Source: Thomson Financial
Source: Thomson Financial
J. P. Morgan's relative success overseas was the exception, not the rule. Although international financing and deal volumes exceeded those in the United States, most of the U.S. investment banks' global operations were still relatively young in the early 1990s. The cultural and legal barriers, as well as the existence of entrenched local competitors, are major challenges to successfully establishing overseas operations. Domestic U.S. league table position may still provide bragging rights, but it translates into surprisingly little practical benefit in these very distinct markets. And although there is something sexy about working overseas, it is often a graveyard for more seasoned bankers: a high-risk posting with little upside. When a press release goes out saying that a banker is being transferred to supervise certain international operations, the explanation given is invariably the growing importance of the particular markets involved. The reality, more often than not, is that the banker lost out in some internal struggle. No matter how globally integrated these institutions like to portray themselves, the corporate decision-making remains at headquarters in New York.
This picture was certainly consistent with what I found at Goldman Sachs' London operations when I arrived in July 1994. The office seemed to operate in its separate little world, the only evidence of New York being the occasional banker who would pass through for a meeting or on his way somewhere else. Goldman may have been a leader in IPOs in the United States, but it had been largely absent from the IPO market in the U.K. market. At this point, I had never worked on any kind of financing transaction and, although I had a dim memory of what it was like to pitch an M&A deal, had absolutely no idea of what actually executing an M&A transaction would involve either. Within a few weeks, however, I would become the point person for Goldman as it led the highest profile U.K. IPO of the decade.
Although I had a dotted line to Thornton, I was formally placed in Goldman Sachs' Communications, Media, and Technology Group, known as CMT, in London. This group was run by a short, balding, nerdy former lawyer named Scott Mead. Mead was very friendly and did not seem bothered by the fact that he had not been granted the courtesy of an interview before being saddled with me. He was a little shy and self-conscious and nothing like what I imagined a senior investment banker, particularly one serving the media industry, would be like. What I would quickly learn was that Mead had next to nothing to do with the media practice. The European communications practice of that era involved filling out detailed RFPs (literally a "request for proposal") issued by foreign governments looking to privatize their national phone companies. Once selected, an investment bank would reposition the bureaucratic government-run agency as a dynamic public company and sell its stock to the public. The myriad legal and regulatory issues involved in managing that transition made nerdy former lawyers particularly well suited to practice in this very specialized area of finance. Mead also had lived near Thornton on campus at Harvard University and could be counted on to let John pursue his media banking strategy in any way he wished.
Mead would ultimately make a name for himself internally for bringing in huge fees associated with first Deutsche Telecom and later Vodafone. His 15 minutes of fame would come in 2002 when, to the delight of the London tabloids, his secretary was arrested for stealing more than $5 million from him without his noticing for some time. This episode and the subsequent trial, replete with surprising revelations of a personal nature, even became the subject of a made-for-TV movie in the United Kingdom. In 1994, however, Mead was not well known internally or externally, having come to London in 1988 after only two years in New York.
Even if Mead was not intimidating, I was still self-conscious about the fact that, beyond a vague memory of my experience studying the poultry industry seven years earlier, I didn't know much about investment banking and even less about the media industry. All I had going for me is that I had basic research skills from my time as a lawyer, could draft cogent and concise bullet points from my time as a lobbyist, and had some math from college. My plan was to try to make myself useful by getting every last inch of mileage out of these modest skill sets while I figured out what the job really entailed.
And it helped that I had no shame. Many bankers, and indeed professionals in general, are afraid to show any weaknesses to their peers. It already was pretty obvious, however, that the former airline executive who had been designated a senior associate in the CMT group was clueless. So there was little downside to stapling myself to the smartest, most seasoned young analysts I could find until I learned the basics. Although they weren't always happy about serving as a tutor to some American ten years older than they, these young Brits pretty much saved my life during my first year as a real investment banker.
My first awkward weeks were filled mostly with preparing pitch books. This was not unlike my experience seven years earlier at Bankers Trust, but with one major difference. The extent to which the business had been institutionalized was striking. Where Capitman had been reduced to cold calling companies he read about in the Financial Times that morning, by 1994 Goldman had a well-organized European calling effort, with geographic coverage officers assigned to every major local corporation. Although Goldman had had an office in London since 1969, it was primarily focused on selling U.S. equities to European institutions and secondarily on serving the needs of its U.S.-based clients. It wasn't until the mid-1980s that a concerted focus had been placed on investment banking. Thornton was assigned to run M&A there simultaneously with this enhanced but still fledgling effort. In the intervening decade, Goldman had hit a number of potholes along the road to success—most notably the hugely embarrassing and ultimately expensive association with Robert Maxwell, the British entrepreneur, media mogul, and crook. In 1991, Maxwell died in mysterious circumstances off his yacht in the Canary Islands, leaving Goldman and many others holding the bag. Goldman would ultimately pay over $250 million to settle charges related to Maxwell's looting of his employees' pensions. But by the time I had arrived, Goldman was established as a serious U.K. presence, particularly in the lucrative area of M&A.
Equally striking for me was the institutionalization of the "production process" involved in all aspects of investment banking. Though this was the pre-Internet era, our computer screens seamlessly integrated key third-party information on any company—everything from current news and public filings to deal databases that showed what deals the company had done and who had advised them—with proprietary internal Goldman Sachs information such as the history of the relationship, key contacts at the company, and deal team members within different parts of the firm. This software utilized dedicated lines to proprietary databases and customized programs developed in-house. Other sophisticated software applications had been developed to analyze potential mergers and leveraged buyouts based on providing simple inputs. Updated standard exhibits were catalogued by topic and easily retrieved. And a culture of communication within the firm allowed you to quickly collect whatever institutional knowledge already existed about the people, company, or situation with which you were involved.
But one key aspect of being an investment banker had not changed meaningfully since my experience at Bankers Trust. And it was an aspect that seemed all the more incredible to me having spent four of the intervening years working at a law firm where young associates can slave for weeks producing draft after draft of a legal memorandum before it is deemed by the partner in charge of the account ready to be shared with even an assistant general counsel. At an investment bank, with a couple of days' notice, you are expected to be able to slap together a book that should be the basis for a serious strategic discussion of the key issues facing a company with its senior-most management.
And the books themselves, just as before, rather than containing thoughtful detailed analyses of strategic options, are mostly filled with pages containing concise but ambiguous bullet points (to allow for plausible deniability if the client clearly disagrees with the point you meant to make) and cheesy graphical representations (boxes, arrows, simple charts, standard drawings of objects—a newspaper, a radio tower, a TV set—meant to represent the businesses being discussed). The banker's work product bore a closer resemblance to a comic book than a legal memorandum. The new technology and infrastructure described had made the production of the books easier than ever—something more than the touch of a button, but something well short of a fully baked idea. This is not to suggest that investment bankers couldn't or didn't provide thoughtful, serious analysis for actual clients. But the tools used by overworked bankers in full pitch mode are realistically designed more to provoke and engage rather than genuinely enlighten.
All of this leaves unanswered the obvious question of why otherwise intelligent senior executives put up with it. Why take meetings with these people at all? The answer to this is complicated. Most obviously, the subject matter of the meetings—raising capital, going private, major acquisitions or divestitures—is central to the future of the company and the executives involved. Hence, even if the chances of an original idea being presented at any given meeting are low, an executive could calculate that if enough are attended, something of interest should eventually emerge. And if such an idea does come up, bankers do know a lot (although sometimes much less than they let on) about the practical market feasibility of executing a particular transaction.
Less obvious, and maybe more important, is that bankers sometimes have access to critical information about the thinking of both competitors and investors that would not otherwise be available to executives. Most bankers focus on one industry, and thus accumulate a good deal of industry-specific knowledge. A banker who is "in the flow" is likely to obtain a more nuanced view of the strategic approach and perspective from key competitors or potential acquisition targets than those executives would likely be comfortable sharing with each other. In addition, by tapping the intelligence gleaned from his or her firm's Sales and Trading Division, the banker can obtain important candid assessments of investors regarding the company.
This business model is reminiscent of that of the Corporate Executive Board (CEB), the wildly successful brainchild of entrepreneur David Bradley. While still a law student at Georgetown, Bradley identified an exciting business opportunity in the deep interest of corporate executives to know how their counterparts at other corporations perform the same function as they did. The business model he developed to exploit this opportunity was remarkably simple. Executives pay a substantial subscription fee for the right to provide CEB with proprietary information relating to their own business practices. CEB then tabulates this information from all major industry participants and effectively sells it back to them in aggregated form. By participating, corporate marketing chiefs, CFOs, general counsels and the like can all sleep well at night knowing that they are unlikely to be fired because the CEO discovered that their peers at other major corporations are performing the same job smarter or better.
Similarly, corporate executives are likely to provide a more honest perspective on their strategic aspirations and views of competitors to an investment banker than to those competitors. And investors are more likely to tell a trader, salesman, or research analyst what they really think about management than they are likely to tell management to its face. The investment banker, therefore, can be the conduit for this information. And information, maybe more than ideas, is the coin of the realm in investment banking.
This description of what bankers do highlights the sensitive issues of conflicts and confidentiality that necessarily arise all the time and colors much of the interaction between bankers and their clients and potential clients. A CEO who wants to know when certain kinds of acquisition targets arise needs to share a fair amount about his own strategy if he is to expect a banker to present truly appropriate situations. But he will be reticent to share very much if he fears that this information will be quickly shared with his competitors. And corporate executives themselves are a little schizophrenic about what they want from their investment bankers— on the one hand they may long for a simpler time when a particular banker was their exclusive "trusted adviser," but on the other hand they want access to market intelligence that is less likely to be made available to a banker too closely associated with a single industry participant.
But the very best investment bankers manage to be much more than mere traffickers in industry or market gossip. They address a fundamental need that derives from the surprising fact that the CEO job in particular is a painfully lonely one. The CEO is surrounded by multiple internal and external constituencies each with their own axe to grind, product to sell, or position to protect. Like a Hollywood ingénue with a battalion of new "best friends" following the successful opening of her debut film, the CEO must find a way to sort through the cacophony of self-serving requests, biased advice, and unrelenting flattery. Finding an advisor who can honorably provide both a fair synthesis of the relevant information and demonstrate consistently sound judgment regarding its strategic implications is an extraordinary service and relief to a CEO.
Another reason why companies and CEOs are nervous nonetheless about being too open with any particular advisor is the rapidity with which investment bankers moved from firm to firm by the early 1990s. A confidence given to one firm, even if kept, became highly vulnerable if any team member left for another firm. At one time, it was not unusual for a banker to pass his entire career within the confines of a single financial institution. But with the growth of the industry, the surge of new entrants and mergers of existing ones, the cycles of layoffs and hectic hiring binges and the split-off of celebrity bankers into boutiques like Greenhill, Gleacher and Wasserstein, Perella, this had become the exception rather than the rule.
The one institutional exception to this rule was still Goldman Sachs. Very few people left Goldman, except to retire or do something altogether different. And, conversely, Goldman was not given to "lateral" hires— people who had worked elsewhere and who were hired to fill positions higher than entry level. Part of the effectiveness of the internal communications described derived from the fact that the overwhelming majority of bankers had never worked anywhere else and shared much the same training and many of the same experiences. As a former Management Committee member told one writer, in his view "lateral hires are like foreign bodies,... [t]hey do not speak the language."2
Despite Mead's graciousness toward me, it was not surprising that my welcome at Goldman was a little cool. I was after all not just a lateral hire, but one with no real banking experience. People didn't really understand how I got there or what I was supposed to be doing. At the time I didn't fully appreciate the historical significance of the suspicion with which outsiders were greeted. Goldman's first big experiment with a lateral partner, Waddill Catchings, hired in 1918 after having worked as a lawyer at Sullivan and Cromwell and then a banker at J. P. Morgan, had literally almost destroyed the firm in the 1920s. The Goldmans and Sachses were just two of the nineteenth-century German-Jewish immigrant families who, with little financial capital and only modest experience extending credit, would transcend their garment-peddling origins after the Civil War. These original "rags to riches" stories would ultimately challenge the supremacy of the established banking houses, known generally as the "Yankee" houses because of their predominantly New England pedigree, that were made up of partners from families on the Social Register.3
This success was owed in part to the ability of family members to rely on each other in a sometimes hostile financial world. And they understandably resisted inviting outsiders into their partnerships until it was absolute necessity to permit further expansion. At Goldman Sachs, it was 50 years before someone without the last name of either Goldman or Sachs became a partner. This was quicker than at Lehman Brothers, another Jewish firm with which it would collaborate for decades.4 Goldman did not become a full-fledged investment bank until 1906 when, along with, Lehman Brothers, it underwrote an offering for a small mail-order house owned by a distant relative of the Sachs family. That little company was Sears and its took three months to find buyers for the modest $10 million offering. But that first transaction "put Goldman Sachs on the threshold of a new era."5
Much as the Jews who were excluded from the theater industry created "an empire of their own" in the form of the early film industry, these Jews aggressively developed investment banking through a tight web of family relations in part because they were not welcome in the established commercial banking industry.6 Using a combination of financial creativity, willingness to provide banking services to smaller businesses (particularly in the retailing and light industrial sectors) and family connections to the large European financial houses, which then provided a critical outlet for distributing U.S. securities, these once-fringe players changed the landscape of global financial markets. Ultimately even J. P. Morgan, the most traditional of Yankee bankers, would need to work with the German Jewish banking houses to ensure proper distribution of major securities offerings. Morgan complained bitterly about their growing influence and by the turn of the century claimed, inaccurately, that his was one of only two firms in New York still "composed of white men."7
With no obvious family member to fill the void left by the departure of Henry Goldman in 1917, Waddill Catchings must have seemed an inspired choice.8 The charming southerner was a natural salesman and already a well-known author. Never mind that the thrust of his best-selling, The Road to Plenty, which aggressively proselytized the notion that the economy could continue growing indefinitely, was at odds with the fundamentally conservative Goldman financial ethos. Catchings had befriended the Sachs boys at Harvard, making all these differences in style and disposition seem complementary rather than threatening.
Unfortunately for Goldman, Catchings convinced the firm to package and market the type of investment trusts popularized during this period and reflective of Catchings' own economic credo. Units in the investment trusts were sold to the public on the promise of untold compounding riches as more and more participated. The collapse of the Goldman Sachs Trading Corp. in 1929 may not have been the most spectacular example of the dangers of these pyramid schemes. But Goldman Sachs nevertheless attracted disproportionate attention because of Catchings' high profile, its bad decision to use the Goldman name in marketing the investment trust9 to the public, and having the misfortune of selling units to Eddie Cantor, one of the most famous entertainers of the era. Cantor not only sued the firm, as many others did, but worked the scandal into his popular comedy act and books.
It is probably unfair to blame Catchings for the difficult treatment of laterals at Goldman. The insularity of the firm in this regard certainly predated him. Better to say that their experience with Catchings merely confirmed a predisposition to deal exclusively with homegrown talent. And over 60 years later that predisposition was still alive and well.
Nonetheless, I had been hired by John Thornton, and at least in this little outpost of Goldman Sachs, he was basically the boss. At this point, with well over 1,000 employees, the London office was actually not even that little, at least by the standards of the transplant operations of the other major U.S. investment banks. So my new colleagues were generally polite and helpful, if a bit wary. At least until they found out what Thornton had in mind for me.
One day late that summer, while he was briefly back from some Thornton mission in Germany or Australia, my old friend who had gotten me into this, Kevin Czinger, came by my desk.
"Thornton wants us to go out to Isleworth," he said.
"What's an Is-el worth anyway?" I asked.
"Very funny," he said, "we can talk in the cab."
Isleworth, it turns out, is a not terribly attractive suburb of London, a little more than halfway to Heathrow from downtown, which houses the studios of BSkyB. BSkyB was the only satellite TV operator and, since cable was really in its infancy in the United Kingdom, for most Brits pretty much the only way to escape the BBC sisters or ITV. Owned by a consortium of Rupert Murdoch, Pearson, Granada, and Chargeurs, BSkyB was an incredible business. In addition to national distribution, BSkyB had tied up all— literally all—the pay-TV rights to first-run films from the major studios. It had done so on a staggered basis, so that in any given year only one studio contract would come up. Unfortunately, as any potential competing bidder would know, you need the output from at least two movie studios to create a credible pay-TV movie channel. So, for a cable provider—or even a consortium of cable providers, all of whom were losing buckets of money—to attempt to outbid BSkyB for a major studio contract was folly. Any cable operators who wanted to offer a premium movie tier had to buy it "wholesale" from, you guessed it, their main competitor, BSkyB. And BSkyB could set prices to the cable providers at a level that made it, shall we say, challenging for them to be competitive with BSkyB's offerings.
Ditto for sports broadcast rights, the only other area (not counting pornography), for which the public has demonstrated an almost unlimited willingness to pay incremental dollars to receive "exclusive" programming. At the time, Sky Sports had the next three years' live broadcast rights to the Premier League, the country's top soccer league, the equivalent to owning the rights to all NFL games, and pretty much the only thing that really mattered in the U.K. market. And on the basic service tier, Sky redistributed a dozen third-party channels (many of which had been convinced to give BSkyB an equity position) and four wholly owned channels. The four Sky Channels included the 24-hour Sky News and the flagship, Sky One, which transmitted The Simpsons, Beverly Hills 90210, and other popular fare that the BBC mandarins considered beneath them.
And all this was supported by a state-of-the-art customer service (something of an oxymoron in the British Isles) facility in Scotland where a free call was quickly answered to instantaneously deal with any billing or service issue.
But it wasn't always so. At one time, the losses associated with Rupert Murdoch's Sky satellite TV operations had almost brought down his News Corporation Empire. The fierce battle for dominance between Sky and competitor British Satellite Broadcasting (BSB) has been the subject of other books.10 The major studios laughed all the way to the bank as each satellite platform tried to outbid the other for pay-TV movie rights. Once an armistice was reached—and BSkyB was created—Murdoch immediately sent his CEO, Sam Chisholm, to Hollywood for some "friendly" renegotiations. When the smoke cleared, Chisholm, a profane, hard-drinking, chainsmoking, bulldog of a man, stood atop a business that is akin to what DirectTV could be in the United States—if Echostar didn't exist, cable were a minor competitor, and it owned all of ESPN, HBO, Showtime, Cinemax, and STARZ. "Top of the world, ma," Jimmy Cagney's character shouts at the end of the classic film, White Heat. You could be forgiven for confusing Sam Chisholm with a kind of Kiwi Cagney, a comparison some executives reportedly made.
Chisholm, in addition to running BSkyB, was on the board of News Corp. and responsible for Murdoch's pay-TV strategy in Asia. Czinger had met Chisholm and his team when Thornton had sold a majority stake in Star TV—the largest satellite TV platform in Asia—to Murdoch for Richard Li, Hong Kong mogul Li Ka-shing's 27-year-old son. It was a testament to Thornton's skill that although he had gotten an enormous price from Murdoch for Star (and the asset was something less than advertised) he had endeared himself to the News Corp. team for delivering them the deal while at the same time securing the devotion of his own client, Richard Li.
During the car ride to BSkyB headquarters, I learned from Kevin that there was to be an IPO for BSkyB. Since the business had turned around, Murdoch had already begun pulling cash out of BSkyB to repay his substantial loans to the company. The IPO would allow Murdoch in one fell swoop to accelerate the repayment of another £600 million in loans, potentially buy out annoying minority partners, and provide a highly valued currency to make further European acquisitions without diluting his ownership in News Corp. itself. Kevin, who would not have any continuing day-to-day involvement on the project, was to introduce me at this meeting to the BSkyB finance team as Thornton's point person in the CMT Group on this assignment. And it was clear that this was an assignment, not a pitch. Thornton had already used his relationship with Murdoch and Chisholm to establish Goldman as the key strategic advisor to BSkyB, and they had asked him to lead this project, as far as I know, without any formal pitch at all. I also learned that none of Murdoch's "partners" were to know of this plan until the very last possible moment, when they would have little choice but to accede to it.
From Goldman's perspective, the secrecy had very particular competitive appeal. Although already established as a credible player in U.K. mergers and acquisitions, Goldman was a minor participant in the equity markets there. Goldman had undertaken a very high profile block trade for British Petroleum in 1987 (block trading, in which the investment bank purchases a large position directly based on its ability to quickly resell it to multiple institutional accounts at a profit, was a well-established Goldman specialty) and in 1988 Thornton himself had used creative takeover defense work for Racal to secure. Goldman had the lead position on the IPO of the company's Vodafone subsidiary. But Goldman had never been the primary global "book runner" for a major IPO of a stand-alone U.K. company. The book runner was the bank actually responsible at the end of the day for placing the securities—in other words, finding the buyers who would actually take the stock at the price offered. And this was not just any IPO. This would be the deal of the decade. Goldman knew that once the prospect of an IPO was public, there would be enormous pressure for a U.K. broker to lead the deal, because of the historic relationships in the British market.
In addition, once the "partners" knew, there would be no way to keep the well-established U.K. house of Lazard Brothers from being a major participant (and irritant) in the deal. Lazard Brothers was partially owned by Pearson PLC, the second largest shareholder in BSkyB. And there were parallel but interrelated tensions between Pearson and News Corp. on the one hand and Lazard and Goldman on the other. Pearson CEO Frank Barlow, represented by Lazard as usual, had been the primary other suitor for Star TV the previous year. And there was some lingering sense from their side that Thornton had somehow favored News Corp. in the process, leaving Barlow with egg on his face. Barlow would soon enough be humiliated for a second time.
BSkyB's CFO, the genial, unassuming Richard Brooke, was one of the few remaining employees who had originally worked at BSB. His shy, elfin assistant Roger Blundell had short, bright red hair and boyish, bright red cheeks to match. I was expecting something a little more intimidating, based on what I had heard about Chisholm, but would soon learn that Brooke was not part of the inner circle at BSkyB and was viewed as a processor to deal with annoying regulatory requirements. We discussed timing of an organizational meeting, who would be in the know, what our cover story was for why we would be engaging in "due diligence" and, as in every confidential investment banking project, our secret project name. At the time, I had only a very general sense of the meaning of "due diligence," which I came to understand was a term of art used to describe the investigation undertaken by an underwriter to ensure ultimate buyers of shares that the business is as advertised. Just in case anyone wasn't sure about just how secret these proceedings were, the BSkyB IPO would be called Project Hush.
What I really didn't understand was, why me? Notwithstanding Thornton's involvement in the Vodaphone offerring six years earlier, as a practical matter Thornton, Czinger, and I together could barely spell IPO. Why position someone so clearly out of his depths this prominently on a deal as important to the overall franchise? Kevin explained that within the insular Goldman culture, there were any number of strong and even more insular subcultures. Equity Capital Markets (ECM)—the part of the firm responsible for distributing equity securities—was ruled with an iron fist out of New York by another bulldog of a man, Eric Dobkin. The diminutive, cigar chomping Dobkin's ECM franchise had consistently been number one in IPOs, along with M&A the highest margin business in investment banking, and his word was law. He was a legendary figure both within Goldman and on the Street, as the investment banking community referred to itself (in London, "the street" was called "the city"). Although he had hired most of the London ECM team himself, Thornton seemed to want someone on the ground with absolutely no allegiances to anyone but Thornton.
At our first internal team meeting shortly thereafter, temperatures associated with my generally cool initial reception at Goldman quickly plummeted to arctic levels. These people were not pleased. When I spoke, it was as if I hadn't said anything. I was invisible. Everyone in the room, from the two young analysts Ulrika Lindgren and Jean Marc Huet to the head of ECM in London, Michael Evans (a former Olympic rower for Canada) had worked together before and exuded self-confidence. This was clearly the "A" team, carefully selected to work on the most important deal the office had ever done. Which was precisely why they were so annoyed not only that they had to baby-sit me but that I was being given the opportunity to participate in a project for which I clearly had not paid my dues.
Also on the team was a senior corporate finance banker who had spent a considerable amount of time in ECM himself, Tim Bunting. Bunting was slightly overweight with bad teeth and often looked as if he had slept on a park bench. With short, unkempt blond hair and pin striped suits that frequently were torn at the pockets or the seams, Bunting had the air of a disorganized professor. But he had consistently stellar strategic judgment and a far better understanding than any of us of what we were undertaking.
Finally, the team included a shy, solid, well-liked senior associate named Fergal O'Driscoll. Fergal had clearly been put on the team by Mike and Tim as the price for taking me. At least Fergal had been at Trinity, although long after me, so we had that in common to talk about. But it would be some time before my interaction with any of my "team" would be anything but awkwardly formal.
I said pretty much nothing at the meeting, which seemed to be appreciated. There was almost no eye contact from anybody there, even when I did speak if just to clarify something. I did at least begin to get a sense of what "due diligence" would entail. Essentially we would be spending the next several months interviewing the key BSkyB executives about their businesses and then sitting down with the lawyers to draft a prospectus describing the organization, the operations, the financials, and the offering.
Even if I had had the first clue about what I was doing, the following weeks would have been difficult. The analysts would accidentally neglect to let me know about meetings at BSkyB. I somehow seemed to get only about every other team voice mail update. I tried charm, without result. I tried confrontation, they played dumb. I refused to be reduced to whining to Thornton, so I just soldiered on trying my best to absorb as much as I could and look like I knew what I was doing.
The good news was that this due diligence stuff is made for the naturally curious and extroverted like me. Just asking people about how their businesses work, the key drivers and risks, fascinates me. And I find that people like to talk about their own businesses and are flattered when outsiders take an interest in what they do. So while others dozed at sessions where group heads talked about their businesses—signing up sports rights, selling advertising against the entrenched incumbents, dealing with regulators, managing the call center or the satellite uplink—I listened closely. And rather than rushing back to the office to attend to more pressing matters with my colleagues, I would stick around and ask a few more questions. As a result, by the time we started writing I knew more about the businesses than my colleagues, so it wasn't hard to make it look like I was contributing at the endless prospectus drafting sessions.
But what really saved me, despite all the obvious strikes against me, was that I really liked and got along with the people at BSkyB. The BSkyB culture, and the Murdoch culture generally, is incredibly results oriented, with a certain populist disdain for pomp and pretense. Fancy degrees and self-important attitudes are just not the currency for dealing with the people who made Homer Simpson a household name around the world. Although my politics couldn't be further from the right-wing views systematically and effectively espoused by the Murdoch empire, I developed a deep empathy for the antiestablishment ethos of the place. Over time, the relationships I built there seemed to pay off, at least in terms of my credibility with the client if not my Goldman teammates.
Although I didn't complain to Thornton about the shunning I took from my colleagues, I had talked about it with Czinger. One day he came by my desk and said "Thornton wants you to do the Analysts' Presentation." I soon found out that in the United Kingdom, before going on the road show, making dozens of 45-minute presentations to investors to sell stock, management makes a full-day presentation to the research analysts. These presentations allow the analysts, who investors turn to for the intellectual support for the valuation being sought for the new stock, to prepare their financial models and have their written research reports ready for the IPO. When the team was informed that this would be my responsibility, there was for the first time palpable anger instead of feigned indifference.
"Fine," Fergal said abruptly and stormed from the room on being informed that he would not be involved.
Among the team, this anger soon seemed to mellow into a kind of quiet satisfaction that came from knowing that I would make a fool of myself. But turning a complicated legal document (in this case, the offering prospectus) into a simple story told in bullet points was actually one of the few things I did know how to do. My four years as a lawyer-lobbyist would finally come to my rescue when I most needed the help.
When we presented the final product, David Chance, Chisholm's handsome, unflappable deputy, responsible for day-to-day operations, seemed startled and asked who had prepared it. I meekly raised my hand. Maybe I just imagined the disappointment on the rest of the Goldman team's faces when he said "This is damn good!"
Shortening the Analysts Presentation into a Road Show Presentation was pretty straightforward. I assumed we were all set when Tim asked me to come down to Mike Evans' office for a conference call with New York about the road show. What he didn't say until I arrived is that "New York" was code for Eric Dobkin. Everyone apparently understood that the personality combination of Chisholm and Dobkin would be explosive and disastrous and we had avoided interacting with New York altogether. But at Goldman, Dobkin approved all road shows. I was asked to take him through the management presentation.
Dobkin didn't talk, he screamed. At the time I did not appreciate either the fear or influence Dobkin wielded within ECM, so I was just a bit bemused by this character. Thornton tried to run London as an independent outpost and I was having a hard enough time navigating that little world. Although I had by this point done a reasonable job of mapping out the political landscape within Goldman London, I had no real exposure to the broader firm context. I had not even been to the New York offices beyond a few days of perfunctory training.
As we flipped pages Dobkin would yell an observation and I would respond respectfully. We reached the end, Dobkin said, "We need to put in more about growth from new products and interactivity and all that stuff." In general it makes sense to highlight prospective growth opportunities, even if a little speculative, because investors will pay more for current earnings when they believe there is much more around the corner. But BSkyB had so much built-in growth, it seemed crazy to me to spend any time at all on anything else.
At this point I was a little tired and didn't know exactly why I had to explain myself to this guy. Besides, if we changed anything at this point, Chisholm would eat me alive.
Anyway I said, "We have a core business that has a rock-solid growth trajectory, no credible competition, and no meaningful business risks. We can easily justify the valuation we are seeking just on this business. As you suggest, there are some services that we may provide in the future, but they have technological and competitive risks and basic questions about whether people will pay for them at all. Now we can focus our presentation on the foolproof business or we can focus on the speculative business." At this point Mike and Tim were almost apoplectic, making wild hand signals suggesting I should shut up. No one talked to Dobkin that way. I stopped talking. There was silence as everyone in London stood frozen staring at the speaker phone.
"O.K." Dobkin yelled. Everyone started to breathe again, Dobkin moved onto another topic.
As anticipated, before the prospectus was finalized, Pearson's Barlow complained loudly about both Chisholm's competing responsibilities at News Corporation, where he was a director and still served as the chief strategist for all their cable and satellite interests outside of the United States, and the size of the bonus scheme for Chisholm's team, which by U.K. standards of the time was quite generous. Although Barlow did manage to get the bonuses scaled back somewhat, his harping alienated the rest of the major shareholders who were more focused on the high values attributed to their stakes so soon after being at the brink of bankruptcy. And Sam had the last laugh as usual. Prior to the first board meeting after the IPO, Murdoch and Granada CEO Gerry Robinson pulled Barlow aside in an adjacent conference room and gave him a stark choice: resign as chairman or be kicked out. "I've got the votes, Frank," Murdoch explained to him. Barlow resigned that day.11
During a road show, the lead banks chaperone management through an exhausting series of group and one-on-one meetings with prospective investors, relentlessly hopscotching around the globe for several weeks. Sam didn't like to deal with strangers and I was asked to travel with him as Goldman's representative for almost the entire road show. Despite my lack of experience, I bet that the road show came as more of a shock to investors, particularly in the United Kingdom, than it did to me. Sam didn't particularly like the Brits. To say that U.K. fund managers, more used to being fawned over than anything else, were surprised to hear those sentiments from someone trying to sell them stock, would be an understatement. If a fund manager in a large gathering asked a question that Sam took to be provocative, Chisholm might go on a riff about how phony the British are: pretending to read the Times when all they want to do is see the Page Three girl in the Sun, acting as if the drivel on the BBC interests them when they really want to be watching The Simpsons. What he was offering to the British people was choice for the very first time. These fund managers could think whatever they wanted about whether it would make a difference in viewing habits, as far as Chisholm was concerned. But, he suggested, just watch the ratings and the subscriber numbers.
In more intimate settings with fund managers, Chisholm could be even more withering. At a lunch with five prospective investors, one had the temerity to ask Sam whether he thought the government would block him from purchasing any more sports rights. Sam looked up from his lunch at the man with undisguised disdain.
"Block me?!" Chisholm barked at the man, who was visibly shaken. "What do you think we are, in fecking boarding school? Nobody's going to block me!"
And it was true that Sam could be cruel to those he did not consider one of his guys. During one investor presentation, BSkyB CFO Richard Brooke took it on himself to answer a question that Sam thought properly his. While Richard answered, Sam got up and walked behind him staring with a quizzical grin. When Richard finished, Sam patted him on his head, as if his dog had somehow managed to bark a tune. But for all Sam's personal failings, if he trusted you, he was incredibly kind and generous and one of the funniest people I have ever met.
The quality of the business allowed us to "sell through" our unconventional marketing efforts, and the offering was a huge success—we raised $1.4 billion at a valuation that established BSkyB as one of the 50
largest publicly traded U.K. companies. Needless to say, however, we sold a lot more stock in the United States than in the United Kingdom—65 percent in North America for a company whose only customers were in the United Kingdom. By the time things came to an end, I had actually developed reasonable working relationships with all of my Goldman teammates. No one had any illusions about the depth of my investment banking skill set, but I had tried to use my relationships with both the company and Thornton to facilitate those aspects of the transaction for which they were responsible. Eventually my name seemed to have been added to most everyone's team distribution list. And occasionally I would be asked to join them at the pub.
Having survived my immersion course in investment banking and gotten engaged, 1994 was surely a momentous year for me personally. But as the year came to an end, it became clear that it was possibly even more momentous for Goldman. And not in a good way.
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