Several invaluable lessons from that time served me well over the years.
At the first lunch in New York, the bankers gave us a data book that included their asking price, $700 million. This was the biggest price ever for a cash acquisition, so the meeting had to be important to the bankers. Yet before the lunch ended, one of Burmah’s bankers, pointedly excused himself, explaining that he had something “very important” to attend to uptown. This seemed to be his way of letting us know his priorities, although it’s hard to imagine what could have been more important than the biggest deal ever. A big ego is a real asset in the high-pressure investment banking world.
Don’t Run Out of Cash
To secure loan guarantees from the Bank of England, Burmah surrendered its BP stock at the bottom of the bear market in 1974. In the next six years, the BP stock would have risen enough to have saved Burmah from financial distress.
A Clear Vision for your Business is Critical
I’ve come to believe that Burmah was a billion-dollar tactical success for RJR, but part of a larger strategic failure. This was not at all apparent to me at the time, because I had no sense of corporate strategy. On one of my periodic trips back to Winston-Salem from Aminoil in New York, I had a conversation with CFO Dave Peoples and Treasurer John Dowdle. They quizzed me at length about why RJR should be in the oil business. Of course, I gave them the best answers I could – It was a bargain. It was diversification. Energy was a growing industry.
My arguments weren’t convincing. They didn’t have to justify their position to me, but I left that meeting thinking that they weren’t very open-minded and couldn’t accept this great opportunity at face value. Fourteen years later, I began to appreciate their thinking. That we were a cigarette company and any diversifying acquisition diluted our profitability. Their long-term vision was the right one, regardless of whether Burmah was a good deal.
I had succumbed to the buyer’s tendency to identify with a deal because I had invested the last fourteen months of my time in it. I did not want to walk away and feel that all my work was wasted. Fortunately, cooler, less passionate heads prevailed. RJR did do the deal, but they were prepared to walk away if necessary. It was a shame that RJR management didn’t do that more often.
We Don’t Always Know What is Good for Us
The energy business was the place to be in the 1970s, but since there was no place for me in Houston, I caught a train in New York City and headed back to Winston-Salem for a job that had essentially ended. I was disappointed, and it was a long, sad trip.
Once back home, there was little work on mergers since RJR would take some time to digest this major purchase. I busied myself with routine tasks Business Planning, but truthfully I didn’t have a job. Today, a company would promptly fire someone in a position like that. But RJR was paternalistic and kept me around. On my own time, I began to actively manage the fund that later became the Carolina Equity Fund. A few months later, John Dowdle asked if I would manage the RJR pension fund. I accepted, thinking it would be a short-term assignment. Pension officer wasn’t a very big job in those days.
The oil business peaked three years later in 1980. A job in Houston would have been a disaster. Energy companies were firing employees by the thousands. In contrast, pensions and investing grew exponentially over that same period. Due to market appreciation, acquisitions, cash contributions, and 401k plans, the assets at RJR expanded from $200 million in the U.S. to $4 billion in twenty-seven countries between 1977 and 1986. Chance placed me in one of the great growth industries of the last four decades. And luckily I didn’t get what I wanted – a career in the oil business. That lucky break led me to a job that has been enjoyable and rewarding for over forty years.