In Media Deals, Lawyers Came Before Bankers
Aug. 21, 1995
When Michael and Tom struck a deal, Warren called Sam, who was already working for Larry.
By now the biggest names in the two biggest television network deals of the decade are easily recognizable: Michael Eisner, chairman of Walt Disney Co., Thomas Murphy of Capital Cities/ABC Inc., Laurence Tisch of CBS Inc., and Warren Buffett, the billionaire investor, and Cap Cities' largest shareholder.
But the person who played a key role in both transactions _ the proposed sales of Cap Cities to Disney and CBS to Westinghouse Electric Corp. _ is lawyer Samuel C. Butler, presiding partner of the New York firm Cravath, Swaine & Moore.
Mr. Butler's role was unusual not just because he's the only attorney ever to have negotiated the sale of two major networks at the same time, but also for what it says about certain deals in this era of strategic acquisitions: Lawyers come before the investment bankers. When deal makers don't require bankers to negotiate the deal, using lawyers for more services can speed up the sale and cut costs.
The financially savvy corporate chiefs in these media mergers cut the deals themselves, then quickly turned to their legal advisers. ``Buffett, Murphy and Tisch are the kind of guys who could do this on their own,'' Mr. Butler says. ``These guys don't need investment bankers to tell them how to price their companies.''
In representing Cap Cities and CBS, the 65-year-old Mr. Butler and his team at Cravath handled the usual legal work, such as advising on regulatory issues and consulting on employee benefits. But they also handled some issues that tend to be the purview of investment bankers, such as breakup fees and terms that would make it difficult for their clients to approach other would-be buyers.
No one is suggesting that investment bankers aren't needed at all. In fact, Mr. Butler himself recommended that his clients hire bankers to weigh in on the fairness of the deals to shareholders, because boards are required to consider bankers' opinions. But ``you can't sit down and write a contract for $19 billion without a lawyer,'' Mr. Buffett says. ``The people at Disney knew ABC. . . . What bankers would contribute would be a bill.''
So after he learned that Disney had agreed to buy Cap Cities, a match he'd helped arrange, Mr. Buffett called a lawyer he trusted to work quickly and discreetly.
It was the last Thursday in July, and the phone rang up to the 48th-floor partners' lunch room of Cravath's midtown Manhattan office, where Mr. Butler was eating his customary dessert of chocolate-chip cookies and talking about his big project of the moment _ the negotiations to sell his client CBS.
``Warren said, `Sam, I've got something for you to do,' and he said it had to be finished by the weekend so news of the deal wouldn't leak,'' recalls Mr. Butler, a former U.S. Supreme Court clerk and veteran deal maker who has spent his entire 35-year legal career at Cravath. ``I told him it couldn't be done. He said, `Sam, that's what I hire you for.'''
Time wasn't the only concern. Officials of CBS and ABC, who might recognize one another and surmise a deal was in the works, could run into each other in the Cravath elevator. So Cravath lawyers decided that the CBS negotiations could move to Westinghouse's law firm, Weil, Gotshal & Manges, and the Cap Cities talks could be held at Disney's law firm, Dewey Ballantine.
When Mr. Murphy called minutes later, Mr. Butler gave the thumbs up, agreeing that the firm would work for a seven-figure flat fee instead of the hourly rate it usually charges. He wouldn't specify the amount, but said the fees of investment bankers who put deals together ``normally are a significant multiple of the lawyers' fees.'' (Mr. Butler's hourly rate is said to be $525.)
He handed off the CBS work to a Cravath team led by partner Robert A. Kindler, and began intensive negotiations on Cap Cities in preparation for Sunday board meetings of both Cap Cities and Disney. Final issues were thrashed out by midnight Sunday, and Mr. Butler made a presentation to the Cap Cities board when it met at 7 a.m. Monday.
Within an hour, the Cap Cities-Disney deal went public and stunned the world, but Mr. Butler scarcely had time to gloat. That afternoon, Mr. Kindler pulled him aside and said the CBS deal was close. The next morning, Mr. Butler was present when CBS's board approved the network's sale.
Mr. Butler started doing CBS's legal work two decades ago, and has worked closely with Mr. Tisch since the executive took charge of the network in the mid-1980s. ``I happen to have a close relationship with Sam Butler,'' Mr. Tisch says. ``I like to talk to him about all the deals because I think he has very sound judgment, and there are always certain legal things you want to have out of the way before you even speak to investment bankers.''
Mr. Butler hadn't worked for Cap Cities before the Disney deal. But Mr. Buffett had known Mr. Butler because the lawyer is a longtime board member of Geico Corp., the insurance holding company in which Mr. Buffett's company, Berkshire Hathaway Inc., holds a majority stake.
Mr. Murphy says he was impressed by Mr. Butler's understated approach. ``He always seemed to know where he wanted to go, and certainly there was no ego involved with him at all that I noticed,'' the executive says. The flashiest thing about Mr. Butler, a former Harvard College linebacker (Class of '51), seems to be a silver belt buckle embossed with his initials. Among associates at Cravath, he is famous for taking the bus and the subway to work at an office where many partners of lower rank routinely hire cars.
Is Mr. Butler ready to try for a network sweep? He jokes that he hopes to advise General Electric Co.'s chairman about the sale of its NBC unit. ``Tuesday afternoon,'' he quips, ``I called Jack Welch and said, `I'm free tomorrow in case you're interested.' I haven't heard back.''