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It Pays to Have Friends

DKI signed a license with a company named Marchpole, which had gone bankrupt for several reasons that had nothing to do with the business in which we were involved. We had granted them a global license for menswear, working with the CEO, Michael Morris. After about a year we started to sense that there were problems, but I didn’t know how severe the problems were until I got a call that the company was going to declare bankruptcy.

Over the course of this period I had become very fond of Michael. He was smart, adventurous, and fun to be with, although in my view he took too many business risks and didn’t appear to be interested in anyone else’s opinion. However, he did know what he was doing.

The company was based in London, and so our New York lawyers coordinated for me to meet with a barrister for bankruptcy and arbitration procedures in England. A few days went by, and we started getting more concerned, because the company going into bankruptcy was at a point at which it would have to stop all shipments to our retail partners. Additionally, our revenues were at risk. However, when I first met Michael, he was capable but “fast and furious,” so I decided to protect our company with a series of irrevocable LCs (letters of credit, which are guaranteed bank payments). It was clear to me that this business was in real trouble, and since it was affecting my business, I needed to know whether it could go forward. What could we do to not interrupt shipments?

I called Michael, who made it clear that he wanted to continue doing business with us after he went bankrupt. If he found new financial backers to help him resolve his financial issues, would I continue with him? He admitted that business would be difficult for him (and and his other customers) until he got back on his feet, but he was confident that he would be back in business in relatively short order if I could help and allow him to find a new backer.

Meanwhile, my lawyer found out that the mediator had been approached by a company representing the Swiss pension fund, which was in partnership with a small company in London. They wanted to meet me to present their case for continuation. Two days later I went to London and met with our solicitor, who told me clearly that I had total control in this matter: because the company that declared bankruptcy had not paid us immediately what it owed us, the brand (which we owned) would revert back to our company 100 percent. This happened because of the way the deal had been structured: Lynn Usdan, our general counsel, and Tisha Kalberer, our CFO, are first rate. I had been concerned about this company from the outset, and so I had arranged to have $6.25 million in letters of credit guaranteed to my company in case there was a financial problem. In short, my solicitor explained, we were within our rights and there was no need to negotiate anything.

Then I met with the arbitrator, who echoed what my solicitor had said: “It’s your decision. We’d like to call a meeting for this evening. That’s why we asked you to come out here. You have a choice to listen to what the banks have to say. There are three different banks representing these letters of credit. We’d like you to listen to what they have to say, and in this case I’m on your side, because you have the rights here, and I want to support you in whatever you need.”

That afternoon, armed with this knowledge, I met with the company representing the operating company and the Swiss pension fund, which had invested in Marchpole. They showed me their plan for how to go forward. They also asked me to look at the operating company that would continue to run this company on their behalf if I chose to do that. When I met the players, I was totally underwhelmed. In my view they didn’t have the wherewithal or the experience to do what was necessary. They had never represented a designer global sportswear brand.

I did like Michael Morris and believed in his ability. He had made a mistake in overextending himself, but I trusted that he understood the business. That was why we gave him the license in the first place, and I knew he had everything he needed to rebound from bankruptcy. He soared too high, he made mistakes, and he needed to come down to earth, but I was committed to going forward with him because I believed in him.

Here’s where the story gets interesting. At 8 p.m. I went into a paneled boardroom that had been set up by the arbitrator in the offices of one of the big banks in the London financial district. I sat at the end of a huge conference table. Sitting around the table were the arbitrator, 20 people from various different banks, and my lawyer. The banks began by asking me whether I would consider terminating the CEO who was currently operating the business (Michael), taking on a new partner in the name of this small company that was also backed by the Swiss pension fund (in addition to the banks), and forgoing my rights to the $6.25 million.

I looked around the table and said, “If I knew you were going to ask me for the $6.25 million, I would have told all of you to fly to New York instead of having me fly to London.” I was being a wise guy when I said that, but I thought it was very funny. I’m from Brooklyn, and 20 bankers from some of the biggest banks in the world were asking me for money that I had no reason to give them. Stupid question. I don’t believe LVMH ever understood how I protected the company and how clever (if I do say so myself) I was in structuring this deal and collecting the money.

In this case—as in many others in my career—it paid for Michael to have good friends and for me to be a good friend. I walked out happy, and the company that was going through bankruptcy recovered: he found new backers for his business, I supported him while he got back on his feet, and we continue to do business to this day. I had protected my company’s interest two years earlier when I first negotiated this deal, and so I had all the leverage in this so-called negotiation. We collected $6.25 million for our troubles. As I’ve said before, the only argument I ever want to get in is one in which the other guy’s in an indefensible position. In this case I couldn’t lose. They couldn’t defend their position. The key to negotiating is understanding who has the leverage and knowing when you have power and when you don’t. I knew I had all the leverage.

The following day I went to see Michael. I told him what had occurred, I gave him a window of time to resurface with a legitimate partner, and finally told him I knew he wouldn’t let me down. Friends. Oh yes, one more thing. Michael was now behind his desk and I asked him for a pen and paper. On it I wrote a note, folded it, and told him to put it in his wallet … “Thank G-d for Mark Weber.” It’s still in his wallet.