Part 4 (1/2)
The lightbulb clicked on Had this trip been planned in advance, some ofto town Knowing this, I would have called the analysts I worked with at Fidelity at 9:00 AM AM, right after the one down But no one had said a word So a last-: MCI was playing its patented hot/cold ga softness in its results and wanted to lower expectations before the holiday and postquarter ”quiet period” set in, when the coer be allowed to discuss nus were released
I spent the rest of the day trying, without success, to confir its thing and that no one else understood it-no one else, that is, other than a feell-inforers in Boston This was all before SEC chairulation FD (Fair Disclosure), which outlawed the release of infor it available to all when it went into effect in 2000
Connie Weaver didn't call me back until 2:00 PM PM I was not happy, because I needed to understand what had changed in MCI's business before I could rework et price for the stock She toldsome weakness in sales toby AT&T, and she didn't fight back when I suggested I would need to lowerto her, I knew entle landing with its bad news by telling the institutional investors in Boston before any others
It appeared the long-distance price ereand it was tiraded MCI shares two notches, froht MCI's shares would hover within 10 percent of their current price over the next year I also cutthat the proble were industry-wide As it turned out, my concerns were justified: teeks later, Sprint announced fourth-quarter price pressures, and early in 1995, both Sprint and MCI announced disappointing fourth-quarter revenues and earnings
The day after I issued rade, Matt Bow Maine was not happy withapparently said ”I respect that But I am not happy with the tone tone of his report And he should have given us of his report And he should have given us notice notice in advance” in advance”
”Tone” and ”notice” I had to laugh I i on: his co he disagreed with ot the tone corade) And ”notice” was just another way of asking for ti the day before that I was going to downgrade, two things ht have called Matt Bowman, and perhaps MCI's CEO, Bert Roberts, would have called Merrill CEO Dan Tully, urging theet me to reconsider
Second, with ”notice,” Connie Weaver and MCI's investor relations depart iuht They want to control e analysts say, and they want the coe co business, ood to us
I can't tell you how many times I would later hear the ”tone and notice” complaint from corporate executives who didn't like what I had to say, but it was soht with Matt and he didn't withI was sorry, but I didn't think I should notify anyone of rade before it had been officially announced at Merrill's dailyfor the 150 institutional salespeople and thousands of retail stockbrokers who listened in via a loudspeaker system known as a ”squawk box”
In March 1995, I hosted my annual telecom conference, as I had done the prior year and would do for the next seven years Virtually every major telecom CEO would make an appearance, and over the years it beca deal to be announced or ireat place for executives to interact with ht be interested in a deal of soh MCI CEO Bert Roberts had raced back fro in London to speak at my conference the prior year, this year he was suddenly unavailable MCI CFO Doug Maine was sent along as his replace was, it was a CEO conference We all suspected as going on: this was retribution for rade
Jack's Knack Back on the international front, the pace of privatizations continued to pick up, and with it, the intensity of the competition to underwrite the as the clear leaders Goldest piece of the pie, in part because it had Robert Morris, who for the nine years through mid-1994 had been the nuh Merrill was late to the party, its global brand and sheer sizethe lead in such privatizations as France Telecoal Telecom, Indosat, and Telefonica del Peru
Others, like Salo like hungry dogs over the san-their US telecohly ranked-but what about Solly? Salo for Liar's Poker, Liar's Poker, Michael Lewis's book on Wall Street, and it was known as an aggressive trading fir franchise (this was before Salomon was acquired by Travelers' Sroup) Salomon did, however, have Jack Grubman as its new telecom analyst A year earlier he had reat fanfare Michael Lewis's book on Wall Street, and it was known as an aggressive trading fir franchise (this was before Salomon was acquired by Travelers' Sroup) Salomon did, however, have Jack Grubman as its new telecom analyst A year earlier he had reat fanfare
By this point, a bank's research analyst was beginning to be one of thewhich investment banks companies and countries chose to handle their deals Our research stillfrom that research-mattered a lot more And Jack Grub coressive self-promotion, now mattered the most of all Jack's contract to move from PaineWebber to Salomon was probably near 2 hest paid analyst on the Street at the ties could everthe deal center of the world and Jack was the most prominent analyst to move at that time
By October 1994, Jack would displace Robert Morris to become the top-ranked US telecommunications analyst in the II II poll This should have given hi underwriters, but it didn't, mainly because of his personality Jack caement what to do and how to run their companies He was loud, self-centered, and every sentence he started seen civil servants didn't really go for the use of the first person They were bureaucrats, and they preferred the calm, steady, and more respectful (okay, a little bit staid) voices of Robert Morris and n govern underwriters, but it didn't, mainly because of his personality Jack caement what to do and how to run their companies He was loud, self-centered, and every sentence he started seen civil servants didn't really go for the use of the first person They were bureaucrats, and they preferred the calm, steady, and more respectful (okay, a little bit staid) voices of Robert Morris and h Jack and I had the sa about the e did our jobs was different Mark Landler, a reporter for The New York Ti us the ”Siskel and Ebert of Teleco,” and his description was spot-on ”Mr Grubman, 43,” he wrote, ”is the swashbuckler, who boasts about his close ties to the chief executives of the big telephone companies and whose research reports sometimes read old, 42, is the Wall Street wonk, who cultivates a network of contacts in Washi+ngton to gauge the direction of legislation, and who showers his clients with a strea us the ”Siskel and Ebert of Teleco,” and his description was spot-on ”Mr Grubman, 43,” he wrote, ”is the swashbuckler, who boasts about his close ties to the chief executives of the big telephone companies and whose research reports sometimes read old, 42, is the Wall Street wonk, who cultivates a network of contacts in Washi+ngton to gauge the direction of legislation, and who showers his clients with a streas and updates”4 When it ca out better than swashbuckler Yet Jack's failure to win foreign deals was not for lack of trying Like me, he practically lived on a plane for years I ran into hi paths in Australia, Germany, and Peru In fact, in Peru, I saw Jack on the steps of the Finance Ministry, where our respective pitch tea chased by paparazzi, eager for a shot of those helping to put together Telefonica del Peru's upcouess the arrival of modern capitaliser news in Peru than the latest shi+ning Path terror attack
Making matters worse for Jack was the fact that when he was recruited, he had pro invest deals Soon after Jack arrived at Salomon, a former Salomon analyst later told me, Jack had boasted at an internal depart in 4050 e score at that ti paid, in part, for that claim
To its credit, Salomon was quick to realize that Jack didn't play well overseas and that they needed to find a better use for their costly new hire Jack knew it too The solution was closer to hoory of telecom companies: the local startups such as MFS and Teleport, which offered local phone service in co-distance broadband co, which would compete with AT&T, MCI, Sprint, and WorldCom The startup local carriers offered lower prices than the Baby Bells because their technology was newer and more efficient, and because their workforces were nonunion
Jack was one of the very first analysts to see the potential in these e telecom startups, and here his brash personality was a perfect fit Start-ups are run by risk-taking entrepreneurs, people who don't take no for an answer and people who like to move fast Before Jack arrived, Salomon had already sponsored the IPO for MFS, one of the two first local telephone startups in the US Jack quickly adopted MFS and its CEO, Jim Crowe Jack beca over every one he could get in to see, and reco almost every one that hired Salomon to underwrite its stock or bonds His becaressive type of telecom company And the louder he talked, the quicker his bosses at Saloroup of startup local phone coory in the II II rankings, and Jack owned it: fros, and Jack owned it: froh 2001, he was rated number one
I, too, believed that ues in Merrill's investe: by the ti rade their biggest competitors, the Baby Bells Most local startup executives hated the Baby Bells and distrusted anyone who felt positively about them Plus, Jack was farvirtually unlimited upside, and he was conveniently bearish on the Baby Bells, which, incidentally, were cash rich and thus didn't need to raise money like the startups did That endeared hiues in Merrill's investe: by the ti rade their biggest competitors, the Baby Bells Most local startup executives hated the Baby Bells and distrusted anyone who felt positively about them Plus, Jack was farvirtually unlimited upside, and he was conveniently bearish on the Baby Bells, which, incidentally, were cash rich and thus didn't need to raise money like the startups did That endeared hiee One day in April 1995, Frontier, a midsized phone company based in Rochester, New York, announced that it was buying ALC, a long distance reseller based in Biran The announcement caan calling right away to see what I thought of the deal I didn't cover either stock at the ti consolidation in the industry and thought the price was a fair one I put in a few calls to larger clients, to give theht
At about 4:45 that afternoon, a buy-side fund ht of the deal I detected a strange note in her voice, and wondered if she'd had a rough day or made some poor picks I had launched into my spiel about how I believed that it would be better for the industry to reduce the number of players when she suddenly cut me off
”You won't believe this, Dan,” she blurted ”Jack calledto happen”
How could he have known? Had he heard a rumor or been tipped off by someone within one of the coether and brought Jack over the Wall, as Ed and I had been with AT&T and McCaw? It turned out Salo ALC If what she'd said was true, Jack ht have been an insider and leaked al terms, that could make her a ”tippee” and hiht or sold the stocks based on advance knowledge-the clear definition of insider trading The obvious move would have been to buy ALC shares and sell whatever Frontier shares she held in her fund, since the acquirer's stock often falls upon announcement of an acquisition Indeed, the next day, Frontier's shares fell 13 percent and ALC's rose 9 percent, shi+fting aggregate market values by a total of 3 billion I was so shocked-and furious-that I was speechless for a few seconds
”You're kidding me,” I shouted
”I'm serious, Dan,” she responded ”It makes me really uncomfortable”
”Why would he do that? What did you do with the infor,” she whispered ”I know I can't use stuff like that”
I hung up the phone and just sat there for a second How could Jack so blatantly disregard the law? Why would he take such a crazy risk? Anybody illing to leak inside infor in this business
What I thought about uy was my rival; hoas I supposed to co to win favor fro on inside information? The leak hurt my institutional clients, too, not to mention individual investors, eren't privy to this kind of information
Or maybe it hadn't been a leak Maybe she misunderstood as said in the earlier phone call Maybe he had called after the market had closed I really hoped so
Afternoon Tryst For now, Jack's added edge wasn't hurting my career Sometime in May 1995, Connie, my executive assistant, walked into my office with a worried look on her face
”John Mack is on the line for you,” she said
Connie knew that Mack was the head of Morgan Stanley, and she'd been an executive assistant long enough to know that if the head of another fir was definitely up I had promised Connie when I hired her two years earlier that I planned to work for ten more years and that she'd be with me until the end She probably didn't believe me, but we had shaken on it
”Hi, Dan,” John said in his North Carolina drawl, sounding as casual as if we'd spoken the day before for 60 minutes, not two years earlier for only six ”I'd like to have dinner with you How's next Monday evening?” It was becoious to be an analyst all of a sudden, and to have the head of a rival fir deal I kneas a recruiting call-there was no possible alternative explanation-and wondered what had happened at Morgan Was Stephanie Coet Mack tothat was beneath him?
”Sure, John,” I said ”How can I say no to an invitation from John Mack? But I want you to know I ae at all” (It was the ritual language used by all targets of a headhunting Plus, it was true)
”That's fine, Dan,” John responded ”Let's just get together and we'll worry about the rest later You live in Westchester, right? Meetat seven at the Cobble Creek Cafe in Purchase”
I have a terrible habit of s, and Connie knew this, so she ca around for a few minutes to see if she could detect any odd facial expressions She knew that I wasn't going to put anything on the calendar, but if I did schedule any secret s over the next feeeks, she would know: either I'd arrive late to the office (which I never did unless I had an appointment that she always knew about), leave early (which I rarely did except to get to one of the kids' softball or basketball gao out for lunch (I always ate at s)
John and I arrived at Cobble Creek Cafe at the saether It's a nice place with decent food and a countrified setting And on a Monday night it was pretty quiet and the bar area was empty, so John asked the owner, whos like this one, if we could have the bar area to ourselves with the door closed off fro roo to leave Merrill I was still ranked number three by II II and to win the and to win the II II sweepstakes, I reasoned, I needed the huge client base and public exposure that Merrill's combined institutional and retail distribution systems offered But I had learned that it was always best to listen-especially when John Mack was talking sweepstakes, I reasoned, I needed the huge client base and public exposure that Merrill's combined institutional and retail distribution systems offered But I had learned that it was always best to listen-especially when John Mack was talking
The first impression I'd had of Mack was that he was a laid-back, southern gentle but true His accent was soht, Mack was all business, skipping the sized for whatever had gone wrong back in 1993 and said he and the entire teleco teas were different now that he had handpicked the new global head of research, Mayree Clark, a woan Stanley's real estate division He also told an Stanley's head telecoroup's production and wanted it fixed
The funny thing was that Jeff and Mayree werea very delicate situation Mayree would be my boss, but her husband was the main telecom banker Would I have independence, or would Mayree pressure me to co as investhts to ive John the sense that I was a negative or high-s to talk about I didn't golf at the time, which was John's passion, and John didn't seest-ridden history of my team, the Buffalo Bills The conversation slowly sputtered to a halt, but not before John asked uy na department
The breakfast was set for the Mark Hotel, a small, exclusive place on the Upper East Side that was a lot an Stanley than Merrill in style To uess to underscore the ine that the head of a fir thisone individual for the research department that actually lost money year in and year out But he was
Mayree, an all-business type known for being a tough cost-cutter, was quite nice and enthusiastic Neil was a bit gruff and more focused on his watch than on our conversation But that's what all traders and salespeople are like, especially early in thebefore the markets open Traders and salespeople abhorred breakfast s because they took the the peak productivity part of the work-day Neil had been ordered to be here, of course He probably didn't know much about the telecom industry He probably also had no use for research analysts except that analysts es, strategic coenerate stock trades Mayree described the changes she was hted soan Stanley had underwritten They seemed to be out to impress John more than me, but I was flattered anyway
Before the breakfast ended, Mayree suggested a et a suite at the Righa Royal Hotel at Fifty-fourth and Seventh for 3:00 PM PM the next Monday, and leave the key at the front desk under her na into a hotel lobby at three in the afternoon, going to the reservation desk, and asking for a key left by a Ms Clark I'ht this was an afternoon tryst I guess it was, in a way: I was considering cheating on Merrill with an, after all the next Monday, and leave the key at the front desk under her na into a hotel lobby at three in the afternoon, going to the reservation desk, and asking for a key left by a Ms Clark I'ht this was an afternoon tryst I guess it was, in a way: I was considering cheating on Merrill within the suite, and he basically parroted John's line Then Jeff left and Mayree showed up She was ready to talk turkey She offered e substantially above what I wasstock options and bonus I was aan Stanley, the firm with ”Mack the Knife” at the hel analysts well two years earlier, had finally joined the sta invested to keep the telltale smirk under control and asked Mayree if I could think about it for a week or so while Paula and I took the girls on a quick trip to Pennsylvania's Areed, but also asked an as chairendary 1980s ers-and-acquisitions banker ith Bruce Wasserstein, had built First Boston into an M&A powerhouse They then bolted to start their own firm, Wasserstein Perella, known to Wall Streeters as Wasserella Wasserella I couldn't resist; I had heard his name a zillion times over the years and kneas supposed to be the most persuasive salesman on the Street I couldn't resist; I had heard his name a zillion times over the years and kneas supposed to be the most persuasive salesman on the Street
So the next day, I walked into Le Bernadin, Manhattan's top French seafood restaurant and a place where people went to be seen Joe, a lanky, bearded, hyperactive sort, arrived a little late Clearly so he needed to make a phone call This was in the days when it was still a big deal to use a cell phone in a restaurant, but Joe didn't care He pulled a huge clunky one fro away for aThen his battery started to run out, so he continued his call from the pay phone in the back by the ht(and I also needed the time to decipher the French menu) Joe finally cah the pleasantries when he suddenly noticed Edgar Bronfeous Venezuelan wife sitting a few tables away Joe bounded across the roo into my bouillabaisse