Eduardo Mestre: Dealmaker for AOL Time Warner

When America Online Inc. and Time Warner Inc. announced their merger Monday morning, the investment bankers who have been cutting the high-flying Internet deals in Silicon Valley scrambled to find out which financier landed the coveted job of advising AOL.

To their amazement, it was a stranger to the world of technology banking:

Eduardo G. Mestre, long with Salomon Smith Barney. This was a bank that Thomson Financial Securities Data ranked a weak 11th last year in Net IPOs.

"I don't even know the names of anyone over there," admitted one baffled tech banker at a rival firm, after being asked about Salomon, a unit of Citigroup.

Yet Mestre, a 51-year-old banking veteran, was a fitting choice for a deal that radically changes how Internet companies are perceived and valued, bridging the brick-and-mortar economy and the Net. While the Net Economy has been known for flashy players who move rapidly from company to company, Mestre has stayed with Salomon since 1977. Through years of turmoil and defections, he sidestepped the spotlight, rising to be its cochair of investment banking.

"I think the idea of jumping from firm to firm is overrated," he said Wednesday in the second of two interviews with The Standard. Mestre admitted he thought about leaving the bank in the early 1990s during its troubling bond scandal, but he concluded, "When something's in trouble - I know this sounds hokey - you don't walk away, you try to fix it."

While he may not adopt the Net dealmaker's style, Mestre understands the spirit behind it: that sometimes the vision of a business' potential can be more important than the earnings statement. It's that concept that's driving AOL's proposed $151 billion acquisition of Time Warner.

Off-the-books considerations also drove the MCI-WorldCom merger, in which Mestre played a role. Salomon advised WorldCom in its ultimately successful effort to outmaneuver GTE for the acquisition of MCI in 1998. Mestre recalls that he urged the company to focus its final pitch on passion. "Against what the handbook said, we told WorldCom to try to use a little love and a little vision," he explained, countering GTE's rival offer of more cash.

"He's clearly the No. 1 banker in the telecom field," said James S. Kahan, senior executive VP of corporate development at SBC Communications. "You don't see a lot of gray hairs in telecom investment banking, but he's stayed at the same bank and built a franchise."

The AOL assignment itself can be traced to Mestre's achievements in making Salomon the pre-eminent banking house for telecommunications. Before J. Michael Kelly was hired as America Online's CFO, he had previously been at GTE, and not only had worked with Mestre on deals but also had gone against him on the MCI deal.

"We whupped him," Mestre said. "I think he respected that."

Mestre's past relationship with Kelly helped to open the door at AOL, winning an opportunity to come down to Virginia to chat with the company early last year.

Mestre's own life has bridged two worlds. Born in Havana in 1949, Mestre attended boarding school in Connecticut. His father owned a television broadcasting company in Cuba, but was forced to flee to Argentina in 1960 in the wake of Fidel Castro's communist revolution.

A self-effacing guy colleagues say is embarrassed when his name appears in print, he confesses to not being a natural at the M&A business.

"I remember moving into M&A in 1986 and feeling I didn't have any idea what I'm doing - not a clue," he said. Take that with a grain of salt, because 13 years later he was named Investment Dealer Digest's 1998 banker of the year.

The AOL job is a great coup for Salomon, but it remains to be seen whether it's a one-time fluke. The bank's success was a setback for tech banking powerhouse Goldman Sachs, which had advised AOL on its acquisition of Netscape. But Salomon has a tough road ahead to continue to win tech business from Goldman, CS First Boston, Morgan Stanley Dean Witter and the other major banking firms.

Over the last two years, Salomon actually lost ground in this area, as some of its key bankers defected to rivals. Mestre insists that the AOL deal is a big step toward reviving Salomon's moribund tech practice. He plans to open an office in Silicon Valley's Palo Alto-Menlo Park financial corridor in the next few months and hired new staff, as well as assigned some of his most senior bankers to oversee the recruits.

Whether the merger is ultimately successful, of course, remains to be seen.

Stock prices for AOL and Time Warner have dropped every day since the deal was announced. For the moment, however, Eduardo Mestre's personal stock is soaring.

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