INC.: But how does it work for the outside investors? After all, they're not getting the big percentage returns.
WHITTLE: They have to look at their returns relative to what they could get by investing their money elsewhere. And remember, we can negotiate the way we split the growth. Our first deal, three years ago, was a limited partnership with a British company. We agreed that 45% of everything above the base would go to the entrepreneurs and 55% to the original investors. But we could have made it 70-30, or whatever. That's the beauty of the limited partnership form. With stock, there's a whole body of law chasing you around. Here, you just sit down and go, "How do we want to do this?"
INC.: There's something I don't get here. You're a privately owned company. What happens if one of your entrepreneurs wants to cash out?
WHITTLE: That's an important point, because there are a lot of equity plans with bad exit systems. They are really golden handcuffs in disguise. The partner can only cash out if the leader sells the company, which is screwy because that kind of deal just creates discontent and forces sales. Here we have a vesting system and an exit plan. Now suppose you decide it's time for you to take your sail around the world. Once you're vested -- after six or seven years -- you can bring your shares to the company cashier and put them in at market rates. We actually have an index that simulates how our company would be valued in the stock market. With most equity plans, you get book value, which generally doesn't approach market value, particularly for a company like ours.
INC.: What do you mean, put them in at market rates? Can people cash in their equity whenever they want?
WHITTLE: In most cases, yes. There may be rare circumstances under which they have to wait for their cash. But even then they can lock in a selling price if they're vested.
INC.: How do you provide liquidity?
WHITTLE: To be honest, we don't really think about it a lot. We do it when the opportunity arises -- which seems to happen every three to five years. In fact, that was a big part of why the reason we went into the arrangement with Time.
INC.: You're losing me. I thought that deal was a corporate partnership.
WHITTLE: Yes, but in the beginning I wasn't even thinking about that. I was talking to Shearson Lehman about some longer-term issues, and they said, "Do you know what your company's worth?" I said, "Sure, around $200 million." They said, "Wrong. It's worth around $400 million." I said, "Really? I didn't know that." And I really didn't. I hadn't focused on it. I said, "If that's true, I ought to sell half of it." They said, "Yeah, you might want to give it some thought." The discussion was almost as casual as that.
INC.: So was that your main reason for selling half your company to Time?
WHITTLE: There were two objectives driving the deal. First, it was a very good financial transaction for all of the partners, the executives, at Whittle. It brought $185 million of liquidity to our group, and I'm not above a good financial transaction. I would have to say that was the primary consideration. The other thing was that we wanted an association with a value-added partner. That was a secon-dary part of the transaction, but it was crucial in choosing who we did it with.
INC.: Tell us how you went about selecting a corporate partner.
WHITTLE: It was very straightforward. We sat down with a list of 30 companies we considered possible partners and quickly narrowed that group to 8. Then we spoke with 7 of the 8 and presented them with the concept we had in mind. We had a very specific idea about how we wanted the transaction to work. Most important was that we wanted it to be a partnership, because we're a partnership. As I said, we have found that to be a much more flexible and creative form than the corporate form, primarily in the ways it allows us to provide equity to our executives. We think it's a superior type of organization, and we definitely wanted to maintain that structure. Second, it was crucial that we keep control of the business. So those were absolute requirements of the transaction.
INC.: How did you present all this to the companies you met with?
WHITTLE: We walked in and said, "Here's who we are. Here's what we do. Here's the kind of transaction we're looking for." Very directed, focused, to-the-point meetings. We made it clear what our price range was and that it was not negotiable. In the end, three of the seven were serious contenders.
INC.: What attracted you to Time? What was its value added?
WHITTLE: The most important consideration had to do with the people -- how we related to the key players there. First, they were gentlemen, which matters a lot to us. They were people we felt we could trust. They had a certaincasualness that we liked. There was also a no-bullshit approach, meaning that the deal was done quickly and right and without a lot of nitpick haggling.
INC.: What about Time as a company?
WHITTLE: It was important that Time was involved in a range of technologies -- magazines, books, television. We knew we would be in all those areas. Alan Greenberg made a big point of what he called the wild card factor. He said, "You have to look at all the things Time is involved in. There's something in there we don't know about that could make a real difference to our business over time." There were more wild cards at play in a relationship with Time than there would be with another company, and that was a big consideration.
INC.: Anything else?
WHITTLE: Looking further down the road, we also thought the Time deal enhanced the career possibilities for everybody in the company. We've got an enormous amount of talent here, and we could imagine circumstances under which that talent might become part of Time.
INC.: What were your anxieties about the deal?
