Late in the afternoon of Nov. 6, General Electric Co. Chairman John F. Welch Jr. and RCA Corp. Chairman Thornton F. Bradshaw met to have drinks at the apartment of Wall Street financier Felix Rohatyn.
"It was just a simple drink so we could get to know each other, but obviously there was a twinkle in everyone's eye," GE's Welch recalled in an interview today.
"It was a very short meeting and he [Welch] talked about the strategic fit of RCA and General Electric," RCA's Bradshaw said today. "He seemed very high on that strategic fit. I listened, and the only other witnesses were Mr. Rohatyn and his cat."
While GE's proposed $6.28 billion acquisition of RCA raises many complex questions, the events leading up to the high stakes deal announced Wednesday night began in strikingly simple fashion only six weeks ago.
Even though both run a major U.S. corporation active in the defense, communications and consumer products businesses, Welch and Bradshaw had never met. Welch, secretly eyeing RCA as a takeover target, thought it was important to find a way to meet his counterpart at RCA.
Enter Felix Rohatyn, consummate New York deal-maker, longtime adviser to RCA and senior partner of the Wall Street firm of Lazard Freres & Co. Rohatyn knew both men and arranged for them to meet in his apartment early last month.
"Felix and I meet for breakfast every six months to talk about what we are thinking about," GE's Welch said. "We have a relationship like that. I called Felix and asked if he could arrange to introduce me to Bradshaw. I thought he [Bradhsaw] was a nifty guy. We absolutely vibrated on the same wavelength. He could give the same speeches I've been giving on global competition. After that meeting, we didn't talk again until after Thanksgiving."
Between Nov. 6 and Thanksgiving, Welch and a team of about a dozen GE executives secretly and rigorously analyzed RCA's operations and its attractiveness as a takeover target. With billions in cash at its disposal and little debt on its balance sheet, GE was hungry for a major acquisition. RCA appeared to meet all the financial criteria GE set for acquisitions, Welch said. Strategically, acquiring RCA would further continue GE's plan to focus on technology and services rather than industrial production.
According to Welch, the team that had been analyzing RCA met on the Tuesday before Thanksgiving at GE's headquarters in Fairfield, Conn. The GE executives overwhelmingly agreed by the end of the four-hour session that they wanted to acquire RCA.
Welch told everyone to think about the deal over Thanksgiving. "Every one of us came back saying this was the absolute right thing," Welch said.
Meanwhile, Welch, spending the holiday in Florida, had contacted Goldman, Sachs & Co. senior partner John Weinberg, a longtime financial adviser to GE.
"I talked to John Weinberg from Florida several times," Welch said. "Would I go for RCA ? Wouldn't I go? How I was feeling about it? After Thanksgiving, we called John Weinberg and said 'We're gonna go.' We worked diligently until that next Thursday and then we called Felix and said we'd like to meet with Brad Bradshaw. "
In that phone call to Rohatyn, Welch said he wanted to meet with Bradshaw alone. Rohatyn arranged the meeting in a phone call Dec. 5, in which he advised the RCA chairman that "he thought Welch wanted to get serious."
Bradshaw and Welch met at about 5:30 p.m. on Dec. 5 in Bradshaw's apartment in Manhattan's Dorsett Hotel. At that meeting -- just one week ago -- Welch delivered the message that led to the historic merger agreement.
"He Welch said that on a scale of one to 10, his people had analyzed the strategic fit of the companies and that had reaffirmed his belief that it was a nine or a 10," Bradshaw said. "He said, 'So therefore, I would like to go ahead, and we offer you so much money . He gave me what I considered to be an offer and that had to be transmitted to our board immediately."
Before the RCA board met, Bradshaw contacted Rohatyn and New York merger lawyer Marty Lipton. Last Sunday afternoon, three days after Welch made his proposal, the RCA board met at 3 at the Wall Street law firm of Wachtell, Lipton, Rosen and Katz.
"All that was decided at that meeting was we were empowered to negotiate with General Electric and then go back to the board," Bradshaw said. "Monday morning we started negotiations, and that was 'round the clock. We knew it had to be done very fast, in two days, or the market leaks" would kill the deal.
Meanwhile, while final details of the merger were being hammered out, GE's Welch had to attend a Tuesday night meeting with Wall Street analysts to discuss GE and its plans or risk giving a clue that something was in the works.
Instead, a stone-faced Welch met for several hours with the analysts and never mentioned a word about RCA.
"One of them told me today he will never play cards with me as long as he lives," Welch said. "For three hours, we talked about GE and never one question about RCA from the analysts. They are never going to want to play poker with me."