Page 17 - Bloomberg Businessweek-October 29, 2018

Bloomberg Businessweek October 29, 2018

“He played me like a Steinway piano”

how it performed. Much of that went to the executive, result- crate showed up on the desk of an assistant to Hamamoto con-
ing in a $75 million payout in 2014 that made Hamamoto one taining a book of leather swatches for use in custom yachts.
of America’s best-paid business leaders. To cover its interest Some employees took it as a sign that he was planning to jump
payments, NorthStar had to weigh selling assets, which would ship—and that they should as well. By November, Hamamoto
threaten its ability to generate enough profit to pay the fees. had submitted his resignation. Other NorthStar executives sold
Shares were plunging, and ratings companies threatened to shares and left.
reduce both NorthStar firms to junk status. At the time of the merger, the combined company had a
Barrack first discussed the idea of combining the companies market value of about $8 billion. Today, investors value it at
with Hamamoto at New York’s Ritz-Carlton in January 2016, less than $3 billion. Saltzman has blamed the decline on “more
seeing a classic distressed-debt scenario. Colony executives challenging industry conditions” and a failure to raise as much
talked about becoming the next Blackstone. Hamamoto, who capital as hoped.
didn’t respond to calls and emails seeking comment, saw some- Blicksilver, Barrack’s spokesman, said that while results
thing else, former employees say: an exit strategy. have been disappointing so far, “there is no reason to believe
Once the outlines of the deal were agreed on in mid-2016, this was attributable to any missteps on Barrack’s part, nor that
the companies began to merge their operations. NorthStar it will not ultimately be a successful combination.”
employees, not all of whom were enamored with Trump, were
struck by Barrack’s absences—and by the regularity with which Trump’s inauguration marked the peak of Barrack’s influ-
they were asked to keep up with his political pronouncements. ence. The president-elect named him chairman of the inaugu-

60 It was standard practice at Colony for employees to receive an ral committee, and he raised a record $106.7 million—important
email anytime he was going on television, followed by a link to to a man who likes to claim records. On the day Trump took
the video of the appearance. Now those clips featured Barrack the oath of office, Barrack was seated behind Trump’s brother
talking up Trump. Several complaints to human resources Robert and in front of Sheldon Adelson, the Republican Party’s
yielded no changes, former employees say. most generous donor. Sporting a blue scarf and matching tie,
With Barrack’s attention elsewhere, negotiations fell largely Barrack smiled broadly and snapped photos.
to his deputy, Colony CEO Richard Saltzman. The companies Even as he celebrated, however, some within Colony wor-
were hopelessly complex, with multiple business lines and ried. Management reminded employees that the firm had
subsidiaries. One of NorthStar’s main investment areas was achieved new prominence thanks to the political activi-
health-care properties, where Colony had little expertise. ties of its founder, but many found that, to the contrary, its
Valuing the companies proved a challenge, even though both association with the president was producing headwinds.
firms routinely made just these kinds of assessments. In the Fundraising in Europe, where Trump was unpopular, had
end, Saltzman and Hamamoto agreed to the bankers’ equiva- become more difficult, and a pickup in Israeli interest wasn’t
lent of throwing their hands up in the air: a merger of equals enough to close the gap. The debt fund Barrack had been so
that assumed the companies’ stock prices accurately reflected optimistic about stalled out at $1.3 billion, about half of the
the value of their underlying assets. original goal. Blicksilver said it was a strategic decision to
As negotiations entered their final stages, the Trump stop at that level.
campaign was reaching its zenith. In at least one instance, Barrack’s diplomatic efforts were backfiring, too. Trump
according to a person familiar with the encounter, when an made Saudi Arabia the first stop on his first overseas trip in
investor asked how best to back Trump, Barrack suggested May 2017, partly as a result of Barrack’s lobbying. But a month
the Rebuilding America Now super PAC, headed by a fam- later, just as MBS was being named crown prince, he and other
ily friend of Manafort’s, Laurance Gay. (There was nothing Gulf leaders announced a blockade of Qatar, which they said
improper in the suggestion. But the group later drew scru- was a financial backer of terror groups. (Qatar has denied this
tiny for continuing to pay Gay $35,000 a month long after the allegation.) Barrack was blindsided, one friend says. Trump’s
election.) And in addition to hiring a woman at Manafort’s tweet in support of the maneuver was a blow to Barrack’s cred-
request, he later retained longtime Manafort associate and ibility with his Qatari investors.
campaign deputy Rick Gates as a consultant to the firm. After the blockade began, Barrack reached out to then-
(Gates was fired after being indicted for lying to officials ear- Secretary of State Rex Tillerson, who’d done business in Qatar
lier this year. He later pleaded guilty.) as CEO of Exxon Mobil Corp., to help contain the fallout. But
The deal closed in January 2017. A few months later a wooden Kushner, who’d built a relationship with MBS and backed the