Money and Power Read online

  Fortune, in its profile of Weinberg, made much of the fact that he was not on the Owens-Corning board of directors and that Goldman had never before done any business with the company. But it made clear that Weinberg had relationships all around it: without mentioning the (plenty important) familial relationship, Fortune reported that both Amory Houghton, the chairman of Corning Glass, and William Levis, chairman of the Executive Committee of Owens-Illinois, were said to be “really good friends” of Weinberg’s from their days together on the War Production Board; that Boeschenstein also knew Weinberg from the War Production Board; that Keith Funston, the president of the New York Stock Exchange and a member of the Owens-Corning board, also knew Weinberg from the War Production Board; and that another Owens-Corning board member, Robert Stevens, then the secretary of the army, was also Weinberg’s “very good friend.” Both Funston and Stevens, it turned out, served together with Weinberg on the board of General Foods, and this bit of serendipity proved to be essential in getting Weinberg the hearing with Boeschenstein after Funston and Stevens relayed to the Owens-Corning CEO some of the details of a supposedly masterful piece of financing that Goldman and Weinberg had executed for General Foods. When Boeschenstein heard of this, the decision was made to “ask Sidney about this.” When Boeschenstein asked the Goldman senior partner what he thought his company’s stock was worth, Weinberg reportedly “gave him a figure off the cuff that was practically the price at which the stock was ultimately offered.” This insight combined with Weinberg’s extensive personal connections to the decision makers was the key to Goldman being selected as the lead underwriter of the IPO. “Such is the familiar pattern—the threads of Weinberg’s three lives interweaving to produce a beautiful piece of business,” Fortune observed.

  Any solution for Owens-Corning was further complicated by the New York Stock Exchange rules, which required that companies listed on the exchange be widely held, meaning that more than 50 percent of the stock of the company be owned, after the IPO, by the public. This was potentially problematic for Owens-Corning because the two partners—Corning Glass and Owens-Illinois—together owned 84 percent of the company and were not so keen on selling down to below the 50 percent threshold level. But this is where Weinberg’s skills as a banker—and a diplomat—were thrust into sharp relief. Not only did he convince his friend Funston at the New York Stock Exchange (how convenient) to relax the rules about how widely held the stock issue needed to be—the 50 percent rule was reduced to 20 percent, at least in this case—he also convinced his pals at Owens-Illinois and Corning Glass to sell more stock than they initially wanted to so that after the IPO the public owned the 20 percent that Funston had agreed to. These compromises resulted in a bigger IPO—ultimately it was $22.5 million, $15.5 million of which went to Owens-Corning itself—and more fees for the underwriters, $866,000, led by Goldman Sachs. One admiring competitor of Weinberg’s said of him after the successful Owens-Corning IPO, “Sidney is a wizard at reconciling groups with different objectives. In the Owens-Corning deal, as in so many others, he made all the rival interests end up thinking that they’d won the day.”

  ——

  BY THE TIME the blockbuster opportunity to underwrite the initial public offering of the Ford Motor Company popped up onto the radar screens of every investment banker on Wall Street in October 1953, all the pieces of the puzzle were in place for Weinberg and Goldman Sachs to be selected as the lead underwriter of one of the most prestigious and important financings of all time. Not only was Weinberg close with “Electric Charlie” Wilson, the chairman of the finance committee of the Ford Foundation—one of two major Ford shareholders looking to sell stock (the other being the Ford family, of course)—but he also had long known the Ford family’s matriarch, Mrs. Edsel Ford. As for her son, Henry Ford II, who became president of the company in 1945, Weinberg had known him since 1947, when he became a member of the Business Advisory Council of the U.S. Department of Commerce.

  Weinberg helped to organize the Business Advisory Council in 1933 in order to increase communication between the Commerce Department and the business community and, of course—in time-honored tradition—as a way for powerful businessmen to influence government officials. The council met with the secretary of commerce several times a year, either in Washington or in resorts such as the Greenbrier, in West Virginia, or Sea Island, Georgia, or Sun Valley, Idaho. (Just how cozy these businessmen were with the government became the subject of a congressional investigation, led by Brooklyn congressman Emanuel Celler, in July 1955.)

  Weinberg’s courting of Henry Ford II was not nearly as seamless as his other personal and professional triumphs. Part of the problem may have stemmed from the fact that Henry Ford—the patriarch and Henry Ford II’s grandfather—was notoriously and grotesquely anti-Semitic. Ford’s Dearborn Independent, which once had a circulation of more than seven hundred thousand readers, began attacking Jews in May 1920—after the end of World War I—and kept at it for years. Sadly, the diatribes were collected, bound, and published as The International Jew: The World’s Foremost Problem. A small sample of Ford’s thinking suffices to convey his ignorance. “The Jew is the world’s enigma,” Ford’s surrogates wrote in the Independent. “Poor in his masses, he yet controls the world’s finances. Scattered abroad without country or government, he yet presents a unity of race continuity which no other people has achieved. Living under legal disabilities in almost every land, he has become the power behind many a throne. There are ancient prophecies to the effect that the Jew will return to his own land and from that center rule the world, though not until he has undergone an assault by the united nations of mankind. The single description[,] which will include a larger percentage of Jews than members of any other race is this: he is in business. It may be only gathering rags and selling them, but he is in business. From the sale of old clothes to the control of international trade and finance, the Jew is supremely gifted for business.”

  After the death of Edsel Ford, the old man’s son, in 1943, an ailing Henry Ford Sr. took back the reins of the company for two years before elevating his grandson, Henry Ford II, to run the company. Weinberg first met Henry Ford II the same year—1947—that Henry Ford Sr. died. Soon thereafter, the chatter began on Wall Street that the Ford Motor Company would consider an IPO as a way for the family’s heirs to diversify their holdings.

  There was also the feeling that Henry Ford Sr.’s hatred of Jews, and Jewish bankers, made him opposed to doing business with Wall Street, including going there to discuss an IPO. But his grandson shared no such reluctance, and so he was sympathetic when, in October 1953, “Electric Charlie” Wilson told him that the Ford Foundation wanted to hire Weinberg and Goldman Sachs as the foundation’s adviser on the IPO. “You can’t have Weinberg,” Ford told Wilson. “We want him as an adviser to the family.” Not surprisingly, the Ford family—not the Ford Foundation—got Weinberg as their adviser, and the foundation had to make do with three advisers where one Weinberg would have sufficed. When Weinberg asked Ford how long the assignment would last, Ford responded that he had no idea, which was good enough for Weinberg, who gladly took it—as would any investment banker worth his salt—spending nearly half his time during the next two years, working largely in secret, to get the deal completed.

  In many ways, the Ford IPO was a mirror image of the Owens-Corning deal. On one side were the Ford Foundation, which owned 88 percent of Ford’s shares, and Ford’s outside directors and some company management, who together owned another 2 percent of the shares. The Ford family owned the other 10 percent of the Ford shares—but, importantly, all of the voting rights to them that allowed for ultimate decisions for how the company would be run and when it would go public as well as other essential corporate governance decisions. “The big problem,” E. J. Kahn Jr. wrote in The New Yorker, “was to get all hands to agree on how much money the Fords should get for transferring a part of their voting rights in the company to the shares the Foundation wanted to sell.” T
his bit of shuttle diplomacy and alchemy was left to Weinberg. He had to find a solution that satisfied the New York Stock Exchange, which required that the shares the foundation was selling have voting rights; that satisfied the Ford family, in that the value conveyed to them for sharing their voting rights could not be a taxable event; that satisfied the Ford Foundation, which could not lose its tax-exempt status; and, of course, that satisfied the IRS, which had to somehow bless the deal as a tax-free transaction.

  Weinberg worked in secret on more than fifty different proposals on how the financial reorganization of Ford and the Ford Foundation might be structured in order to satisfy all concerned. Once, during the process, when Henry Ford was traveling in Europe and Weinberg wanted to communicate with him by cablegram without giving away any of the confidential details of the plan, he created an alphabet soup of names to cover his tracks, including such charming pseudonyms as “Alice” for Henry Ford and “Ann” and “Audrey” for his two brothers. Ford, the company, was “Agnes,” although at other times it was simply “X.” “Cable offices here and abroad soon found themselves handling messages that read like passages from Louisa May Alcott,” according to one account. (Code names for Wall Street deals soon thereafter became standard practice.) The solution that Weinberg hit on that worked for all involved the Fords increasing their equity stake in the company by 1.74 percent (after the IPO that extra bit of ownership was worth some $60 million to the family). For Weinberg’s advice, Goldman received a fee said to be “as high as a million dollars,” which would certainly have been a milestone in the early 1950s. Goldman also participated as an underwriter of the huge Ford Foundation offering, which added millions more to Goldman’s coffers, even if this risked conflicts of interest (concern about which the Goldman partners somehow overcame).

  The first inkling the world got that the Fords were cooking up an IPO came in March 1955, when Henry Ford and Weinberg decided to attend a charity event together in Palm Beach—after working all day—and they were spotted by a society columnist when Ford brought Weinberg over to say hello to the Duke and Duchess of Windsor. Weinberg was mildly offended that his cover had been blown. “How could you keep anything confidential under those conditions?” he wondered later. Of course, he almost blew it on his own, when that same year he had traveled by private plane to Detroit for a clandestine meeting with Mrs. Ford and her children and left behind on a newsstand at the airport the only copy of the company’s confidential financial report outside the family’s hands. At the time, he had traveled to Detroit with his associate, John Whitehead, and when later, after they had left the airport in the limousine Ford had sent for them, Weinberg discovered that he no longer had in his possession the leather briefcase with the confidential papers, he nearly exploded. “John, John, where in hell did you put my portfolio?” he demanded to know. Weinberg ordered the car turned around to return to the newsstand. Fortunately for Weinberg—and no doubt Whitehead, too—the briefcase was sitting right where Weinberg had left it. “If you fellas hadn’t come soon for those papers, I’d’ve tossed ’em away,” the vendor told the two men.

  On November 9, 1955, the Ford Foundation announced that it had hired seven investment banks, led by Blyth & Co., to manage the sale of close to 10.2 million shares of Ford stock—22 percent of the foundation’s holdings—in the largest IPO ever to that time. Goldman was one of the seven lead underwriters selected, although no mention was made of Weinberg and Goldman’s unique role advising the Ford family. At that time, press reports listed Goldman’s capital at $9.2 million and explained how the firm had lead-managed $27 million worth of securities in 1954. The entire syndicate of underwriters for the Ford offering—which was priced at $64.50 a share and generated $642.6 million of proceeds on January 17, 1956, with the balance of $15.3 million going in fees to the underwriters—totaled 722 investment houses, in large part because the stock was sold to retail investors generally in chunks of no more than one hundred shares at a time. At a meeting before a large percentage of the underwriters, Henry Ford II tried to tamp down the increasing enthusiasm for the deal. “I think some people are indulging in wishful thinking about their chances for fast and fabulous gains,” he said. Ford’s stock closed at $70.50 on its first day of trading on the New York Stock Exchange, a respectable 9.3 percent increase on the day.

  In addition to Goldman’s advisory fee, Henry Ford sent Weinberg a handwritten letter, which he had framed and kept in his office at Goldman. “Without you, it could not have been accomplished,” the letter said, in part. Weinberg used to tell visitors to his office that the letter was “the big payoff as far as I’m concerned.” The deal was a huge coup for Weinberg and Goldman.

  In August 1956, Ford asked Weinberg to become a director of the Ford Motor Company, the first—and only—automobile company board on which he served. Until then, Weinberg owned a Cadillac and an Oldsmobile—two cars made by General Motors, where he had many friends among the executives. He made sure his own GM cars had either Goodrich or Sears tires (companies where he was also a director, although he resigned from the Sears board in 1953 after a federal judge ruled he had to give up the seat at either Sears or Goodrich). But after getting the call from Ford to serve on the board of directors, out went the Cadillac and the Oldsmobile, replaced by a shiny new Lincoln and by a shiny new Mercury, both made by the Ford Motor Company.

  ——

  NOT BEING ON the Sears board any longer did not seem to hinder Weinberg’s ability to generate business from the company. Indeed, some two years after engineering his Ford coup—the largest equity deal of all time to that point—he and Goldman also structured and sold a $350 million debt deal for Sears, its first in the public markets since 1921 and the largest public debt deal up to that time. As a result, the New York Times referred to Weinberg as a “financial Alexander the Great,” meaning that Weinberg was “very nearly left without any new worlds of securities to conquer.” Asked whether he and Goldman could top their current successes in the future, Weinberg replied to the paper, “Maybe we’ll be asked to sell bonds for the United States Government,” a tongue-in-cheek response because the U.S. government required no underwriter to help it sell its securities. He said that some Wall Street competitors had “jokingly suggested” that Goldman “might be able to help the Treasury.” To which, Weinberg reportedly quipped, “We would consider it for a fee.”

  By this time, Goldman had busted out of its 30 Pine Street headquarters and had moved into a new “ultra-modern” building at 20 Broad Street, just a stone’s throw from the New York Stock Exchange. The most striking innovation of the new building, according to the Times, was the introduction of sixteen turret-style, vertical telephone boxes at each trading desk, which gave Goldman 1,920 private-access lines to the firm’s traders at any time. The New York Telephone Company designed the new phone system especially for Goldman and its traders so that it could handle more client calls, more seamlessly than before. The other innovation worth mentioning was a vertical document filing system, which slid on tracks on the floor and comprised one thousand square feet, one-third of the space devoted to business files at Pine Street.

  ——

  GIVEN GOLDMAN’S INCREASING prowess in the business of underwriting debt and equity securities for its growing stable of clients (thanks in large part to Weinberg’s connections and board seats), it was not particularly surprising that the firm found itself enmeshed in a massive antitrust lawsuit brought by the U.S. government in October 1947 against Wall Street’s seventeen most influential firms. In its complaint, the government alleged that between 1915 and 1947, these firms created “an integrated, over-all conspiracy and combination” starting in 1915 “and in continuous operation thereafter, by which” the banks “ ‘developed a system’ to eliminate competition and monopolize ‘the cream of the business’ of investment banking.” Indeed, even though Goldman was far from the largest or most successful of the seventeen securities firms named in the complaint—that honor probably belonged to Morgan
Stanley & Co., which was listed as the lead defendant—and even though the Goldman partners did not believe the government’s allegations were true, the firm was pleased nonetheless to be among those deemed to be the most powerful Wall Street firms. To have been excluded from the lawsuit—as were, say, Merrill Lynch & Co., Lazard Frères & Co., and Halsey Stuart & Co., then the largest bond underwriter—would have been worse, or so the convoluted logic went around the firm.

  The crux of the government’s case was that these seventeen firms conspired against the rest of the investment banking industry and their corporate clients to control the fees and other financial benefits that could be gained through the underwriting of the debt and equity securities of their corporate clients. As to the fact that executives at the corporations issuing the securities would be able to decide, at their sole discretion, which banks to hire and fire and when, the complaint alleged that to “preserve and enhance their control over the business of merchandising securities,” the banks kept “control over the financial and business affairs of the issuers, by giving free financial advice to issuers, by infiltrating the boards of directors of issuers, by selecting officers of issuers who were friendly to them [and] by utilizing their influence with commercial banks with whom issuers do business.”