W S J : GE Capital’s Wendt: " A BRUTAL NEGOTIATOR ".
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"Mr. Wendt keeps making deals even on the golf course.
"He'll have 42 different side bets that are more complicated
than some project-finance investments,"
says David Nissen, who leads GE Capital's overseas consumer lines.
"By the 18th hole, I have to get out my H-P calculator to
figure out how much I owe him.""
TA
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Bottom-Line Guy:
A Brutal Negotiator,
GE Capital's Wendt
Builds a Conglomerate
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Finance Arm Is the Engine
Of GE's Growth, Making
Money -- and Enemies
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That Paddle Means `Stop'
By Steven Lipin and Randall Smith
11/02/1994
The Wall Street Journal
Page A1
STAMFORD, Conn. -- Don't let Gary Wendt 's show of modesty fool you.
He describes himself as "a middle-manager in an industrial company."
Yet the financial-services subsidiary he heads has assets of $212.5 billion and,
if a stand-alone bank, would be one of the nation's largest.
As it is, General Electric Capital Services has been the main driving force
that enabled its parent, General Electric Co., to increase its stock-market value to
$82.9 billion, the highest of any U.S. company.
The financial juggernaut has in the past 10 years produced annual earnings gains
averaging 21%, triple the pace of GE's industrial businesses.
And in the past three years, GE Capital has generated more than 80% of GE's earnings growth.
Mr. Wendt himself comes from the same mold as his boss, Jack Welch, GE's pugnacious chairman.
Mr. Wendt is just as tough on subordinates and is a brutal negotiator
with the same win-at-all-costs attitude. In a recent speech, he declared,
"Net income isn't the only thing in business,
but as Vince Lombardi said, I don't know what the second one is. "
Even though Mr. Wendt had no direct management responsibility for
Kidder, Peabody & Co., the Kidder debacle has raised new questions about
GE's mushrooming stake in financial services. A phony bond-trading scheme, mortgage-bond losses
and the planned sale of much of GE Capital Services' Kidder unit
have inflicted roughly $750 million of after-tax losses on GE this year and will trim
GE Capital's average profit gains. The planned Kidder sale to PaineWebber Group Inc.
will remove from GE Capital an unspecified slice of Kidder's $80 billion of assets.
Mr. Wendt's hard-driving style and financial coups have turned a straight-forward finance unit
into a far-flung conglomerate with 24 separate businesses that generally provide other companies
with capital, financial services, transaction-processing capacity or heavy equipment.
Some services, such as aircraft and railcar leasing, are related to GE's industrial lines,
such as making jet engines and locomotives. Sometimes, several services are sold to the same customer:
Payless Cashways Inc. uses GE's credit-card processing, truck leasing and maintenance.
GE Capital also owns Employers Reinsurance and insures municipal bonds and mortgages.
It is moving into consumer finance with credit cards, mortgage servicing and annuities.
And it is now targeting overseas growth.
Stamford-based GE Capital "was a pretty one-dimensional company until Gary came on the scene,"
says Peter Nevitt, an old friend and competitor who runs Mitsui Nevitt Capital Corp. in San Francisco.
"Gary really has been responsible for the tremendous growth that has occurred since the early 1980s."
Gary has really has been responsible for the tremendous growth that has occurred since the early 1980s."
Gary has really has been responsible for the tremendous growth that has occurred since the early 1980s."
Yet Mr. Wendt isn't likely to succeed Mr. Welch at the helm of GE.
The board would be reluctant to pick a successor outside the Fairfield, Conn.,
company's industrial core. And the 52-year-old Mr. Wendt may be too close in age to the
58-year-old Mr. Welch. GE tends to choose chief executives who could have a run
of 15 years or more at the top. When Mr. Welch took over in 1981, he was 45,
and his predecessor had set up a succession horse race seven years earlier, when Mr. Welch was in his late 30s.
"Welch will be in there forever," Mr. Wendt says, questioning whether a successor "is even being thought of."
Whatever lies ahead for Mr. Wendt, GE Capital clearly owes a lot to his management.
Like banks but unlike securities firms, whose bond inventories have slumped in value,
GE Capital hasn't been hit hard by this year's surge in interest rates because it makes both floating-rate
and fixed-rate loans and, to avoid interest-rate risks, tries to match them against its own similar borrowings.
And it has clearly benefited from Mr. Wendt's negotiating skills.
In the case of GPA Group PLC, for example, GE Capital gained close knowledge of the Irish aircraft-leasing giant
as a founding equity investor in 1983. In 1986, it sold most of its stake for big profits after GPA
executives refused to sell out to GE.
But in 1992, when GPA got into financial trouble, Mr. Wendt pounced.
His first offer to help bail out the ailing company by buying some GPA aircraft never got off the ground.
After GPA's problems worsened, GE sought a much better deal -- not just the planes but also an option
to acquire the company. On May 12, 1993, after months of talks, GPA accepted.
But that was just the beginning, say people who were involved. Negotiations dragged on for months,
as GE made additional demands, including better terms on the option. At one point, Mr. Wendt
phoned the GPA team in London and asked what the holdup was. "We're not holding it up. You are,"
one person in the room replied. With that, Mr. Wendt lashed out at them, then hung up abruptly,
these people say. Mr. Wendt denies doing so.
GE's pressure tactics worked. GE wound up buying aircraft valued at $1.35 billion, a pact to manage
GPA's fleet for a fee and an option to acquire up to 80% of GPA – all
without acquiring GPA or assuming any of its $6 billion debt.
Such tough tactics don't always earn praise. GE Capital has grown mainly through acquisitions
financed with low-cost debt using GE's triple-A credit rating. The brutal negotiations and
Mr. Wendt's penchant for last-minute maneuvers have given GE Capital a reputation as the buyer
of last resort for troubled companies seeking a merger or buyout. Some investment bankers use
unflattering terms such as "recutting the deal" or "bait-and-switch" to describe the company's tactics.
One who has endured the agony of negotiating against Mr. Wendt is Paul Lego, the former chairman
of Westinghouse Electric Corp. The negotiations were colored by disastrous losses,
exceeding $5 billion, that the long-time GE rival had incurred on its own financial-services operation.
Although GE Capital also took its lumps in market debacles in real-estate and leveraged deals,
its smooth earnings growth was never dented.
After one set of talks failed in December 1991, the two companies launched another effort a year later.
Under that deal, Westinghouse would have shed its real estate. But two weeks after agreeing on a price,
at what was supposed to be a final negotiating session to wrap up the deal, Mr. Wendt and his lieutenant,
Dennis Nayden, sought on Jan. 17, 1993, to broaden GE's protection against unknown liabilities,
such as possible asbestos and environmental problems.
"We thought we had a deal right down to the last minute," fumes Mr. Lego, who was under heavy pressure
from his board to sell financial-services assets. While Westinghouse believed that the agreed-on price
had already discounted any asbestos and environmental problems, GE's desire for additional protection
"put us in a position where the offer simply wasn't possible for us to take," Mr. Lego adds.
After Mr. Lego refused to capitulate to GE's new demands and as the two GE executives rose to leave,
one of them warned the Westinghouse executives, according to a participant at the meeting,
that they wouldn't like what they read in the newspapers the next day.
Although a GE Capital spokeswoman denies that such a remark was made,
news reports the next day did, in fact, tend to blame Westinghouse for failing to strike a dea
l.
Only 10 days later, Mr. Lego resigned. "It was probably the toughest set of negotiations I've ever been in,"
he recalls. "The best thing for me might have been to take the kind of deal that might have gotten us
out of" the problem real estate.
A person close to GE Capital contends that the "handshake" on the deal's price was always
considered subject to "commercially reasonable" terms and structure -- which GE interpreted
as an open door to seek extra protection for certain liabilities.
Asked about the negotiations, Mr. Wendt comments, "After we did the due diligence,
we told them what we found, and they maybe didn't find that. But if they didn't think
it was a problem, they shouldn't have had a problem" with GE's proposal.
And he says GE was "shocked" when Westinghouse wound up accepting a similar
offer three months later from its own investment banker, Lehman Brothers, then part of
American Express Co. He says that GE may raise issues "at the last minute" but only
after uncovering new information.
In the early 1990s, GE Capital made a slew of opportunistic acquisitions -- spending $6 billion
in each of the past three years -- when many other bidders were on the sidelines,
nursing themselves back to health.
The purchases not only increased GE Capital's earnings immediately but also filled holes in its core businesses.
Now, GE Capital's largest single profit center is retailer financial services, anchored by its credit-card business.
GE expanded its nascent credit-card business in 1988 via its 40% equity stake in the leveraged buyout
of the Montgomery Ward chain; its financing package for the buyout included taking over management of
Ward's cards. GE Capital built on that business by buying R.H. Macy & Co.'s credit-card operations
for $100 million after distress-sale negotiations that dragged on for almost a year.
Together, the two store chains represent roughly 40% of GE's private-label credit cards.
In both cases, GE Capital gained entree by providing financing for the companies' buyouts.
Although GE Capital's launch of its own GE Rewards credit card was less than successful,
the company seems likely to become a global force in credit cards. In 1990, it bought the
credit-card unit of Burton Group PLC of London, and the following year it acquired the
card business of the famous Harrods department store. Now, GE executives are looking
for more chances to expand abroad. David Robertson, president of the Nilson Report,
an Oxnard, Calif., newsletter, says, "More than any other company in the world, they are
making plans to be in every market."
Mr. Wendt's tough negotiating style sometimes backfires. One such case involved GE's
attempt to acquire Kemper Corp., a move that would have advanced GE's goal of
increasing its presence in the consumer market. When first seeking a meeting with Kemper
Chairman David Mathis last Jan. 25, Mr. Wendt said he wanted "merely to get acquainted"
and discuss the insurance business, according to people close to Kemper and the
Long Grove, Ill., company's public filings.
When Mr. Wendt revealed his true intention -- to make an unsolicited acquisition bid –
at their meeting the next day, Mr. Mathis felt sandbagged, these people say. Asked about
the conversations, Mr. Wendt says he considers them to have been confidential.
True to his hard-driving style, Mr. Wendt persuaded Mr. Welch to take an extraordinary step,
a $2.2 billion hostile bid for Kemper, only to lose out to a higher offer from insurer Conseco Inc. of Carmel, Ind.
Mr. Wendt challenges any criticism of GE Capital's conduct by asking:
"How do you grow 20% a year and have everybody hate you?
We don't do acquisitions unless people want to be sold."
Nevertheless,there are signs that GE is seeking a kinder, gentler image.
Its current ad campaign's slogan: "Our business is helping yours."
The macho culture at GE Capital is anything but kind and gentle.
One executive was summarily fired as he sat down to a GE Capital dinner in Chicago
two years ago; his boss told him not to bother eating. Both men decline to comment on the matter.
Mr. Wendt has been known to literally rip up acquisition proposals at staff meetings
or order subordinates to "shut up" if they can't say anything intelligent, former GE Capital executives say
though a spokeswoman denies these incidents happened.
"Gary can be very intense with people -- short and abrupt and preoccupied,"
says Frank Doyle, the parent company's No. 3 executive.
When he says hello, he adds, Mr. Wendt sometimes walks by without responding.
Since the Kidder debacle, nonetheless, GE Capital executives are clearly protecting
Mr. Wendt's image. "As you know, Gary did not have responsibility for Kidder,"
says James Parke, GE Capital's chief financial officer. That's because Michael Carpenter,
who was sent from GE Capital to run Kidder in 1989, refused to report to Mr. Wendt because
of discord between them. However, Mr. Wendt, in trumpeting GE Capital's 1993 profits,
did include the Kidder bond profits that turned out to have been phony.
Although Mr. Wendt himself is a Harvard Business School graduate,
GE Capital executives tend to look down on the Ivy Leaguers who populate
Wall Street securities giants. Many of GE Capital's recruits come from state schools.
One retired senior vice president, Charles Nicholson, started out by repossessing refrigerators.
"It's not your Wall Street crowd," says Noel Tichy, a management consultant who
has worked for GE. "It's much more Midwestern, middle-America."
Gary Carl Wendt grew up in Rio, Wis., 30 miles from Madison,
where his father operated a limestone quarry and blasted bedrock for
highway building. Mr. Wendt's stubborn, competitive streak emerged early.
In high school, he once wanted to play football despite a concussion and
didn't tell his mother until his coach intervened. He loved sports even though
"he wasn't a natural," his mother recalls.
After marrying his college sweetheart, Lorna Jorgenson, Mr. Wendt
graduated from Harvard Business School in 1967 and was lured to Houston by real-estate
developer Harlan Lane, who promised him a new Cadillac as a signing bonus.
After Mr. Lane's holdings fell into difficulty, Mr. Wendt eventually liquidated the company
. A few years later, he also wound up the assets of his second employer, a Miami real-estate investment trust.
With two liquidations on his resume, he joined GE Capital in 1975 to help
clean up its real-estate portfolio. "After two false starts," he joked
in his Harvard 25th-reunion yearbook,
"I seem to have found my niche in something too big to capsize, the General Electric Co."
Mr. Wendt, who became a protege of GE Credit chief Lawrence Bossidy,
led a drive in 1981 to book a series of tax-credit deals that helped slash the parent GE's taxes.
Company lore has him once standing on a table and exhorting the troops: "I want 'em all!"
("It was our objective to be as big as we could," Mr. Wendt recalls.)
The $1.4 billion of tax-credit deals, which took advantage of a Reagan-administration
program to stimulate the economy, left GE owning scores of rail cars, aircraft and cargo
containers. Equipment leasing is still one of GE Capital's main businesses.
It was from that base that Mr. Wendt gained the presidency of GE's financial arm in 1986,
when Mr. Welch sent the incumbent, Robert Wright, to run National Broadcasting Co.
Mr. Wendt works relentlessly, coming in on weekends in khaki pants
and a golf shirt and fielding phone calls on pending deals in the middle of the night.
He tries to moderate his impatience by conducting Monday staff meetings at which
executives from all levels of the company pitch ideas. The meetings are nicknamed
"Amnesty Monday" because participants aren't penalized for dumb suggestions.
"We just think you've got to keep changing and changing and changing, and you do that
by getting up as many ideas as you can as often as you can," Mr. Wendt says.
The goal is to give people a quick reaction so they get help on hot ideas
and don't waste time on those that won't fly.
But Mr. Wendt's impatience erupts during teleconferences with the heads of
GE Capital's 24 business units. To save the few seconds required to interrupt presentations
verbally, he wields two colored paddles -- a stop sign and a question mark.
And he rarely gives unqualified approval to an initial proposal.
"Never. Never," Mr. Parke, the finance chief, says.
"He'll probe it, he'll get a different way. He'll get a variety of alternatives to consider."
Jeffrey Coats, a New York investor who worked at GE Capital for
six years ending in 1993, recalls:
"You are constantly challenged as to the accuracy of your analysis and findings:
`Why do you think that?' `What makes you think that?' `I disagree with that assumption.'"
Mr. Wendt operates informally. His suits rumpled, his shirttail sometimes out,
he carries his own tray through the company cafeteria.
Although he does more deals than most investment bankers, he eschews power ties and Armani suits.
However, Mr. Wendt does take advantage of some senior-executive perks.
He belongs to the posh Blind Brook Club in Purchase, N.Y., and the Wendts
go on exotic vacations, such as a trek this summer up Africa's Mount Kilimanjaro.
But their home is modest by CEO standards. They live in a home appraised
at nearly $900,000 on two acres in North Stamford five minutes from the office,
rather than in the more upscale Darien or New Canaan. Mr. Wendt drives to work
in his Jeep Grand Cherokee when he isn't being chauffeured around in a company Lincoln.
But the hard-nosed approach that he employs at GE sometimes crops up elsewhere.
Leading a committee to raise funds for a new Boys & Girls Club building in Stamford,
Mr. Wendt threatened to resign if the group used all the contributions for the building
instead of also providing an endowment to operate it. He won the point, says
William Rowe, publisher of the Stamford Advocate, who was on the panel.
Mr. Wendt keeps making deals even on the golf course.
"He'll have 42 different side bets that are more complicated than
some project-finance investments," says David Nissen, who leads
GE Capital's overseas consumer lines.
"By the 18th hole, I have to get out my H-P calculator to figure out how much I owe him."
David Beim, a Columbia University business-school professor, knows how determined
Mr. Wendt can be. Returning from a tour of Nepal last year, the two men were at
the Katmandu airport when they learned of problems with their reservations.
"I can remember him simply not accepting another flight," Mr. Beim says.
"He became quite insistent that he was going on the flight that he had."
All Mr. Wendt remembers is, "I was able to get out, and he wasn't." |
