Deal Maker -- He Has Bill Gates' Ear And Microsoft's Wallet

When Apple founder Steve Jobs stood before a convention hall filled with Macintosh faithfultwo months ago and announced his troubled company was accepting help from Microsoft, it was Chairman Bill Gates' wry smile and wire-framed glasses that beamed down from a satellite-fed monitor high above the stage.

Behind the scenes, though, the deal belonged to Greg Maffei.

At Gates' request, Microsoft's chief financial officer had flown to Jobs' California home twice this summer, on consecutive Sundays, to negotiate. Over bottled mineral water and during strolls around Palo Alto, he and Jobs worked out terms for a $150 million Microsoft investment in Apple and an agreement for both companies to share computer software technology. The deal later would be recorded as an historic mending of the Microsoft-Apple relationship, and a possible life-saver for Apple.

It was an important assignment for 37-year-old Maffei. But not the first.

The ex-Wall Street venture capitalist, who joined Microsoft in 1993, has become Gates' point man on the company's biggest strategic deals, a string of moves that recently have added up to a billion-dollar-plus shopping and investment spree for the company.

One of Gates' closest advisers, Maffei's intellect and drive parallel the Microsoft chairman's, though he doesn't have a technical background, and he graduated from Harvard, unlike Gates, who dropped out.

Assistant Treasurer Jean-Francois Heitz, who has worked for Maffei for three years, reeled off the names of several executives with Gates' driven temperament. The list included Executive Vice President Steve Ballmer and Group Vice President Pete Higgins.

"These guys are kind of Gates clones," Heitz said. But, "If there's one guy who's a clone, it's Greg."

If Maffei had to list his accomplishments for a performance review - and he does go through reviews - he could crib from the headlines of the world's largest newspapers and business magazines. In addition to the Apple deal, his past year's work includes:

-- Negotiating Microsoft's $1 billion investment last June in Comcast, a regional cable-television company based in Philadelphia. With Microsoft's money, Comcast will begin building a network that can connect computers to the Internet much faster than commonly done today. Microsoft's plan is for that work to spur the rest of the cable industry to do the same.

-- Heading up the $425 million purchase of WebTV Networks in April, Microsoft's biggest acquisition ever. WebTV, based in Palo Alto, enables people to connect to the Internet from their TV sets using regular phone lines. If successful, the company could help get many more millions of people online and using Microsoft software.

-- Orchestrating sophisticated financial moves for Microsoft's treasury, one of which has made the company $300 million. These moves, while not as flashy as the deals Maffei has negotiated, are his bread and butter and illustrate how he impressed Gates enough to move from his midlevel finance position to chief financial officer in July.

"I knew that Greg was going to be on the list of what you might think of as financial superstars," said retired Chief Financial Officer Mike Brown, who hired Maffei on the recommendation of two colleagues. "He sets very high goals for himself."

Maffei deflects any notion that he's the company's lead man on negotiations, saying he handles the financial end of transactions with a team of finance, law and technology specialists.

But the people who've negotiated with him have no problem assigning him that title.

"He acted like a one-man show," said John Alchin, Comcast's senior vice president and treasurer. "A guy in his position at that company could have surrounded himself with a cadre of help from Wall Street."

Instead, Maffei took charge, right down to handling the announcement to the media, Alchin said. And he acted fast. Serious negotiations started one week and were finished by the end of the next - in time for a well-reported on-stage announcement at a national cable-TV industry show. The entire courtship lasted only a month or so.

Comcast President Brian Roberts had chided Gates at a dinner, telling the Microsoft chairman that if he wanted to spur cable companies to build high-speed networks, he ought to buy 10 percent of the top five cable operators. A week or two after that conversation, Maffei called Roberts and said he was prepared to deal on Gates' behalf. The deal was done the first week of June, and Microsoft owned 11.5 percent of Comcast.

Microsoft officials have said they hope to make more cable deals, following Roberts' advice.

Maffei stresses that Microsoft's investment strategy centers on furthering the company's business goals; earning healthy profits is almost secondary. The Comcast and WebTV deals are perfect examples. Sometimes Maffei's group identifies deals, but many times the ideas originate in Microsoft's product groups.

Lessons learned, put to use

While Maffei has a front-row seat at arguably the hottest company in the world right now, he says experience has taught him that nothing lasts forever.

He knows this from key roles he played in the bankruptcies of two companies, both of which he joined after financial troubles began.

He was chief financial officer of Pay 'N Pak, the Seattle-area hardware and home-improvement chain that filed for bankruptcy and went out of business in 1992, just before Maffei joined Microsoft. Maffei had arrived the year before, after the stores' problems set in. He was appointed by Citicorp Venture Capital, where he had handled Citicorp's purchase of Pay 'N Pak.

"It was an incredibly difficult situation," he said. "You've got people who have their life savings invested in the company and who've been employees for 15 years."

"The only reason you do something like that . . . It was a chance to be CFO of a company, to learn about operating a company."

And he learned: "Nothing stays that good forever. At one time, Pay 'N Pak was a gold mine, was as successful as could be, growing like a weed, making money hand over fist, and hey - times change."

Maffei also was a board member at coffee company Tuscany when it filed for Chapter 11 bankruptcy reorganization, after a stock underwriter abruptly pulled out of the deal as the company planned its first stock sale. He was on the board because he was close friends with one of the co-founders, Chris Mueller, now a principal with the Seattle investment banking firm Exvere.

"He was a real benefit to us during the tough times we went through at Tuscany," said Mueller, who remains close to Maffei. The two now charter a sailboat and take it to the San Juan Islands once a year.

Maffei, who graduated from Harvard Business School in 1986 as a Baker Scholar, in the top 5 percent of his class, joined Microsoft as a mid-level finance guy, helping out with investments and business development. He negotiated a few small but successful acquisitions, including buying a share of Massachusetts-based Wang Laboratories, a deal that ended a lawsuit Wang had filed against Microsoft for patent infringement. He became treasurer the following year, 1994, then added the title of vice president in July 1996. This summer, he was promoted to chief financial officer when then-CFO Brown announced his retirement at age 51.

Brown said that immediately after Maffei became treasurer, he turned to Wall Street contacts and identified the top corporate treasury departments. He visited companies, including Intel and Disney, wrote profiles of about a half-dozen departments and began emulating them.

He stepped up Microsoft's program of buying back its own shares

to cover the huge number of stock options granted to employees. Their sale last December raised $1 billion.

And he wrote a 23-page memo to Gates outlining several ways the treasury department could execute more sophisticated and aggressive programs to earn more money.

One suggestion: Answer investor demands for cash dividends by selling preferred shares. Their sale last December - 2 1/2 years after Maffei wrote his memo - raised $1 billion.

Maffei also suggested Microsoft sell "put warrants" on its own stock. The buyer of a warrant pays the company a fee for the right to make the company repurchase stock on a future date at an agreed-upon price. If the company's stock price is below the set sale price on that day, the warrant-holder pockets the difference.

Maffei convinced Gates in part by noting that Microsoft would be an increasingly large buyer of its own stock anyway - those employee stock options were sucking up shares - and that selling put warrants would help defray that cost.

Gates went along. To date, the program has added more than $300 million to Microsoft's $9 billion cash treasury - more than any other company has made from warrants.

Intellectual twists and turns

Maffei, who likes to run, sail and play tennis, looks like he'd be more at ease on a sports court than in a boardroom. He and his wife, Sharon, recently joined the Seattle Tennis Club, and he likes running with his 1-year-old son.

His personality is vintage Microsoft. He's described as so smart that he can keep up during highly technical talks - a badge of honor for just a finance guy - but that he doesn't "suffer fools," as a mentor and former employer put it.

"It's always a challenge to get a long attention span from him," said Heitz, the assistant treasurer. "He always has 100 things to do. If you don't catch his attention in the first 30 seconds, you run the risk of him thinking about something else. Because his brain is always boiling."

Some descriptions of Maffei paint contradictory pictures. He's known for being quick-tempered, but his management style is described as Harvard Business School-esque. He might ask his team what everyone could learn from an experience, for example. And he's said to be quick to admit when he "has an idea that isn't going to fly."

"He's not a quiet guy," said Jobs. "He lets you know what he's thinking, which is good. He's a hard-driving guy, very capable, and I like his informal style."

"Greg's a very, very intellectual guy, and he likes to be intellectually challenged," said his brother, John, who joined Microsoft the year after his older brother and works as a product manager.

Maffei also likes physical challenge.

Heitz and Maffei ran the Seattle half-marathon in 1994, and Maffei crossed the finish line in one hour, 29 minutes and about 45 seconds.

"I could see him watching the clock and wanting to beat the 90-minute barrier," Heitz said. "He is extremely competitive."

On Wall Street, Maffei was known to savor victory.

As a twenty-something dealmaker for Citicorp Venture Capital, Maffei negotiated an acquisition of Cort Furniture that had veterans marveling, Chairman Bill Comfort said. Maffei arranged the buy, negotiating with investors to provide the primary and secondary tiers of financing for the deal.

By the time Maffei was done with all the third parties, Comfort said, Citicorp invested none of its own money in the deal and was assured 65 percent of any profits.

"I remember at the closing deal, they all knew he had outnegotiated them all," Comfort said.

More recently, Maffei celebrated after the Comcast cable deal, when Microsoft's investment was credited with a lift in the market for cable stocks industrywide.

"He really enjoyed the fact that the value of the overall cable market was increased by that," Comfort said. "He just loves the transaction."

Comfort is so sure of Maffei's love affair with the deal, in fact, that he predicted Maffei will eventually leave Microsoft for the venture-capital world.

"Greg is not shy about wanting to create some value-added for himself," Comfort said, adding that a career path toward a chief executive job - even at fast-paced Microsoft - likely wouldn't give Maffei the "psychological income" he needs.

"I think the day-to-day operations would bore him to death," he said. "Worrying about human resources and pension plans, boring stuff. I don't think that would fit his temperament."

Maffei denied any ambitions beyond his present job.

"I see myself continuing to help drive Microsoft to the next level," he said, emphasizing he only took on his new role less than three months ago.

"This is a great position. A lot of what's happening in our industry - and some people would say a lot of what's driving our society - Microsoft has a great perch into that. And I . . . have a great view."

Michele Matassa Flores' phone message number is 206-464-8343. Her e-mail address is: mima-new@seatimes.com