BUSINESS • Thomas O. Hicks

He’s an invesment whiz who has made a fortune gobbling up other comapanies.

September 1998By Comments

IT’S PREGAME BATTING PRACTICE for the Texas Rangers, and fans are leaning over the railing, trying to get Juan Gonzalez’s autograph, when a tall man in a business suit walks onto the field. “Mr. Hicks! Mr. Hicks!” several of them call to the new owner of the team, who smiles and walks over. It’s not every day an executive signs autographs at the ballpark. “I don’t know why fans want my autograph,” he tells me later with an amiable shrug. “I don’t tell the team what to do. I’m just there to watch the players too.”

In this business-savvy age, Thomas O. Hicks has become a genuine media star who is watched almost as much as his team. Such publications as the New York Times and Forbes magazine have printed awestruck stories about the number of companies being bought almost weekly by Hick’s leveraged buyout firm, Hicks, Muse, Tate, and Furst. U.S. News and World Report went so far as to predict that the silver-haired 52-year-old Hicks would dominate the country’s buyout business “for years to come,” besting such legendary New York financiers as Henry Kravis, whose exploits in buying out RJR Nabisco were chronicled in the 1990 book Barbarians at the Gate.

Hicks is no Jerry Jones. He is hardly colorful during interviews, he reveals little about his personal life, and he says nothing particularly memorable when the subject gets around to the investment strategies that have made him and his investors hundreds of millions of dollars. When his partners are asked to describe him, they talk in general terms about his “optimism” and his “determination” and his “guiding vision.” But David Deniger, a Hicks, Muse partner and a friend since college, says the real reason Hicks remains successful is “he does not assert his power around the firm. He sets the tone of the company, then he believes deeply in his partners, who work extremely hard finding and executing deals. Tom has built a firm that has turned out to be bigger than he is, and he takes pride in that.”

Indeed, it is hard to imagine that Hicks could possibly keep up with everything going on in his firm’s offices, which are on the sixteenth floor of the Crescent Court building near downtown Dallas. At the end of 1997, after only nine years in existence, the firm had acquired or bought controlling interest in more than 180 companies that had a combined value in excess of $25 billion. The action so far in 1998 has been eye-popping. In January, Hicks, Muse bought the Texas Rangers for $250 million. In the spring the company agreed to pay $860 million for two divisions of the Simon and Schuster publishing company; then it put $1.1 billion in equity into a $2.3 billion deal for Regal Cinemas and Act III Theatres, two national movie theater chains; and then it spent $750 million for Home Interiors and Gifts, the Dallas company that sells home-decorating accessories. In June Chancellor Media, one of Hicks, Muse’s media companies, announced it was buying a national billboard advertising company, Martin Media, for $610 million to add to the Hicks, Muse media empire of 430 radio stations and 24 television stations. The firm spent $500 million and raised an additional $300 million to acquire 30 percent of an Argentine media company that owns large stakes in Argentina’s biggest telephone and cable television firms.

Oh, and somewhere in all the transactions, Hicks and his partners, who also own the Dallas Stars hockey team (Hicks himself owns 81 percent of the team), found time to sign Brett Hull, the most sought-after free agent in the National Hockey League, to a three-year, $17 million contract.

Composed of nine principal partners and 91 associates and employees, Hicks, Muse has become one of the most influential financial centers in the country. Major public pension funds, blue-chip corporations such as American Airlines and Chrysler, and wealthy individuals are lining up to get Hicks, Muse to invest their money. As a leveraged buyout firm, Hicks, Muse uses this money to invest in other companies or buy them outright. (Unlike firms that engage in hostile buyouts, Hicks, Muse only buys companies willing to sell themselves.) The firm raised $2.5 billion for a 1996 investment fund, and it is planning by year’s end to raise more than $5 billion for another. Hicks, Muse also has two real estate funds (through a separate corporation the firm owns the Algonquin Hotel in New York City and a group of Arnold Palmer—designed golf courses) and a $950 million Latin American fund. It recently began a series of funds that will total $500 million and invest nationwide in minority-owned companies in mostly urban areas over the next five to ten years. “It’s my way of giving something back,” Hicks says, emphasizing that he plans for much of that minority investment to be in Dallas. Then he shrugs again. “Of course, I wouldn’t do it if I didn’t think it was also a good investment opportunity.”

Hicks and company are a shrewd bunch. According to one estimate, their efforts have rewarded clients with annual returns of 35 to 40 percent. Every Monday morning the partners meet to discuss their investments—actual and potential. Hicks is the chairman and chief executive officer, but, says 39-year-old Jack Furst, one of Hicks’s younger partners, “the truth is that an outsider could watch the meeting and not know who is the boss. It’s not a bureaucratic structure. Every partner here is given the freedom to identify a deal and pursue it.”

But there’s a catch. If one partner finds a potential acquisition, the other eight must unanimously agree to pursue it. “Each partner has the capability of checkmating the other,” says Hicks, “and that someone can checkmate me as well.” Such a strategy means a partner had better know his potential acquisitions inside and out. “You can’t walk into that meeting and pitch an idea by saying, ‘Hey, I’ve found an opportunity. What do the rest of you think about it?’” explains Deniger. “Your idea will get thrown right out of the room. If a partner is not excited and animated about a deal—practically evangelical about it—then you probably know it’s not that good of a deal to begin with.”

Deniger cannot remember a time when Hicks used his authority to stop a project that the other partners were committed to doing. As a result, the Hicks, Muse portfolio is a medley of projects. The firm has invested in companies that manufacture everything from beer to milk substitutes, from cowboy hats to welding helmets, from seafood to spaghetti. Another Hicks rule is that all nine partners must invest a certain percentage of their own money in every Hicks, Muse fund. (In the $5 billion-plus fund currently being raised, the nine partners have invested about $150 million.)

Born in Dallas, Hicks spent his teenage years in Port Arthur, where he worked as a weekend disc jockey at a radio station his father, a Dallas advertising salesman, had bought. Hicks went on to the University of Texas at Austin, then received an MBA from the University of Southern California. During his college years, he read The Carpetbaggers, a popular novel loosely based on the life of Howard Hughes. Out of such trashy literature came the inspiration for a grand career. Hicks decided to make his own mark by acquiring companies. He worked in the venture capital business on Wall Street (with J. P. Morgan), returned to Texas at 27 to run the venture capital subsidiary of a Dallas bank, and quit in 1977 to try his first leveraged buyout. With a partner, he purchased a small aluminum-window-and-door-manufacturing company for $4 million; after bringing in a new management team, he quadrupled his money in seven years.

Although Hicks does not like to talk about it, he nearly went broke in the early eighties, when his energy investments fell apart with the collapse of oil prices. Other Dallas businessmen remember him as just one more tall Texan in a nice suit, knocking on doors, looking to “do a deal.” He hooked up with Bobby Haas, a bearded venture capitalist from Cleveland, and they somehow persuaded a bank to loan them nearly $100 million to purchase the local Dr Pepper bottling operation. The two streamlined it and went on to buy A&W Root Beer. They then bought the Dr Pepper parent company and later 7-Up. To some in the soft-drink industry, Hicks and Haas were typical slash-and-burn corporate raiders. Leveraged to the hilt, they merged all the soft-drink operations and let go of almost all of the three hundred employees who worked at the 7-Up corporate offices. But they made plenty of money. According to one report, Hicks and Haas turned $88 million in investors’ money into $1.3 billion.

After the two split up in 1989, Hicks changed his focus. He recruited several partners and put together one large capital acquisition fund so that he would not have to rely on junk bonds to buy new companies. (In the standard leveraged buyout, the firm has to break up the company it just bought to retire some of the junk bond debt it took on to buy the company in the first place.) Hicks said he would never break up a company and went so far as to stop referring to Hicks, Muse as a leveraged buyout firm. It was now a “private equity” firm. Hicks devised a game plan he called “buy and build”: Buy a capably managed company and look for other closely related companies to integrate with it. He used the strategy when he purchased the Dallas Stars and then the Texas Rangers, with plans to package Rangers and Stars games as part of a regional television sports network spanning the Southwest. Another recent move was to put a number of the firm’s television and radio stations under Chancellor Media, the media company that already controls billboard giant Martin Media, in the hope of providing easy one-stop shopping for advertisers looking to saturate major markets. In the New York area, for example, Chancellor Media owns ten radio stations, each one reaching a different audience.

Hicks, Muse’s media strategy seems to be working. Already its television and radio stations bring in an estimated $2 billion. Like other media magnates, Hicks is looking overseas as well. His biggest impact could be in Latin America, where he is slowly building a network of media properties. His number two partner, John Muse, has sojourned to London to pursue more European investments (the firm has other offices in New York City, St. Louis, Buenos Aires, and Mexico City).

Hicks says he is trying to cut back on his famously hectic schedule, but he admits that he is still too busy and can return only half of his phone calls. He has six children, four from his first marriage and two from his second, to Cinda Cree Hicks, a former New York art dealer. He sits on twelve boards of directors and serves on the University of Texas Board of Regents, where he appears to have become one of the more influential voices in deciding whom the next UT coaches will be. His purchases of the Rangers and the Stars have taken large amounts of his time; for example, in January he found himself in the middle of an intense civic fight over a proposal that the City of Dallas help pay for a new arena for the hockey and basketball teams.

Still, Hicks says he is determined to create bigger investment funds and look for even more companies to buy. When he is asked what drives him to make his company bigger, a perplexed look crosses his face.

“What do you mean?” he asks, genuinely curious.

“Well,” comes the response, “it’s not like you need the money anymore.”

Hicks chuckles. “This isn’t about money. It’s about having fun. And after all I’ve been through, I don’t want to stop having fun.”

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