You have got to be kidding me.
Thursday, April 5, 2007, was destined to be a big day for me, although just how big--and in what way--I could hardly have anticipated. It was the day we'd set for signing the contract that would formally transfer ownership of my records storage, document destruction, and trucking businesses to Nova Records Management, the company I'd been negotiating with for almost a year. In the weeks leading up to the signing, papers flew back and forth between the various lawyers. I monitored the progress from Telluride, Colorado, where my wife, Elaine, and I had gone to get in some end-of-the-season skiing. From time to time I'd get frustrated that the documents we got back from Nova's lawyers did not reflect the agreements I thought we'd reached, but overall I felt the process was moving forward, and I fully expected to meet the deadline. I was so sure that I had my office fax me a list of our employees so that Elaine and I could decide how much of the sale proceeds each person would receive.
Then, just as we were packing our bags to return to New York, a brand-new issue arose. Frank, one of the five members of Nova's board, let it be known that he had a problem with the sale price. He noted that we would be getting real estate tax abatements on our property for the next 15 years, while Nova was getting a 17-year lease with options to renew for another 10 years. Using a complicated formula, he had calculated that we therefore owed Nova an additional $2.5 million. He wanted us to deduct that amount from the sale price.
Now, some people might contend that in a deal as big as this one, $2.5 million is a relatively small amount, less than 3 percent of the total. We had an understanding, however, that the price was set and we weren't going to reopen issues we'd agreed upon. I called Chris Debbas, who'd put together the deal, and told him I was furious. "What are you worried about?" he said. "My partner is chairman of the Nova board. Another member is someone I appointed to take my seat. The two others are all for the deal as is. It's 4 to 1. This is not going to be an issue."
My partner Sam, meanwhile, received an e-mail message with an attachment outlining other issues that Frank and his associate, Lane, felt we still needed to resolve. I told Sam, "If you hear from them, tell them we aren't discussing it." Lane did call, and Sam told him we weren't even going to open the e-mail attachment: It was too late to raise new issues, and the old issues were settled.
Shortly thereafter, Frank called Sam. "What do you mean, you won't discuss anything?" he said. "Who do you think you're talking to?"
"I'm talking to one member of a board that has five people on it," Sam replied, "and the others are all in agreement."
"Those votes are meaningless," Frank said. "I have veto power."
A moment later, Sam came into my office, where I was sitting at my desk, having just returned from Telluride. "Guess what?" he said. "Frank says he has veto power over the board."
I was stunned. My first thought was, That's impossible. My second was, Nobody would say that if it weren't true. To get a sense of what we might be dealing with, Sam and I decided to look at the e-mail attachment. There were 16 "open issues" listed and 11 "items still to be discussed," almost all of which we had, in fact, discussed and settled already--or so I'd thought. I immediately phoned Chris. "Does Frank have veto power over the board?" I asked. The silence on the other end seemed to last for hours, although it was probably not more than seven seconds. "I guess that means yes," I said. "You might have told me before now. I've been negotiating with the wrong guy."
I then called my friend Bob, who had sold his company to Nova a couple of years earlier, and told him about Frank's last-minute demand for an extra $2.5 million. "Oh, yeah," Bob said. "They did that with me, too. Twice I walked away from the table because of last-minute demands they were making. But I didn't realize Frank had veto power." My next call was to my friend Harvey, who'd also sold his business to Nova. He did know about the veto. He'd found out about it at his own closing, when Frank had suddenly demanded that he put another $600,000 in escrow. "But everybody does stuff like that," Harvey said.
So apparently this was Frank's modus operandi. He'd drag out the negotiations and then come up with new demands at the end, when the other party had committed so much time and money to the sale that it had no choice but to go along. I might have been in the same situation if I didn't have such terrific people working for me. My businesses had actually done better during the six months that Sam and I had been tied up negotiating the sale than during any comparable period in the past. So I had a choice. I could give in to Frank's demands, or I could call off the sale.
For me, it wasn't a question of the money. Yes, everybody says that, but in this case it happened to be true. The sale was not going to change my lifestyle, and I had already provided for my family. The additional proceeds eventually would have wound up in various charities. In that respect, selling the businesses for a few million dollars less was not a big deal. The issue was trust. I would be leaving millions of dollars in Nova, much of which was supposed to be distributed to my employees over the next few years. If I was being forced now--before the sale--to reopen issues that I believed had been settled, could I count on Nova to honor our agreements after the sale, when I would have little if any leverage? What if the company got into trouble and the board decided it couldn't afford to pay my people what they'd been promised? The options I'd have at that juncture would all be bad.
It was Tuesday, April 3. I asked Louis Weiner, my partner and the president of the records storage business, to call a meeting of our seven senior managers for Thursday, April 5--the day the deal was supposed to close--at 3 p.m. Only Louis, Sam, Elaine, and I knew what had happened. I told them not to breathe a word to anyone. I wanted to tell the managers myself.
Before I made an irrevocable decision, however, I thought I should be sure there was no scenario that would cause me to change my mind. When Chris called me back that evening, I said, "I don't think I can go through with this."
"No, no, no," he said. "Don't say that. We'll sit down and work it out."
"I'm not sitting down with anyone unless I have a signed letter from Frank saying that he's giving up his veto power on this deal. He can vote any way he wants but no veto."
"I don't know if he'll do that," Chris said.
"Then we won't have a deal," I said. "I'm meeting with my managers on Thursday at 3 o'clock. Once I tell them the deal's off, there's no turning back."
