«Oh». He looked confused and fumbled with his briefing paper. This was not part of his script. «Well, what kind of deal were you hoping to do with us?»
I looked directly into his eyes. «I’m looking for a twenty-five-million-dollar investment in exchange for fifty percent of the business».
He glanced around the room, avoiding my gaze. «Hmm. But if we get fifty percent of the business, who gets the other fifty percent?»
I wasn’t sure whether he was serious. «I do».
His face tightened up. «But if the Russian market goes up as much as you say, you would make millions».
«Yes, that’s the point — and so would you».
«I’m terribly sorry, Mr. Browder. That type of arrangement definitely wouldn’t fly around here», he uttered, without a flicker of recognition about how ridiculous this sounded. In his eyes, it seemed that enriching an upstart outsider was so far beyond the rules of the antiquated English class system that he would rather pass on the opportunity than make his bank a fortune.
We ended the meeting on a polite note, but as I left I vowed never to return to one of these stuck-up banks again.
I had a number of other false starts and dead ends over the following weeks before finally coming across a promising prospect: American billionaire Ron Burkle. A former Salomon broker, Ken Abdallah, had introduced me to Burkle, hoping to get a cut of the deal for making the introduction.
Burkle was a forty-three-year-old California bachelor with sandy brown hair and a nice tan. He was one of the most prominent figures in private equity on the West Coast. He had done a series of successful leveraged buyouts on supermarkets and had gone from a checkout bagboy to one of the top Americans on the Forbes list. In addition to his business success, he was regularly pictured in the society pages with Hollywood celebrities and political heavyweights such as President Clinton.
I arrived in Los Angeles on a bright sunny day in September 1995. After getting my rental car and checking in at the hotel, I looked at Burkle’s address: 1740 Green Acres Drive, Beverly Hills. I got back in the car and cruised into the hills above Los Angeles, passing gated houses and front gardens overflowing with flowers. Trees were everywhere: palms and maples and oaks and the odd sycamore. Green Acres Drive was about a mile from Sunset, and 1740 was at the end of a cul-de-sac. I pulled my car up to the black iron gates, buzzed the intercom, and was told to come in and park. «I’ll see you at the front door, Bill», a man’s voice said.
The gates swung open and I looped the car up a driveway guarded by lines of pointed cypress trees on either side. When I turned into the main lot, I was confronted by the most ostentatious mansion I had ever seen. La Leopolda may have been the most expensive house in the world, but Greenacres, which had been built by the silent-film star Harold Lloyd in the late 1920s, was the one of the biggest. The main house was a forty-four-room, forty-five-thousand-square-foot Italian palazzo, surrounded by manicured lawns, a tennis court, a pool, fountains, and every accoutrement of wealth imaginable. I’ve never been particularly awed by people’s possessions, but it was hard not to be impressed by Greenacres. Burkle was a regular guy from Pomona, California, who had gone from nothing to living like a Saudi prince.
I rang the doorbell. Burkle answered it in person, and standing right behind him was Ken Abdallah. Burkle welcomed me in and gave me the short tour, then the three of us went to his study to discuss the terms of a deal. Burkle was surprisingly relaxed and basically accepted my terms: a $25 million investment for a 50 percent stake in the fund. On the less important terms such as start date, control of hiring decisions, and working capital for the office, he didn’t have much to say. For a guy with a reputation as one of the fiercest guys on Wall Street, he seemed downright laid-back.
After wrapping up, he took me and Ken to dinner and then to his favorite nightclub. I was struck by what a pleasant guy Burkle was. He had none of that Wall Street bravado that I had been expecting. As I was getting into my car at the end of the evening, he promised that his lawyers would draft the contract and send it to me in London a few days later. As I flew home the following day, I felt that I’d cleared the main hurdle to starting my business. I drank a glass of red wine on the plane, silently toasting my good fortune, watched part of the movie, and drifted off to sleep.
As promised, four days later, the fax machine in my Hampstead cottage spat out a long document from Burkle’s lawyers. I grabbed it nervously and started reading to make sure everything was in order. The first page looked fine. So did the second page, the third, and so on. But then I got to the seventh page. In the section entitled «Fund capital», where it should have read, «Yucaipa[9] commits $25 million to the fund», it read, «Yucaipa will use its best efforts to raise $25 million for the fund». What did «best efforts» mean? This wasn’t what I had agreed to. I reread the contract to make sure I wasn’t making a mistake. I wasn’t. Burkle wasn’t committing any of his own money, just a promise to raise the money if he could. In exchange for using his best efforts, he wanted 50 percent of my business.
No wonder he was so relaxed in the negotiations. He wasn’t risking anything!
I called his office immediately. His secretary politely told me that he was unavailable. I called three more times, and he continued to be unavailable. I decided to try Ken Abdallah.
«I know you’ve been trying to reach Ron», Ken said in a breezy California accent, as if he had just wandered in from the beach. «How can I help?»
«Listen, Ken. I’ve just got the contract and it says that Ron’s not actually committing any money to the fund, but just offering to help raise it. That’s not what we agreed to», I said tersely.
«Bill, I was there and that’s exactly what Ron agreed to», he said in a much sharper tone, replacing that of the California cool guy.
«But what happens if he can’t raise the money?»
«That’s simple. His fifty percent reverts back to you».
What did these guys think they were playing at? Burkle would effectively get a free option on 50 percent of my business for making a few successful fund-raising calls. If he was too busy to make the calls or his friends didn’t want to invest, I would be sitting in an empty office in Moscow.
Ken could hear that I was upset, but he didn’t want the deal to crater and risk losing his cut. «Listen, Bill, don’t worry. Ron is one of the most successful financiers in the country. If he says he’ll raise twenty-five million dollars, he’ll raise twenty-five million dollars. He puts together deals twenty times that size with his eyes closed. Just relax. This’ll all work out fine. I’m sure of it».
I wasn’t sure of it at all. But I agreed to think it over. Perhaps I had been so eager to hear what I wanted to hear that I had imagined that Burkle said he would commit the $25 million. Whatever the case, the way this was playing out felt unpleasant. I would have rejected the deal right away, but I didn’t have any other options and the clock was ticking. The opportunity in Russia was perishable. Once the Russian market started to rise, I would miss what appeared to be a once-in-a-lifetime chance to make a fortune.
Edmond Safra was the one I really wanted to work with, not Burkle, so I decided to give Safra one last try. I couldn’t call him directly, so I tracked down Beny in Antwerp. He picked up on the first ring.
«Hi, Beny, it’s Bill. Sorry I haven’t been in touch for a while, but out of courtesy I wanted to let you know that I’m planning to do a deal with Ron Burkle to set up the Russian fund».