Perry

""I want to grow," McCaw said. The nutty idea happened to be a scheme for using one cable system as leverage to finance the purchase of another. Perry saw it had nerve: a combination of tax write-offs and losses for years. It was a brilliant scheme, says Perry, because it kept the two systems under separate corporate structures but washed the gains of the first against the losses of the second. It was like using the equity from an old home to buy a new one, saving real estate taxes in the middle."

"McCaw didn't want only one exit if a deal went sour, for example. He wanted multiple exits tied to different scenarios. Since the McCaw holdings were an intricate web of corporate entities and debt, if prob- lems erupted in one end of the company, McCaw wanted mechanisms "to blow up a deal," Perry says. Ordinarily aloof from particulars, these were the granular details that McCaw examined and discussed speck by speck."

"In a straight-up fight, it would be no contest. "If it was good-old- boy, Corporate America, tee 'ime at Augusta, we weren't going to win," says Perry. "We knew that. We knew we had to change the game. We had to be in a game where vision, strategy, other things were impor- tant." Like the Vietcong guerrilla forces, the McCaw team would try to force a more powerful adversary to play by unfamiliar rules, to make the game messy and embarrassing until it was forced to withdraw."

"McCaw attended almost none of these meetings, a tactic that preserved flexibility. He could always kill a deal he hadn't negotiated, sending Perry back to reexamine a point in the light of an objection raised by the "mad scientist" at headquarters."

"Since banks loaned at a multiple of cash flow, every new dollar of cash flow expanded a cable company's borrowing power. At first the multiple was 4.5, so a bank would lend $450,000 on cash flow of $100,000 a year. The multiples grew, eventually reaching eight times cash flow. An operator could increase his cash flow, and thus his borrowing ability, by consolidating costs such as billing offices and maintenance crews and obtaining volume discounts from HBO, CNN, and other providers. A company with 500,000 customers paid CNN 7 c" a household per month, while a company with 2 million paid 5#, for example. In other words, the bigger you got, the bigger you could get. At McCaw, "we understood we had to grow or leave the business," says Perry."

"Now McCaw told Milken that McCaw Communications wanted help to buy more cellular licenses. But Milken saw a new threat to Craig McCaw. "You're exposed," Milken said. McCaw was trying to grow two capital-intensive businesses at once while facing deeper-pocketed competitors on both fronts. He couldn't grow in both cable and cellular for long. Milken warned McCaw that his company was too deeply in debt. There was an irony—the foremost apostle of debt telling Craig McCaw that his financial strategy was too risky. According to Perry, McCaw didn't show much reaction. He just took it in thoughtfully and said merely, "Hmm. Okay." But Milken was right. The Southwestern buyout of Metromedia's cellular business showed how the bigger boys were prepared to snatch licenses that McCaw needed. Previously, McCaw had been annoyed by industry talk that his company was spread thin. To his face, the chair- man of PacTel had called his company a "house of cards." "I was tired of hearing about how much leverage we should take," McCaw says. Hearing the same message from Milken gave it a new urgency; it "hit McCaw right between the eyes," Stanton said later. McCaw had to focus his company on one business or the other."

"The McCaw offer put LIN into play, because management did not own enough of the company to unilaterally reject a buyout. Now anyone could top the McCaw offer. But the McCaw team had planned its moves carefully, having studied LIN's finances, its management, and its strategic position, as well as other potential bidders, such as South- western Bell, US West, and even the big-daddy long shot, AT&T. Perry called it "reverse engineering" any potential opposition, and it wasn't that hard to do. Because of McCaw's many partnerships and the avail- ability of public documents filed with the FCC, positions were relatively easy to assess. "That was all in the mental database," says Perry. "If you have to hire people to come in and do that, it would have taken forever." As a result, "we knew more about LIN Broadcasting, the people who could buy LIN, the regulatory issues, the taxes, the [legal"

""Craig will come up with ten ideas," says Perry, and a few of them, no one in the world would have thought of them. They will make you unbelievably successful if you follow them. Two of the ideas are average or okay. A bunch of the ideas, you don't have a clue what he's talking about. [And] a bunch of the ideas will make you so broke so fast. The trick with Craig is to differentiate out of that set."