Swiss Desires

Famous Last Words

This is one in an occasional series of humorous or illustrative real world examples from my career.

“Vee Vant our Money!”

Swiss Bondholder Spokesman, Zurich Switzerland, 1989

I’d been at this for months, and I couldn’t guess how these Swiss wanted to play it. I was the number two team member on the financial restructuring and acquisition (out of bankruptcy) of Allegheny International, a major consumer products company based in the US. Allegheny had a 100 million Swiss Franc issue, and winning the support of the bondholders for our proposed transaction was key to winning the deal. I had just flown into Zurich that morning on the overnight flight, and was seriously jet lagged, and a little hung over. In the presentation I offered them a variety of new securities (in three different packages) in our new company in exchange for their existing Allegheny bonds. I working for and represented DLJ, a hot shot investment bank, with a lot of nerve, but very little capital, and we were running on fumes on this deal.

Allegheny was a former steel company, which had sold off its steel assets, and used the proceeds to assemble a hodge-podge of consumer product and light industrial companies. The management team was a poster child for the worst of American management practices – but on steroids. They had sold off assets to friends at cheap prices, engaged in questionable accounting practices, stuffed the Board with half-engaged cronies, and maintained a fleet of private aircraft to visit their far-flung assets. There was no discernable corporate strategy, and the Company had slowly bled its way into bankruptcy.

I was fearful of this company, but wildly enthusiastic about our management team. The company (Allegheny) was where careers of investment bankers went to die – it was really that bad. First Boston had put together a bid for the Company at $17 per share, which was rejected by the Board as inadequate. Within 6 months the Company was bankrupt, and the shareholders were wiped out. There was no break-up fee. We had entered the picture about 6 months post-bankruptcy with a management team led by Jim Milligan, who was as good as the previous group was bad.

Jim may be the best turnaround guy that I ever met. He had made a lot of money for one of the original DLJ principals in a prior consumer products deal, and was a natural for this one. Jim took the bull by the horns from the start – beginning with a whirlwind tour of facilities and interviews with management and lawyers. Within a week, Jim produced his own plan with detail of plant consolidation, product line rationalization, divestitures and growth plans. He had detailed instructions regarding inventory management, go-to-market strategy, relationships with customers and new product positioning. It was detailed, brilliant, and he did the whole thing himself, including financial projections. Jim was an awe inspiring leader, and I would have followed him through the Gates of Hell, which is approximately what I was doing in Zurich.

Because we had no money, we were offering existing holders of claims (post bankruptcy) a variety of securities in the new company. We had as good a team of bankers on the deal as I have ever known, but this thing was a bear. The “take” for each asset class of claim holders was variable, and depended on the judgment of the bankruptcy court. By this point, all claim holders were at each other’s throats, knowing that this was a zero sum game, and that anything that they got was coming out of someone else’s pocket. The acrimony was incredible, and the process endless.

I had gone to Switzerland with a group of three financial packages to exchange for existing bonds, which the Swiss could choose as they saw fit. Each package contained a different amount of debt, equity and warrants in the new company. It was mind numbing to comprehend, and very difficult to explain in the 30 minutes allotted to me by the dour Swiss.

The presentation included flip charts, slides and a variety of charts and graphs showing projected future performance. The presentation room was cold, and filled with white, middle-aged, humorless men, all a little too thread bare to be gentile. I made the presentation with great vigor and spirit, which fell flat on the Swiss, who looked on totally unresponsive. I could not read this group at all.

After 30 minutes, I asked if there were any questions, and there were none. I was ushered into a paneled waiting room, so that they could discuss the presentation and respond. As I waited I wondered which option would they choose, or would they propose their own basket of securities – oh these clever Swiss!

After 20 minutes or so, their spokesman showed me back into the presentation room, and led me up to the podium. As I moved behind the podium, he waited a minute, cleared his throat, and said,”Mr. Chapman, vee have considered and discussed your proposal, and vee have decided zat, vee vant our money.”

It doesn’t happen often, but I was dumbstruck. I had not shown up even considering the “vee vant our money” option as a conceivable outcome. Clearly, these guys not only considered it as possible, they would demand it right up through the bitter end. There was nothing else to do – I thanked them for their time and beat a hasty retreat to the Zurich train station, to sooth my wounds with some fine Swiss beer and wait to go home.

In the end, a group showed up with real money, and bought the outstanding claims for cents on the dollar, all claims except the Swiss Franc issue I had gone to talk about. That they paid par for, and in the end, the Swiss got “zeir money”.

Wes Chapman
Written by Wes Chapman