A Savvy Born of Restructuring, Not Circuitry
If IBM really has settled on Louis V. Gerstner Jr. to be its new top boss, the deeply troubled computer giant will be placing its fate in the hands of someone whose reputed savvy in corporate reorganizations and cost slashing, it is hoped, will make up for what he doesn’t know about the computer business.
Gerstner, 51, has come in cold before. With no experience at a food or tobacco company, Gerstner was picked by Henry Kravis in 1989 to head RJR Nabisco, which had just been the subject of the largest leveraged buyout ever.
While droves of big companies staggered into bankruptcy under the burden of their buyout debt, Gerstner turned RJR around. He slashed its $29 billion in debt by more than half and kept the company solidly profitable, despite a steadily declining market for cigarettes.
Now IBM is hoping Gerstner can do for computers what he did for Oreos and Winstons. The stock market clearly has doubts, and analysts who follow RJR say his record there has been good but not perfect. In a vote of no confidence, shareholders Wednesday drove IBM’s stock price down more than 5% to close off $3.125 at $51.125.
Those who know him well, however, insist that Gerstner, more than anyone, is most likely to succeed in saving IBM from its recent near-death experience. Robert A. Schmitz, an executive at Trust Co. of the West who worked for Gerstner at McKinsey & Co., said that besides his strength at strategy, Gerstner has a unique and infectious inner confidence that enables him to “get tremendous results from his business.”
Schmitz added that, because of the stunningly fast decline in the mainframe computer market, “IBM is shellshocked. I think he will force them to act quickly and move with much more confidence than they have in the past.”
Gerstner is regarded as a witty, impatient individual with a penetrating intellect. He is described as a family man and regular churchgoer who smokes cigars and remains able to enjoy himself despite his strait-laced inclinations.
Much of Gerstner’s early career was spent at McKinsey, the respected corporate consulting firm, where he ended up as a director. He earned a name as the main architect of the successful Penn Central bailout. He joined American Express in 1978, shepherded its spinoff of Fireman’s Fund Corp. and was highly regarded for his reign as president from 1985 to 1989. American Express insiders say Gerstner left to take the RJR job after concluding that James D. Robinson III, then American Express chairman and chief executive, wasn’t likely to step aside and make way for him anytime soon.
When Robinson was being pushed out by the company’s board late last year, American Express considered Gerstner as a possible successor before settling on insider Harvey Golub.
The saga of the RJR Nabisco buyout made good reading in “Barbarians at the Gate,” including the indulgences of its former chairman, F. Ross Johnson. Gerstner swiftly got rid of the company’s 30 luxury apartments and seven of its 11 corporate jets. He moved with urgency to cut debt, boosted sales, sold assets, refinanced the company’s junk bonds and increased the emphasis on quality. When the collapse of the junk bond market created an urgent need for capital, Gerstner in 1991 successfully brought off a public offering of RJR stock.
That stock has disappointed its original buyers. It remains well below its original offering price of $11.25, closing Wednesday at $8.
Roy D. Burry, a Kidder, Peabody & Co. analyst who follows RJR, says Gerstner has clear talent in some areas but not in others.
“His accomplishments at RJR are in line with his talents and experience and what he’s done in the past: restructuring businesses, buying and selling components of a company, cutting costs and financial engineering,” he said.
