Inside The Pressure Cooker: EJV Partner First Boston Nixes Cash Call, Salomon Comes Close

Over the past few months, the EJV Partners L.P. has endured all manner of change and ferment -- from senior-staff departures to double-digit lay-offs to repeated strategic reversals to the appearance on the scene of a would-be seventh partner. Now, however, details have emerged as to exactly what lies behind all this activity, and just how tightly the six partners are squeezing the struggling joint venture.

Sources close to the EJV say that the most drastic measure taken was the refusal of First Boston Corp. to pay its share of the vendor's latest capital call. Meanwhile, Salomon Brothers Inc. came close to doing likewise -- using the same cash call as a bargaining chip to demand, and win, a strategy shift aimed at increasing EJV revenues in the short term.

Perhaps more significantly, the capital call provided an occasion for the partners to put the EJV on notice. One source says that the six firms told the vendor that this was the last cash round-up. Having paid in some $80 million to date, this source says, the partners made it clear to the EJV that further revenues would have to be gotten elsewhere -- whether from actually selling products or from getting new partners to invest.

Sources say that the EJV partners gained the ability to decline cash calls on an individual basis some time between the most recent cash call and the one prior to it. EJV president Bruce Peterson declines to comment on any of the EJV's dealings with its partners.

But Peterson did confirm that he plans to hold the EJV's "First Annual Going Out of Business Party." Sources say that the party had originally been scheduled for April 1 -- a date which, among other things, is known to be the anniversary of Peterson's arrival at the EJV three years ago. However, in keeping with the EJV's traditional approach to delivery dates, the party was later postponed to April 7.

That the partners have been engaging in such rebellious behavior helps explain why the EJV and Liberty Brokerage Inc. recently began partnership negotiations (IMD, March 15), and why the vendor is now also seeking other partners -- including firms that are not financial institutions.

Interdealer Treasury broker Liberty is holding talks to become the venture's seventh partner, and may in the process gain influence over the EJV's marketing and development strategies.

In addition to the many synergies that Liberty and the EJV could decide to exploit, it appears that both the EJV and Liberty's Market Vision Corp. data distribution system vendor now lack sales heads. EJV's sales and marketing chief Gerry Mintz left his post early this year (IMD, Jan. 18) and Market Vision's Paul Marascia left his today.

Sources say that the EJV is getting close to filling Mintz's shoes, dividing his responsibilities into two positions -- a sales head and a marketing head. Sources say Neil Reilly is the front-runner for the former spot, while Jill Rubin and David Gertler are being eyed for the latter office. All three would represent internal promotions.

The split responsibility leaves open the possibility that a higher-level overseer may yet be put in place, perhaps emerging after the negotiations with Liberty are complete. By Peterson's estimate, details of the new relationship will be hammered out within the next several weeks.

While all sources agree that partner pressure on the EJV has for some time been heavy, partners have until now not been known to intervene to this extent in the vendor's day-to-day management. But the recent rancorous capital call changed all that.

Sources say that Salomon was able to demand, and extract, from the EJV its recent strategy shift to unbundle its databases from the UniVu suite of data and analytics services (IMD, March 1). As a result, Salomon agreed to pay up.

First Boston's dissatisfaction runs deeper, having been exacerbated by what sources describe as a cost-control mandate from parent Credit Suisse and internal upheaval in the firm's fixed-income department.

The likely infusion of the EJV with real-time Treasury prices from Liberty presents First Boston with another disincentive to cooperate. The firm has lately begun to deliver its own prices over Bloomberg L.P. via the new GovTrade service.

Whether the EJV Partners' decision not to participate in further cash calls will stand up over time remains in question. Some sources speculate that because the money the firms contribute is so small relative to their respective capital holdings, they're likely to give in at some point -- especially if the EJV cleans up its act and 1993 turns out to be another banner year for the Street.