Where They're From 
Business • Richard Rainwater
The invisible man behind one of the year’s biggest deals.
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Rainwater was born into a Lebanese American family in Fort Worth; his father ran a modest grocery business and his mother worked at J.C. Penney. Growing up, he developed an interest in drag racing and won 26 races in a row at the Forest Hills Dragway in his souped-up Buick. After receiving a degree in math and physics at the University of Texas at Austin, he headed to Stanford to get his MBA. There he got to know Sid Bass. After working as a securities trader at Goldman, Sachs, Rainwater joined the Bass family company in 1970. “For the first two years,” he said, “every single deal I did with them, I lost every single penny.”
He boned up on the strategies of such superinvestors as Warren Buffett and eventually developed his own moneymaking methodology. He didn’t look for companies that had a low stock price. He studied business cycles and looked for sectors of industry that had what he called “interesting problems.”
Easier said than done. “Someone asked me what are the secrets to my success, and I said there are three,” Rainwater once said in a speech at the University of Texas. “Timing, timing, timing.” Indeed, it is one thing for a corporate raider like Pickens to make a play for a blue-chip company. If he fails, he can always sell his stock in that company at a profit and start again. It’s another thing entirely to go after a company on the verge of disintegration. If Rainwater’s predictions for that company’s or industry’s turnaround are wrong, he could lose hundreds of millions of dollars.
Rainwater soon displayed his gambler’s derring-do when he entered the oil business at the very moment oil prices plummeted to $9 a barrel. In 1986 he invested in Blocker Energy, an international oil drilling company in Houston that was close to defaulting on more than $100 million in bank loans. Rainwater then went to the banks and offered to swap the Blocker debt in return for $12 million and some stock in the company. (When he is negotiating, Rainwater can be a charming, persuasive man, using the tenacious force of his personality to get his way. “He talks very fast and very intensely,” Darla says, “and he’s so dazzling that you can’t get a word in.”) Rainwater knew the banks would go for the lopsided deal. If Blocker went bankrupt, the banks would have to spend tens of millions of dollars to retrieve the company’s rigs, its only major assets, which were scattered around the world. The banks and Blocker’s shareholders approved the deal, giving Rainwater a 65 percent controlling interest in the company. Not long after, Rainwater obtained $430 million in financing and went to the banks that were desperate to get out of the $1.5 billion in loans they had made to Penrod Drilling, one of the world’s largest offshore drilling rig companies, owned by Dallas’ infamous Hunt brothers. Other oil companies also wanted to buy Penrod, but they were waiting for the highly leveraged Hunts to declare bankruptcy to get Penrod cheaply on the auction block. But by the time the Hunts defaulted on a debt payment and lost their equity in Penrod, Rainwater had made a deal to swap his $430 million for the Penrod debt and thus gain control of the company, which still had assets of nearly $1 billion. The deal was described by one energy analyst as “easily among the slickest pickoffs in modern corporate history.” After Penrod’s and Blocker’s assets were combined in the early nineties, the oil industry was startled to realize that Rainwater had created one of the world’s largest drilling companies (now called Ensco International). “If I had tried to do those deals at any other time,” Rainwater said, “I would have fallen flat on my face. But the essence of good business is knowing when to step on a train and when to step off.”
Nowhere has Rainwater had a bigger and more controversial impact than in the health-care industry. After meeting a young Dallas lawyer named Richard Scott, the two formed Columbia Hospital Corporation to buy hospitals that were struggling financially. They were among the first major investors to understand that if they owned several hospitals, they could pool their purchasing power and get supplies at lower costs. They also wanted doctors to invest in the hospitals where they worked, believing they would find ways to make the hospitals more efficient and more profitable. By 1991 Columbia had eleven hospitals and $500 million in revenues. In a leveraged buyout, Rainwater and other investors had also taken control of the much larger Hospital Corporation of America. When the two companies merged to form Columbia/HCA Healthcare, Rainwater’s original $16 million stake in the company was valued at $200 million. Today Columbia/HCA is the world’s largest for-profit hospital chain, with 343 hospitals and annual revenues of more than $15 billion. Scott, the company’s chief executive, who was recently named by Time as one of America’s 25 most influential people, predicts that Columbia/HCA will acquire as many as 500 hospitals over the next few years. While praised by financial experts, Rainwater’s strategy to build the biggest health-care company he can has been criticized by some hospital executives who say that Columbia/HCA is deliberately trying to drive the not-for-profits out of business. The company, they say, will eventually hurt medical research and medical teaching programs, which are usually found in nonprofit hospitals. Rainwater says he is simply making hospitals more efficient: “I don’t understand the theory that nonprofit hospitals that run at forty percent capacity and do not pay taxes should be granted some special privilege. I like level playing fields.”
Rainwater’s former right-hand man, Alfred A. Checchi, once said that Rainwater has “a glorious innocence” about him and takes “an almost childlike delight in doing deals.” But Rainwater insists he is not making deals just for the heck of it: “I don’t want to do a leveraged transaction because there’s one out there to be done. What we try to do is help build and rebuild America, try to fix corporate problems—unscramble the eggs, so to speak.”
Perhaps what makes Rainwater truly different from your typical tycoon is that he keeps his life deliberately unregimented. It’s his way of keeping his head out of flow charts and pie graphs and staying in touch with the world. On the day I went to his office, I had assumed I would be told to leave after my allotted ten minutes. But suddenly Rainwater asked if I wanted to go with him to see the drag-racing car he enters in National Muscle Car Association competitions. When we got to the building where the car is kept, he spent nearly an hour talking about carburetors and other engine parts with the car’s driver and the chief mechanic. Then he hustled me off to eat a vegetarian burger at a friend’s house. There, with his mouth full, Rainwater asked me out of the blue if I had any ideas about how to create better schools for urban youth.
On the way back to his office—six hours later—I asked Rainwater if he was slowing down and enjoying the money he had made. “No,” he said, “this is too much fun. It’s more fun than golf. My genius, if I have one, is picking a good business and then picking good people to run that business. I like handing the ball off to someone like Rick Scott, who’s got great enthusiasm and great knowledge, and I say, ‘Here’s your shot in life. I’m going to be cheering like hell for you from the sidelines.’ It’s incredibly satisfying to watch them take control and succeed.”
And it has got to be just as satisfying when he gets to laugh at his critics. This past April, only weeks after oil and gas analysts were chuckling over Rainwater’s Mesa investment, company executives announced that for the first time in seven years, Mesa had turned a profit with a first-quarter income of $1.1 million, or 2 cents a share. According to one press report, the announcement “shredded Wall Street projections.” “And those earnings are only going to get higher because I know—I know!—natural gas prices are going to rise,” Rainwater told me when I called him again in July. He sighed. “Gee, do people really think I don’t know what I’m doing?”
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