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Once both proposals were out in the open, the two sides began to think about working together. On Tuesday, Oct. 25, Kravis and Cohen made their peace over breakfast at the Plaza Hotel. In a two-day series of round-the-clock meetings that followed, the KKR and Shearson/RJR teams discussed alternative buyout plans. George Roberts, who normally works out of KKR's offices in San Francisco, and Robinson of American Express joined Kravis, Cohen and Johnson in the negotiations.
Early on, KKR reportedly offered Shearson a $125 million "kill fee" to step aside. Cohen brushed off the idea as "personally insulting." Once serious talks began, the participants saw they had different strategies in mind. KKR preferred to sell the tobacco business to pay back the buyout loans and retain the food businesses, a good fit with the Safeway chain. Johnson's team wanted to keep the tobacco company and sell off Nabisco, Del Monte and the other non-tobacco parts of the business. Positions hardened shortly after , midnight Tuesday, when KKR partner Roberts made what may prove to be the most expensive personal gaffe in the annals of corporate negotiations.
Arriving at RJR's Manhattan offices about 1:15 a.m., Roberts flinched at the sight of Cohen puffing away on his ever present cigar and asked sarcastically if RJR, which sells some 290 billion cigarettes a year, also made cigars. Roberts, who moved to a seat across the room, seriously misjudged his audience. The last thing the embattled RJR team wanted to hear at that hour was another antismoking crack, especially from a would-be ally.
But the real sticking point was the issue of power. KKR has always insisted on controlling the companies it acquires. That policy went squarely against Shearson's promise to Johnson that he could keep 51% of the voting shares. The talks broke off on Wednesday, after Johnson said he would have nothing further to do with KKR.
At week's end KKR had the highest offer on the table, but the Shearson team was preparing a new bid. Ultimately, RJR Nabisco's board of directors, which includes such outsiders as Charles Hugel, president of Combustion Engineering and Martin Davis, chairman of Gulf & Western, will probably have the final say on who, if anyone, buys the company. Some Wall Streeters think the financing will prove so difficult that KKR and Shearson will have to work together. In a conciliatory move on Friday, KKR said it would not press for selling off the tobacco division.
If the mammoth deal is completed, it will intensify the debate about whether leveraged buyouts are good or bad for American business. Proponents point out that the stock market has severely undervalued many companies. Thus the only way shareholders can get fair value for their investment is through a buyout. Another argument in favor of the trend is that by breaking up conglomerates, buyout specialists create more efficiently run businesses.