largely faded away. Cable executives, of course, couldn't have been happier. So not only did Time Warner end up with a formidable Internet partner, it vaporized, in one fell swoop, an issue that gravely concerned Jerry. And AOL? It finally got what it wanted -- a powerful foothold in the cable TV (distribution) and "content" world.
Jerry, as I mentioned, took a lot of heat for this deal once the Internet market soured. It will be up to his successor, Dick Parsons, who was Jerry's No. 2 for six years, to make the merger sing. Dick is a master at constituency building, a talent that should come in very handy now that AOL Time Warner is the size of Delaware. Like his longtime mentor, Dick's a big believer in the power of convergence. He's also not afraid to pull the trigger on deals. So stay tuned.
John Malone, Chairman, Liberty Media: John is one of the great dealmakers of all time. He's also a visionary in the purest sense of the word. In the early 1990s John foresaw a world of five hundred channels, a world where interactive television influences all that we are and all that we do. Though John might have been a little early in his predictions -- some would say a lot early -- his bold pronouncements continue to be borne out by technological developments. It's not a matter of "if" interactive TV arrives, but merely when. John, as usual, called it early, and called it right.
John, the former chairman of Tele-Communications Inc. (TCI), was already a giant in the cable industry by the time he asked me to become president of TCI in February 1997. A little more than a year later we announced plans to sell TCI to AT&T for $48 billion, setting off a chain reaction in the cable world that wouldn't settle out for several years. Our original plan called for AT&T to use the cable TV lines to offer local phone service across America. Though things didn't exactly work out as planned, the deal forever changed perceptions about the cable TV business. It also changed, fundamentally and forever, a great American icon, AT&T.
John has a reputation for being quite intimidating at the negotiating table. And for good reason: He is. Over the past twenty-five years, John has negotiated literally hundreds of deals -- with bankers, cable operators, TV networks, and regulators. As a result, complex financial arrangements are second nature to him. John is a master at using his intellect like a fist to batter you into submission. He's also a master at outmaneuvering people, often on several levels simultaneously. It's not that John's trying to be coy; that's just the way his brain works. John used to say that doing a deal is like three-dimensional chess. If you're not playing four to five moves ahead on different planes at all times, you're going to lose. And John rarely loses. Just ask anyone who's ever sat on the other side of a negotiating table from him.
Brian Roberts, President, Comcast: Dealmakers at this level have an uncanny ability to peer into the future and act decisively when opportunities arise. No obvious opportunities out there? No problem. Like human tsunamis, when these guys get you in their path, things just have a way of happening. Or blowing up.
Consider Brian Roberts, the youthful president of Comcast, and his father, Ralph, Comcast's founder and chairman. The Robertses made an unsolicited bid to buy AT&T Broadband in the summer of 2001 for $58 billion. Their surprise move followed weeks of talks with AT&T that went nowhere. Brian timed his move to upset AT&T Broadband's plans to make an initial public offering, or IPO, of its stock to the public. (AT&T was publicly traded; AT&T Broadband, under the plan in effect at the time, would have traded as a separate stock.) An IPO is the first public sale of a company's stock to the public. It's considered a very big event in the life of any organization, much less a high-profile brute like AT&T Broadband. Brian's trump move forced AT&T to delay its IPO, setting off a long wait-and-see period with the AT&T board. Brian's bravado eventually paid off, netting him AT&T Broadband -- and a place in my Dealmaking Hall of Fame. Once the deal closes, Brian and his father will control the biggest cable television company in America, not bad for a father-son team from Philadelphia.
"Ted" Turner, Founder, Turner Broadcasting: Ted was once quoted as saying, "This is America. You can do anything here." And boy, has he.
Ted has only done two or three big deals over the course of his remarkable career. His biggest was selling Turner Broadcasting to Time Warner. But Ted's prescient vision of a twenty-four-hour news network -- CNN -- changed our perceptions about news, the global village, and the roles of media and technology in our day-to-day lives. He foresaw a world developing that nobody else did. And after a while, thanks to some prodding by Ted, the world finally caught up to Ted's magnificent vision.
As a CEO, no one was better than Ted. He had a clear-eyed vision of the future, set out a differentiating strategy for his company, and executed brilliantly on that strategy. Ted is an eloquent reminder that, as a CEO, you can't just have strategy and vision; you also have to be able to execute well. That is a basic, and perennial, prerequisite to success. Ted did all that and more with his company, and in the process he profoundly changed the world. That makes Ted, in my opinion, one of the most important media visionaries of our time.
Jack Welch, (former) Chairman, General Electric: Few people know it, but Jack's nomination in 1980 as GE's chairman and CEO almost didn't happen. Walter "Dave" Dance, a much-respected GE vice chairman, was actually in line to get the job, at least on a transition basis. GE planned to have Dave lead the company for a few years before handing the reins over to Jack, allowing Jack, just forty-five at the time, to get some more seasoning before taking over the top job.
But Dave got passed over at the last minute, in no small part because, of all things, he (supposedly) fudged on his golf scores. Ed Littlefield, a former member of GE's Nominating Committee, was my longtime friend and mentor. Ed told me -- and the story was later confirmed by another GE executive -- that some GE directors had observed Dave trimming his golf scores during outings to Augusta and elsewhere. Ed, who passed away in September 2001 at the age of eighty-seven, said nobody ever confronted Dave directly. But when the time came to consider him for the CEO's job, the Nominating Committee decided to take a pass on Dave and go directly to Jack. Ed said the directors figured that if Dave would cut corners on golf, he might not be the best guy to lead GE, where golf and the integrity of the game are integral parts of the senior corporate culture. Other factors, no doubt, also figured into the directors' final decision.
I have no idea if Dave trimmed his golf scores or not. It's possible the GE directors were simply mistaken; it's also possible they were right. But what is certain is this: The unintended consequence of this episode is that Jack Welch became GE's CEO a lot earlier than he would have otherwise. That event, in retrospect, profoundly affected the direction of GE at a critical time in its history. As for Dave Dance, he served admirably and well until his retirement. (For more on unintended consequences, see Chapter 8.)
Jack did not do a lot of major deals himself -- only three, really, and two of them he probably could have done without (the aborted deal to merge GE with Honeywell being one of them). But Jack did something far greater during his extraordinary tenure as CEO: He instilled GE with a successful dealmaking culture. Thanks to Jack, GE today routinely does more than a hundred deals a year. And it does most of those deals quite well, as evidenced by Jack's remarkable legacy of shareholder return. During Jack's twenty-year run as CEO, GE shareholders enjoyed a remarkable 23 percent compounded annual growth rate. During that same period, the S&P 500 squeaked out a very respectable (but still puny-looking by comparison) 15 percent return. Some of these performance statistics later came under close scrutiny on Wall Street. But no matter. The managerial and cultural gifts that Jack left behind will continue to benefit GE and, indeed, Corporate America, for generations to come. Given that we live in a world where you have to do at least a deal or two a year to remain competitive, those are truly priceless gifts.
Before Jack came along and helped popularize the idea of growth by acquisition, Corporate America rarely resorted to dealmaking as an actual growth strategy. Deals that did get done tended to be strictly insular: Widget makers would only buy other widget makers, and so on. That's how giants like U.S. Steel and General Motors became giants. Companies didn't think to look outside their immediate areas of business for new opportunities. It just wasn't done. By the late 1980s, however, the limitations of this approach were painfully apparent. Companies started bumping up against the legally allowable limit on "concentration," meaning they had bought so many companies in their own industry that they were in danger of forming monopolies. That, of course, is a big red flag for the Justice Department's antitrust division. All of a sudden, companies with a grow-by-acquisition strategy had little choice but to look beyond their core businesses for new opportunities.
Some companies, elated at the thought of pushing beyond the borders of their own industries, rushed into deals that later turned out to be fatally flawed. (AT&T's purchase of NCR, a former cash register business, comes to mind.) Others sat on their hands and did nothing. (Think BellSouth.) A few companies, however, recognized the paradigm shift for what it was -- an invitation to think way outside the box -- and executed brilliantly. The fact that Jack was able to turn around such a whale is even more remarkable when you consider that GE had a hundred years of history -- and habits -- firmly entrenched by the time he took over as CEO in 1981.
What does Jack have in common with Sumner, Jerry, John, and all the others I've been talking about? To be sure, they don't look alike, weren't educated alike, and have varying business objectives. Their early vocations in life -- Jerry Levin was a biblical scholar, Sumner Redstone was a lawyer, and Jack Welch was a chemical engineer -- are also all over the map. But what they do have in common, to borrow a phrase from Sumner, is a real passion to win. These men are hugely successful because they are willing to work harder than anyone else and subordinate their egos (to a point, at least) to their respective strategies. As a result, they almost always outsmart the other guy. In addition to pushing the high end of the IQ range, they are without exception self-confident and stunningly clever. Most important, these are some of the quickest and most spontaneous individuals you'll ever meet in your life.
Jack Welch aside, all of these deal revolutionaries hail from the media world. No surprise there. To crib an observation from F. Scott Fitzgerald, successful media executives today really are different from the rest of the crowd.
Media types are wired differently. They talk different, act different, and sometimes even dress different. They tend to lean to the brassy side. They sometimes upset people with the things they say and the manner in which they say them. (Think Ted Turner.) They also capture our imagination and inspire our dreams. (Again, think Ted Turner.) How else do you account for the fact that the press seems to hang on every word that John Malone utters? Or the fact that Rupert Murdoch can send ripples through a room packed with A-listers just by showing up? These are all larger-than-life figures with larger-than-life personalities -- and aspirations to match.
Corporate upbringing has a lot to do with it. Media organizations, with their sometimes-quirky cultures, tend to be frantic, spontaneous, and unrehearsed places. As a result, they tend to attract people who flourish in that type of environment -- which is to say people who know how to react spontaneously to a spontaneous world. Managers who rise to the top of a media organization tend to get a lot of practice negotiating...everything. As a result, the art of debate -- some might say intimidation -- becomes second nature. Almost by necessity, they learn how to think fast, move fast, and make decisions with conviction. And they certainly don't fret about upsetting the status quo. People who are raised in a bureaucratic or regulated environment, by comparison, are seldom good at acting decisively. They also tend to not be so great at coming up with creative solutions to problems. It's just not in their blood. Try throwing these characters into a real crisis, and most of them fold like a house of cards.
In the aftermath of 9/11, fear gripped the nation. Americans, quite understandably, were skittish about flying. Passenger traffic plunged along with the confidence of the nation as a whole. Airline executives were rattled -- and boy, did it show. In appearances before the press, the airline CEOs were almost herdlike in their responses. No creative solutions would be forthcoming from this bunch. They were reactive across the board. Within a week, most announced massive layoffs and cut way back on their flight schedules. One thing they didn't touch was fares. They said they were already low enough. The message to America was clear: We're in trouble and we don't know what to do.
The sole exception was Herb Kelleher, chairman of Southwest Airlines. Herb, who's been upsetting the status quo in the airline industry for years with his cut-rate, no-frills airline, was inspiring. And he had just what the flying public needed right then -- a calming voice. In public statements, Herb came across as calm, collected, and firmly in control of his company. Southwest didn't announce layoffs or even schedule cutbacks. Quite the contrary, Southwest continued flying its planes while beefing up security in a measured and controlled way. Given the extraordinary circumstances, Southwest also said it would consider reducing fares to help entice people to start flying again. It was exactly the right message to send to America's jittery flying public -- and to Wall Street. While other airline stocks initially plunged more than 50 percent, Southwest's shares slid just 20 percent. His handling of the crisis was, by every measure, a triumph.
Herb Kelleher is far more the exception than the rule in the airline industry. But you see that kind of creativity and gritty resolve all the time in the media world. Go to Viacom: There are eccentric, creative, and spontaneous people walking the halls there every day. That's no accident. People at every level of Viacom are rewarded for decisiveness, for thinking out loud, for being willing to make a bold or even risky move. That's not to say Viacom's efforts are all successful. Some flame out in spectacular fashion. But people at Viacom also know that, provided they've been thoughtful in their approach, they can push the edge with impunity. And push hard they do.
The obvious rejoinder to all this is that the media tends to cover themselves -- and these CEOs -- a lot more closely than they do other, inherently less interesting industries. (Heavy industries come to mind.) But that would be far too simplistic. The fact is, the businesses represented by these media executives wield a lot of influence over our lives. Consider these statistics from Jupiter Media Metrix, a research firm in New York City: As of the end of 2001, 73 million homes were hooked up to cable TV; about 18 million subscribed to satellite TV. More than 71 million homes had a personal computer. Of those, about 52 million subscribed to some sort of dial-up Internet service, such as AOL. About 10 million subscribed to high-speed Internet services, also known as broadband. (The bulk of these -- about 7 million -- favored cable modems.) Jupiter Media Metrix expects the total number of online households to top 86 million by 2006. For Sumner, Rupert, and the rest, that's a lot of eyeballs, a lot of opportunity -- and a lot of impact on our lives.
Jack Welch, as far as I ca n tell, has far more Viacom in him than GE. Jack's immediate predecessor, Reg Jones, was regarded as one of the top CEOs in the country, and rightly so. In the face of runaway inflation and a busted stock market, Reg, to his eternal credit, managed to make GE deliver impressively for its investors. Then Jack came along -- and all the old rules went right out the window. Jack, by his own description, was a total misfit. He was brash, outspoken, and impatient. He despised bureaucracy and eschewed convention. Jack was, in fact, the antithesis of the prototypical GE CEO. Up until then, GE CEOs tended to be quite capable. But they also tended to be quite conservative, rather scripted, and decidedly risk-averse. Until Jack slipped into the driver's seat, GE was mostly known as a barometer of the U.S. economy. GE didn't have a dealmaking culture. Though it was a training ground for managers and one of the yardsticks of corporate excellence, before Jack showed up, GE was basically the U.S. Steel of global conglomerates.
The ability to make decisions quickly -- for which Jack was famous -- is perhaps the key characteristic that successful dealmakers share. Jack never fired anybody for mistakes, unless you happened to make a lot of them. But he'd crush you for nondecisions. And rightly so. Decisions are the lubricant that keeps organizations moving. If a CEO can't or won't make decisions, and make them quickly, everything gets bogged down. Human nature being what it is, nothing gets done and no decisions get made down the line because everybody is waiting for the CEO to make his or her move.
Decision-making by committee is not a substitute for the real thing. It never has been. And it never will be. Committees by their very nature appeal to the lowest common denominator, hardly a way to achieve brilliant results. (The way to find out the IQ of any committee, so the saying goes, is to get the IQ of the dimmest bulb in the bunch, then divide by the number of members in the committee.) For brilliant outcomes you need seasoned leadership that can think fast, move fast, and make decisions quickly and with conviction. It's like racing a car: It's all about your reaction time. Can you make it through that hole? What's ahead? If the car in front of you drifts to the left, should you follow? Or should you pull hard to the right and attempt to pass? Timing is all the more important when you consider that dealmaking time frames tend to be measured in days or even hours, not weeks and months. That sort of rapid-fire living requires a very different set of reflexes.
Old-line companies, for the most part, just aren't equipped to deal with that kind of spontaneity -- and that kind of personal responsibility. Look at AT&T. It was an American icon with a long history of excellence -- and for most of that time it penalized people at every level for making mistakes. That's one reason decision-making by committee developed as a way of life at AT&T. Nobody ever wanted the burden of taking responsibility for an actual decision, lest they be proven wrong later. It was far safer, and far more career-enhancing, to simply walk the path of least resistance. (With apologies to Ivan Seidenberg of Verizon and Ed Whitacre of SBC, who were obviously born on another planet and separated at birth.)
I got a taste of AT&T's risk-aversion during my short tenure as CEO of AT&T Broadband. It was clear to me that AT&T execs were far more comfortable devising and debating possible options than actually making a decision. AT&T managers up and down the line were more than happy to draft out memos and produce "decks" -- documents that can be used with overhead projectors -- to give us all something to talk about at our next meeting. (And there was always a next meeting.) But ask for an outright decision? Not a chance. It didn't matter if the topic was a simple branding issue or a more complicated budgeting question. Nobody could seem to make a decision -- and I mean nobody. AT&T's liberal use of outside consultants only slowed the decision-making process even more.
This paralysis extended to lower-level meetings as well as to top-level executive meetings. The AT&T board, for example, debated the question of whether to issue a new "tracking" stock for AT&T's cable TV and Internet assets for more than a year -- a year! -- before deciding to just break up the company into a couple of big pieces. Never mind that a tracking stock, which permits investors to monitor the performance of specific assets, could have been issued in a matter of months, while a breakup would take much longer. (As this is being written, in 2002, AT&T is still in the process of breaking up the company.) In the fast-paced world of telecom, where a day's indecision can burn you forever, AT&T's inability to move quickly was akin to Nero fiddling as Rome burned. And AT&T investors paid mightily because of it -- over and over again.
That you can pull the trigger on a deal, of course, doesn't mean that you should. Even Jack Welch had a couple of notable failures. GE's ill-fated attempt to buy Honeywell in 2001 for $45 billion died amid stiff opposition from European regulators. GE's 1986 acquisition of Kidder, Peabody, the big Wall Street firm, was also quite ill-advised, a fact that Jack himself admitted later. Honeywell and Kidder, of course, were far more the exception than the rule for GE. But the point is this: Even the best-laid merger plans by the best-trained merger specialists can go badly off track if you're not careful. Recent history is littered with examples of smart companies making not-so-smart acquisitions. And that a merger is between two like-minded companies doesn't necessarily help. Look at Daimler and Chrysler, the two big auto giants. Their marriage has been challenging since day one. Likewise, Quaker Oats' acquisition of Snapple, the fruit drink maker, was supposed to provide a neat complement to its Gatorade division. It didn't. The proposed merger between Lucent and Alcatel, the big French telecom equipment maker, bit the dust over "social" issues -- which is Wall Street shorthand for saying that the two CEOs couldn't agree on who got the bigger title and office.
The jury is still out on some of the biggest mergers of recent years. The big Bell mergers that dominated the headlines in the mid-1990s seem to have worked out pretty well for the most part. The real proof will come ten years from now, by which time it should be clear if "bigger" Bells really did translate into "better" Bells from regulatory, consumer, and financial standpoints. It's difficult to gauge the success of oil giants Exxon and Mobil, one of the largest mergers in U.S. history. Call me in a few years when the energy rush is over and I'll tell you if the two companies really came together crisply and well. Even then it would be difficult to put Exxon-Mobil in the same category as AOL Time Warner. Exxon-Mobile does one thing. AOL Time Warner does about twenty things. And forget about GE. That company does so many things they can hardly cram it all into the annual report.
Even under the best of circumstances, big mergers can be fractious and difficult. It takes a Jack Welch-type personality to run these big honkers. And even Jack had a lot of help from a whole cast of extremely capable senior managers. Mike Armstrong arrived at AT&T in 1997 with the unenviable mission of turning AT&T into a New Media company. He failed, and no wonder. The 1984 breakup of Ma Bell ended the company's monopoly status -- but not its entrenched culture. Not by a long shot, in fact. To nobody's surprise except maybe Mike's, AT&T's corporate culture refused to yield. By the time AT&T started to get carved up in 2000, it was still a bureaucratic Queen Mary that refused to budge. As most of us know from experience, old habits die hard. And they don't die any harder than they do at a hundred-year-old company with a proud heritage.
GM is another case in point. Like AT&T, GM for years regarded its stiff resistance to change almost as a point of pride. (At GM, the inside joke for years was: "We not only shoot the messenger, we bayonet the stretcher carrier.") Not exactly an environment that inspires creative, out-of-the-box thinking -- and it sure showed in GM's tired car designs. Trying to put a little pizzazz back in its cars, GM in 2001 brought in Robert Lutz as the new head of design and production. Bob, a certified car design whiz, was pushing seventy at the time. GM had to waive its retirement policy, which requires executives to step down when they reach sixty-five, to get him. By bringing in Bob, GM hoped to send the message to Wall Street that it was serious about jazzing up its car designs.
All GM's move said to me was that it didn't have a clue how to fix things on its own. Even more startling, Bob's appointment left the impression that GM didn't have anybody inside its own ranks who was capable of taking on that big job. That begged an even bigger and ultimately far more important question: Why not? Don't get me wrong -- Bob Lutz is a tremendous talent, and GM was lucky to get him. But the fact that one of the largest car makers in the world couldn't fill such a coveted and important spot from within its own design ranks spoke volumes about the quality and effectiveness of GM's own management planning process, or lack thereof. In any event, I look forward to seeing his new designs, which are expected to hit the market in a few years. By then, perhaps, GM will finally have the next Bob Lutz in training.
As you've probably already figured out by now I have some strong opinions about business and how it should be conducted. I also have some fairly strong opinions about the rarefied world of dealmaking and the top negotiators who dominate the game. You are certainly entitled to wonder why my opinions are even worth considering. Only you can be the judge of that, of course. But before you can form an opinion, you'll need to know a little bit more about me, so read on.
I learned my way around the negotiating table the same way a lot of people do -- by trial and error. I was also fortunate to cross paths early on in my career with some incredibly capable, gracious, and generous people. For that, and to these people, I will always be grateful.
I graduated from Stanford's business school in 1971. My first job right out of school was with Utah International, a very large mining company based in San Francisco. Ed Littlefield, the firm's CEO, hired me to be his assistant. I didn't know it right then, but it would turn out to be one of the luckiest breaks of my life.
My starting salary at Utah International was $15,600 -- which was $600 more than the median salary of Stanford MBAs that year. Ed made sure of that. I found out later that he had called Stanford to find out what the median salary for graduating MBAs was likely to be that year -- $15,000 -- then he tacked on an additional $600 to make sure that I would be above the average. That was just the kind of generous guy he was.
Back then, Ed was considered one of the top CEOs in the country. He was the chairman of The Business Council and sat on the boards of General Electric, Chrysler, and Wells Fargo, among others. As Ed's assistant, I had a direct line into all these companies. I used to help him prepare for board meetings. After a while, I learned a lot about all the companies, as well as the broader business issues that dominated the era. I've always told people that I spent two years in business school at Stanford and an additional two years in business school with Ed, because that's what it felt like. I learned a ton by just watching and listening to him.
Ed was a firm taskmaster. But he could also be incredibly patient. On one occasion I fielded a call from a reporter from BusinessWeek. The reporter was doing a story on the environmental effects of strip mining and wanted to talk to Ed about Utah International's coal mine in Farmington, New Mexico. The mine had always been somewhat controversial. In addition to being the largest surface mine in the world, it was located on a Navajo Indian reservation. Like many Indian reservations, this particular reservation was severely depressed. Many residents lived in abject poverty; unemployment and alcoholism rates were sky high. The local terrain was also quite harsh. In a flippant moment, I cracked that "there were only two trees on the property when we showed up, anyway, and one of them was dead." My comment was incredibly insensitive and inappropriate -- and it showed up in BusinessWeek the very next week.
I was mortified. I was also afraid I was going to get fired. That Monday morning when the issue hit the stands, I ran to our mailroom to collect every issue of BusinessWeek we had. I prayed that Ed hadn't yet seen the story, as I wanted to explain what had happened before he read it. As soon as Ed arrived for work, I went straight into his office with a copy of the magazine to deliver the bad news. Ed heard me out, then uttered a single sentence: "Well, there's a lesson for you." (And boy, was it.) Ed never brought up the matter again.
After two years of my shadowing Ed, he decided that I was ready to try my hand at management. Ed sent me out to run the Farmington, New Mexico, mine, the same one that I had so crassly joked about to the BusinessWeek reporter. The mine was situated in the desolate Four Corners area, which is where Utah, Colorado, Arizona, and New Mexico meet. I had no experience running a mine, mind you. But that didn't seem to bother Ed. I guess he thought -- and he was right -- that I'd work seven days a week to avoid disappointing him. So off I went to New Mexico to learn the mining business. I was twenty-five. I looked so young I grew a mustache to look a little older.
The experience opened up my eyes and ears -- as well as my heart -- to some real truths about business and people. One of the biggest lessons I learned is a variation on what Woody Allen, the great American comic, once said: Eighty percent of life is just showing up. Among other things, I learned that you can't understand the ins and outs of a business by simply looking over the balance sheet, or by talking to managers on the phone, or by trading memos with executives in the field. The only way to truly know a business is to show up -- every single day. Then you have to be willing to talk to people, ask questions, and open your heart and ears enough so that you really hear what people are saying. That's not to say you're always going to like the answers. But you have to be willing to at least listen.
I also developed a healthy respect for the employee lunchroom. To understand any company, eat lunch in the cafeteria with the workers -- not their bosses. The company cafeteria is essentially a bigger version of the water cooler, and it's the nexus of any company. You also have to make it clear to everybody that you are engaged, interested, and really care about the events that affect their lives. It also doesn't hurt to check your pride at the door. And last but certainly not least, have a sense of humor. Mistakes happen. Learn from them and move on. These lessons would stick with me for a lifetime.
I already had a pretty healthy respect for workers in general by the time I showed up in New Mexico. As a boy growing up in Northwest Washington, I'd spent time as a manual laborer on local farms. If it grew, I picked it. I'd also worked a variety of jobs starting in grade school. Over the years, I'd worked as a newsboy, a grocery store bagger, and, later, a laborer in the merchant marine and in the local shipyard. But my time in New Mexico would remind me -- every single day -- how critically important the rank and file is to the long-term success of an enterprise. Managers have a special role to play, as well. But the men and women who show up for work day after day after day are the people who keep the trains running on time, so to speak. They are the reason -- the only reason -- you have a business at all. Managers who forget that do so at their own peril. This lesson, too, would stick with me for a lifetime.
After I had spent two years in New Mexico, Ed brought me back to headquarters to be one of Utah International's corporate development managers. That same group today would be called "mergers and acquisitions." The psychological difference was key. Back in the 1970s, you see, people didn't do big mergers to change their businesses. They looked for ways to expand and develop the "core" business, which is to say they looked for ways to add to the basic business, but they did not look for ways to dramatically change it. That simply wasn't done, at least not back then.
My first deal target was a big one: Peabody Coal Co., a major competitor. We spent four months trying to buy Peabody in a friendly transaction (again, the only kind that got done in those days) for about $500 million. The deal was memorable for two reasons. First, it was my very first deal, which always sticks with you. Second, I got a big promotion right in the middle of it. Ed decided to put me in charge of Utah International's entire corporate development group. I was twenty-seven. Ed wasn't troubled by my utter lack of deal experience, even though he probably should have been. I guess he just knew in his gut and in his heart that I could never let him down. Ed, as usual, was right on the screws.
In retrospect, Ed knew something else about me that I was only beginning to appreciate. I absolutely loved the dealmaking game. Even though I only had one big deal under my belt, I had the bug. I loved the process of wheeling and dealing and playing the intellectual equivalent of 3-D chess at the negotiating table. I gravitated to the almost athletic nature of trying to wear down the other side at the negotiating table, both mentally and physically, as you pounded out deal terms day after day after day. There was no question: I was hooked.
I spent the next twelve months working on a number of big deals for Ed, including one worth $650 million for a mining project in Brazil. Then, in the fall of 1976, I worked on my biggest deal to date: the sale of Utah International to General Electric for $2.25 billion. Ed, who was still chairman and CEO of the company, decided to sell because he thought it was in the best long-term interest of shareholders. Ed stayed on as CEO of Utah International for a year, then stepped aside but kept the chairman's title. When Ed retired, I left to go looking for my next great adventure.
It would take a while.
I spent the next several years casting around trying to find a corporate home as gratifying as Utah International had been. Nothing seemed to mesh. During that time, I wound up working with a lot of people I didn't particularly enjoy, doing things I didn't particularly like. It was a bleak period of my life. I felt aimless and without direction. I have since come to refer to this period of my life as my "wilderness" years because that's what it felt like. Ed, who by then had become a father figure to me, remained a steady source of calm and advice in my life. Other than Ed, however, there were few bright spots.
In 1985 I landed a job as chief financial officer and head of planning and development of The Chronicle Publishing Co. The company owned publishing, broadcast, and cable properties. It was headquartered in San Francisco, one of my favorite cities in the world. In addition to being in a location that I happened to like a lot, the job gave me my first introduction to a business that definitely intrigued me: cable TV. Chronicle at the time owned a mishmash of businesses, including a low-level (read "lowlife") movie production company. We soon decided to sell off the movie company and all the other extraneous businesses so we could focus on the core assets -- broadcasting, newspapers, and cable. I knew next to nothing about the media business, but decided as CFO I needed to. So, heeding my own lessons from New Mexico, I hit the road to learn more about the cable and broadcasting world. Thus began a wonderful, magical journey that would change my life forever.
One of my first calls went to Bill Daniels, the chairman of Daniels & Associates, a big cable brokerage firm in Denver. Bill, a former Navy pilot, got his start in cable in the 1950s. He was in the insurance business at the time, and he happened to be driving through Denver on a Friday night and stopped at a bar. The placed was packed with people watching the Friday night boxing matches, which were being piped in via cable TV. Brian Deevy, Bill's longtime associate, said Bill decided that night to get into the cable business -- and never looked back.
Bill started out in rural cable in Colorado and Wyoming. Before long, he fashioned himself into a cable "broker," which is the cable industry's equivalent of an investment banker. One of his early clients was Tele-Communications, Inc. At the time TCI was just starting out. With Bill's help, TCI eventually developed into the biggest cable TV operator in America. Bill's reputation grew along with TCI's fortunes. By the time I put in a call to Bill in 1985, he was already a legend in the cable industry.
Bill didn't know me at all, of course. But he took my call anyway and patiently listened to my spiel. I told Bill I wanted to learn more about the cable business and asked for his help. In retrospect, this was the equivalent of a first-year college student calling up Albert Einstein for math tutoring. But nonetheless, that's what I did. Bill was as gracious as he could be and agreed to meet with me to discuss the matter further. I flew out to Denver to meet him. During that first meeting, Bill insisted that I meet a friend of his -- John Malone. John at the time was the president and CEO of TCI and a titan in the industry himself. I, of course, was thrilled, and jumped at the chance to meet him.
When I got back to San Francisco, I called up John straightaway. John, who had already been briefed by Bill, agreed to meet with me. Once more, I headed back out to Denver -- and once again a titan of the cable industry patiently listened to me explain how I wanted to become more involved in the cable television industry. John listened to my pitch, then asked me to step out into the hall. There on the wall was a big map of the United States. It was covered with little pins that identified the location of TCI's cable systems. "Which ones do you want?" John asked rather casually. I almost couldn't believe my ears. John Malone, the most influential cable television operator in America, had just issued me a personal invitation to join the cable club. John, of course, was dead serious. It was the start of what would become a warm, lasting, and, at times, complicated friendship.
Throughout 1986 and into 1987, I began spending more and more time talking to Bill and John about the cable business. The more I learned about the cable business, the more I liked it. As a mainstream business enterprise, cable still hadn't hit its stride. This was before the days of high-speed Internet access, e-mail, and digital cable. But it was clear that the business was evolving quickly and well, and had a lot of upside financial potential going forward. I was hooked. I soon landed a deal that would have let Chronicle take a 40 percent stake in a new cable TV network devoted to nature, animals, and the great outdoors for just $6 million. I made an impassioned pitch to the Chronicle board, but in the end, against my recommendation, the company took a pass. John Malone didn't make the same mistake. After Chronicle passed, he jumped on the deal. (Too bad for Chronicle. The network, you see, was Discovery, which went on to become a monster success. As of 2002, John's stake in Discovery, which has since ratcheted up to 50 percent, was worth more than $6 billion.)
By December 1987, I was aching to start my own cable business. But I had a big problem: I couldn't afford it. I had a wife and young daughter to support -- and just $20,000 in the bank. Bill, who by then had become a very close friend, called me up one night as I was racking my brain trying to figure out what to do. As he had done so many times before, Bill patiently listened to me. When I had finished, Bill asked me just one question: If I did start this business, he said, how long did I think I could hold out financially on my own? April, I told him. That was just four months away. Bill considered my answer. Then he said something that would, once more, change my life forever: Bill told me that if things didn't work out by April, I could come to Daniels & Associates and work for him. So I had a job waiting for me. But give it a try, Bill urged me. You'll regret it if you don't.
I never had to take Bill up on his kind and generous offer. But just the fact that I knew I had a job waiting if things didn't work out gave me the strength and courage I needed to give it a go. I started my own cable company, InterMedia Partners, with a couple of other partners in January 1988 -- and never looked back.
InterMedia was a resounding success. I started out hoping to raise $100 million. The response was overwhelming. I eventually cobbled together $192 million from thirteen investors, including $40 million from my new friend and business partner, John Malone. Other investors included the Bank of New York, Chrysler Pension, GE Capital, Sumitomo, and New York Life Insurance Company. By the time I sold InterMedia a decade later, it was the ninth-largest cable operator in America with 1.4 million customers. All of my investors, including John Malone, were repaid handsomely. As for that $20,000, thanks to InterMedia's more than 40 percent compounded annual return, it eventually turned into a tidy nest egg worth more than $100 million.
That brings me to another lesson I learned at Utah International, one that has been reinforced again and again and again over the years. The relative success of any deal always depends on who happens to be sitting on the other side of the table. When you get smart, experienced dealmakers like Rupert Murdoch, John Malone, and, if I may be so bold, Leo Hindery, in the same room, nobody is going to get steamrolled. That's just a fact. But stack up Rupert, John, or me against an inexperienced or poor dealmaker and the picture changes dramatically. Heads will roll -- and chances are they won't be ours.
Copyright © 2003 by Leo Hindery, Jr., with Leslie Cauley
Excerpted from The Biggest Game of All by Leo Hindery Copyright © 2007 by Leo Hindery. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
|1||Dealmakers Who Make a Difference||1|
|2||Why People Do Big Deals||37|
|3||AT&T: Hook, (Phone) Line, and Sinker||67|
|4||Yes I Can||102|
|5||Mediaone Group - Rolling the Dice||133|
|6||Rupert Murdoch - Satellite Star||166|
|7||Viacom - If at First You Don't Succeed||187|
|8||USA Networks: Optimal Outcome||215|
Posted May 5, 2004
This book is a must-read for anyone involved in mergers and acquisitions in the cable or media industries, a should read for people doing M&A in other industries and a worthwhile read for anyone with an interest in business and investing. The author sat at the deal-making table with some of the best negotiators in the media and communications industries. His general advice about negotiating strategy and tactics is quite familiar, but he brings a unique insight into the motivations and manipulations of CEOs and investment bankers. Academics have long puzzled over why CEOs implement value-destroying M&A deals. Here¿s a first-hand, eyewitness account of how these big deals come to be. Even if you have little faith in the astuteness of executives, the author¿s revelations will surprise you. Just when you thought nobody could be that stupid, here comes an anecdote about another boardroom leader who was. The detail, it must be said, gets exhaustive at times, but if you love deals, we think that you¿ll be too absorbed to care.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.