Inside the Viacom-Paramount deal: how Viacom treasurer Vaughan Clarke helped raise $10 billion to close the most controversial merger of 1994.
Don't let his baby face fool you. Behind Vaughn Clarke's warm smile are teeth as sharp as any Wall Street shark. In the spring of 1993, Clarke was the new kid on the block, freshly hired away from Gannett Co. to be the vice president and treasurer of Viacom International, an ambitious cable television network headquartered in New York. Less than six months later, he was embroiled in a now legendary corporate tug-of-war that would take nearly a year and billions of dollars to resolve.
When Sumner Redstone, the tough-as-nails chairman of Viacom, announced a "friendly" takeover of Paramount Communications, the entertainment community pricked up its ears. Shortly thereafter, Barry "Killer" Diller, chairman of QVC, launched a hostile bid for the struggling movie studio.
As the public pressed its ear to the boardroom door, corporate players and banking czars lined up on either side of the fracas. At the center of the melee was Vaughn Clarke, charged with the daunting task of securing a total of $10 billion in financing, cementing partnership agreements with deep-pocketed "friends" in business - including the NYNEX Corp.and Blockbuster Entertainment Inc. - and managing the cash flow of a company that was in a state of flux.
And that was just for starters. Once the Paramount deal was settled, Viacom started selling off assets to pay for the costly acquisition and then relaunched their efforts to merge with Blockbuster.
Daunting for someone else perhaps, but for Vaughn Clarke it was business as usual.
Clarke's biggcst accomplishment during the tumultuous negotiations was managing the treasury function and cash management account with such a high level of sophistication, says Redstone. "It enhanced our relationships with the community of bankers and financial analysts."
But for now, sitting in Viacom's headquarters in the heart of New York's theater district, Clarke modestly defers to the team effort. "The decision to do the merger was very hush-hush and really only involved four people: Redstone; Frank Biondi, CEO of Viacom., Tom Dooley, head of corporate development, finance and communications; and Philippe Dauman, chief operating officer and general counsel. My role was as a bit player."
But in the annals of financing history, the acquisition of Paramount and, later, Blockbuster is considered anything but Simple, and Clarke hardly a bit player.
LAUNCHED IN A RECESSION
Then again, the newly promoted senior vice president and treasurer of the newest entertainment powerhouse has never been a bit player. During his 11 1/2 years with Gannett, Clarke managed the company's $700 million pension fund, assisted when it made public debt offerings, and helped launch USA Today. "I was very happy at Gannett, but in 1989 something very funny happened," he says ruefully. "We had a recession."
Media alialysts across the board recall the particular beating the newspaper industry suffered. In particular, advertising was cut back and newspaper printing costs rose.
Clarke says the convergence of national economic conditions and Gannett's plunging profits forced him to take advantage of the more creative financing vehicles that were just being developed by Wall Street. "The deregulation of interest rates allowed a lot of new financial instruments to be developed," he says, calling up a tlme that forever altered the way Wall Street does business. It was during this exploration period that Clarke first glimpsed the inside workings of the multimedia business, and fell in love with it.
While Clarke was reveling in a new financial market freedom, a 63-year-old Sumner Redstone bought Viacom for a measly $3.4 billion in a leveraged buyout in 1987. In a few short years, Redstone expanded the five-state cable system company to one with international networks, such as MTV, Nickelodeon and Showtime.
Although it wouldn't happen for a few years yet, Clarke, the man, and Viacom, the company, were on an intersecting course as partners on the financial battleground. Before that happened though, there was the telephone call.
"One day I got a phone call from a guy who says he represents a company looking for a minority." Clarke recalls. "When I get those kinds of calls, I develop an involuntary twitch."
Clarke says his hackles were raised because companies like that are looking to solve a problem. Their problem is, they don't have any [blacks]."
In the end, Clarke decided to take the job as vice president and treasurer. "Not because I am black, but because I am talented and could do the job."
From a logistical point of view, the offer was too good to pass up. "Here was an opportunity with Viacom to do some things and work in areas that Gannett never really got into," says Clarke. "My opportunity was that I would be on the management team. I would be treasurer. I had a real and tangible opportunity, on a senior level, to be part of the team - to take the lead in this rapidly changing multimedia industry," he says, hurriedly adding, "I had no idea about the Paramount/Blockbuster brouhaha simmering in the background."
While Viacom is generally liberal in its employee diversity, Clarke acknowledges that he is the only African-American at the senior-management level. "There are very few of us [African-Americans] in this function period," he says.
Despite the reluctance by other major corporations to put black executives on senior-management teams, Clarke says that after a year at Viacom, "race has never been an issue."
Clarke's habit of stepping up to a challenge began long before dueling with numbers and revolving credit facilities were his weapons of choice.
"All of his accomplishments are rooted in the competitive spirit of athletics, and his greatest love is basketball," explains his wife, Shawn Jones Clarke. In his hometown of Syracuse, N.Y., "he was the kind of kid who would go anywhere, anytime for a good game."
Clarke, who has an MBA from Cornell's Johnson Graduate School of Management, says the discipline of sports and his own love of basketball almost took him to the pros. He was an All-American in high school, and a star during his four years at Brown. Clarke had earned tryouts with the Phoenix Suns and the New Jersey Nets (then in New York). He turned down a tryout with the Harlem Globetrotters.
Being in the thick of things was a habit for a long time. As the oldest boy with three younger sisters, Clarke says he fought all the time. "I'll never forget when my baby sister asked me to come to her first grade class and beat up a bully. Can you imaginei Here she is, about six years old, and I'm 18, six-foot something and a senior in high school," he laughs out loud.
A DEVIL FOR THE DETAILS
Clarke's stark and brightly lit office is no longer crammed with strategizing teammates. Nor is the teak-veneered credenza hidden by volumes of financial data, legal briefs and discarded appeasements to shareholders worried whether the Paramount deal would go through or that Blockbuster would pull out. Now he can afford to take a few moments to bask in lighthearted reveries.
This time last year, however, the air was thick with urgency. "There was a constant crisis. Not a problem, but a crisis every minute," says Viacom's financial point man. Clarke shakes his head when he thinks about the long hours spent poring over documents, writing and rewriting Viacom's takeover script.
"When Diller came through the back door," says Clarke,"suddenly, there were all of these pieces to consider. There were legal issues and economic issues and emotional issues, all of which had to be dealt with," says the consummate details man, ticking off the areas of concern on his three fingers.
One of his longtime friends, Mannie L. Jackson, senior vice president at Honeywell, has always admired his meticulous nature. "I remember when Vaughn started at Viacom. We went to dinner with a group of other Viacom executives and one of them casually mentioned that he would like to see a report that Vaughn had been working on. Well, the next thing we know, Vaughn disappeared for about 30 minutes."
When he came back to the table, Clarke had gone back to the office, run the report and now had it ready for anyone who wanted it. "He made 30 or 40 credits that night," says Jackson.
Pounding out the details for the Paramount deal was a bit tougher.
"In order for Sumner and Biondi to be successful, they had to be prcpared," says Michael J. Levitt, a managing director at Smith Barney, the investment banker on the acquisition. "Clarke did that."
Clarke was forced to shuttle between work in New York and home in suburban Maryland, where his wife and two children live. "I was working late at night and weekends," says the family man, who confesses that he sorely missed his wife and kids during the process. "But it had to be done."
The phrase "getting it done" surfaces a lot with Clarke. And it is that headlong determination that prompts Biondi, Viacom's 49-year-old high-profile CEO, to describe Clarke as unflappable.
"Many times when we were down to the wire, we'd say, 'We have to change this, or Vaughn, we have to add that.' He would kind of shrug and in the end it would be done," says Biondi.
"One of my jobs was handling the investor relations part of things," Clarke admits. "This was very proactive, while the other part involved fitting together all of the pieces mechanically."
In an effort to emphasize the magnitude of those pieces, Clarke reaches into an unorthodox filing system under an end table and holds up a 2 1/2-inch sheaf of papers. "This is amendment No. 34 to schedule 14D-9. This is amendment No. 34, so there were 33 before this," he says."
It was brutal. We did a lot of work on weekends. The joke was that Diller was afraid to go home on Friday because we'd announce something that Monday - and we did," he says in an obviously rare droll moment. "Meanwhile, we had a wall of major investors interested in investing in us [Blockbuster and NYNEX)] but, first of all, they wanted to invest in Viacom Inc. rather than Viacom International, where all the debt is. So, we had to come up with a corporate structure that would allow investment, and create a cash-flow mechanism to allow money to pass both ways from holding company to subsidiary.
"As soon as we did that and the two company's completed their commitments, I suddenly had a $1.8 billion kitty to manage," says Clarke, throwing his hands in the air as if to say, "What next?"
The question didn,t go unanswered for long. In addition to making palatable presentations to Paramount stockholders and arbitrageurs, Clarke's team had to deal with investor relations people who were worried about negative reports.
This July 7 will be the first anniversary of the new Viacom/Paramount. Last October, the Blockbuster merger was finalized. Clarke says his next project is to pare down some of the debt associated with the acquisition of Paramount. He also must help reorganize a company that has its fingers in every area of the media and telecommunications industry. Most recently, Madison Square Garden, a Paramount asset that included the New York Rangers and the New York Knicks professional sports franchises, was sold to a joint partnership of ITT Corp. and Long Island Cablevision for $1 billion.
Market insiders are looking for the sale of Viacom's cable systems, which is expected to generate another $2 billion. Depending on the results of those sales, Viacom might even float some long-term debt into the marketplace.
In the aftermath of both deals, Clarke says, "This Viacom is not the Viacom I joined. It's gone from a $2 billion to a $10 billion-plus company, and will probably be a $15 billion one in three to four years. I plan to be a part of that."
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|Date:||Dec 1, 1994|
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