Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 18, 1993 TAG: 9304160126
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: J. LINN ALLEN CHICAGO TRIBUNE
DATELINE: CHICAGO LENGTH: Long
HE'S BEEN AN EASY RIDER ON THE ROAD TO AN EMPIRE
Sam Zell inclines his head, a seamed, well-weathered boulder, over a thick loose-leaf photo album with the printed title "Zell's Angels." He is looking for a picture of a road."We ride high-performance bikes, and we are looking for the twisty-turny roads all over the world," he said, his low voice a rasp, as though the one boulder were grinding against another. "We don't parade. We ride."
He finds the photo, a squiggle of switchbacks etched in the side of a green hill somewhere in Greece. "That is what it's all about."
Zell was talking about the two-week motorcycle trips he takes each year with nine or 10 associates, a kind of global entrepreneurs' commando raid on fun.
But he could have been talking about the slashing road that has taken him to the top of an empire of apparently incompatible companies, including some of the most recognizable trade names in the United States - and made him one of the wealthiest men in the country, with a reported personal fortune of $425 million.
In the three decades since Zell started with his first apartment building investment, and particularly since the early 1980s - when he throttled up from real estate to business acquisitions - he has made slamming through curves a specialty.
Consider his flagship industrial holding, Itel Corp. A bankrupt computer- and rail-car-leasing company before Zell took it over in 1985, it became under his control the country's largest rail-car and container-leasing business and added, among other things, a dredging company, an electrical-equipment distributor, a couple of short-line railroads, a merchant bank and a minority holding in Santa Fe Pacific.
Then in 1990 and 1991, Zell, saddled with big debt from all those acquisitions amid a refinancing crunch, unloaded almost everything except the electrical-equipment distributor, Skokie, Ill.-based Anixter Bros. Inc., which supplies specialty wiring systems and cable TV equipment.
Zell, in a 1991 annual report that perhaps immodestly uses the Biblical six-days-of-creation model to describe company history, attributes this reversal to "zero-based thinking."
That basically is the theory of "Don't be bound by what you did yesterday."
Now Itel is focusing on its growing electrical-equipment business. Its 1992 revenues were $1.5 billion. Its stock, at $3.25 back in 1984, has been trading recently in the $23 to $24 range, even though the company has reported losses the last two years, mostly because of those old debts.
As dizzying as that financial steeplechase might seem, it is only the backstretch of Zell's recent run.
In the last, breathtaking 18 months he has, through the billion-dollar Zell/Chilmark vulture fund he heads with Chicago investor David Schulte, acquired Carter Hawley Hale, the West Coast department store chain; Revco D.S., a chain of 1,154 drugstores in the eastern United States; Sealy, the mattress maker; the assets and trade name of Schwinn, the bicycle company; and Jacor, a group of radio stations.
Not to mention purchase of a 620,000-square-foot Chicago office building through the $430 million Zell/Merrill Lynch II fund and the public offering of Manufactured Home Communities, a string of mobile-home parks around the country, through a real estate investment trust.
In Virginia, a real estate investment partnership consisting of Zell and Merrill Lynch & Co. owns Dominion Tower, a 26-story downtown Norfolk office building where First Union National Bank of Virginia has its Tidewater headquarters. Zell and his partners in 1989 bought the $47.3 million worth of mortgages on the building for $36 million.
"The world seems to perceive that there's this guy named Sam Zell, and at 10 o'clock he does this, and at 11 o'clock he does that, and in effect it's just one little guy that's running around doing all this stuff."
In fact, he said, there are 20 or 30 "superior people who run various parts of the world that I'm responsible for."
But Zell does not deny that at the center is that one white-bearded little guy sitting in his trademark jeans, pullover and loafers in his toy-shop sixth-floor office, keeping track of it all.
Zell, 51, is the antithesis of a corporate czar. With a small man's combativeness and a liking for the pithy, profane phrase, he is sort of a Jewish street-kid Ross Perot.
"I believe very strongly in the rope theory, which is that you find the best guy you can and you give him the rope, and either he makes it into a lasso or hangs himself. And you combine the rope theory with the [word deleted]-in-the-wringer theory, and you end up with one plus one equals three."
Or in his focusing on the downside when he looks at a deal:
"Nobody like me ever got hurt because a deal turned out to be too good. My attitude generally is, I don't worry about how good it can get. Instead I focus on how do I get my [word deleted] out of the crack. If I'm in it."
As he said, "Subtlety is not one of my long suits."
His bluntness is a virtue in business, he adds. "People who deal with me know exactly where I come from; and frankly, I think that's the most efficient way to do anything, and I think that's why I can get as much done as I get done."
By the same token, he is renowned for his loathing of bureaucrats. In the reception room of Equity Financial and Management Co., where Zell has his office, there is a 5-foot statue of a fat man in a tweedy suit, riven with cracks. The man has six feet going in opposite directions and is festooned with red tape. The piece is called "The Bureaucrat."
Nearby is a model of a Greek temple held up by men in suits, their pants hanging down around their ankles, entitled, "Truth In Ruins." In his office is a large piece showing a bureaucrat in a cauldron of boiling water.
"I abhor a very structured organization," said Zell. "My door is always open to anybody who wants to come talk to me, and hopefully I've created the same kind of philosophy throughout the whole organization so you don't have, `Well, this guy can't talk to that guy, he's got to talk to this guy who's gotta talk to that guy.' When you're in a risk business, you need a flat rather than hierarchical structure."
However flat the structure, the atmosphere is certainly loose. Visitors are instantly recognizable by their ties. Everyone else is in jeans and pullovers.
Zell even has an informality trophy of sorts among the model motorcycles and sundry other playthings in his office: A business suit, dress shirt and tie all combined into a one-piece, zip-up jump suit. It was given to him by Merrill Lynch after a marathon series of trips raising almost $1 billion for real estate acquisition funds.
"We made 196 presentations, and after we'd landed someplace, I'd rip off my jeans, put on my suit and tie, go make the presentation, come back to the plane, take off my clothes and put on my jeans. At the closing dinner they gave me this present."
But he's never worn it. "It's a piece of art," he said.
The looseness, of course, has its business purpose: "I think that what has helped us immensely is that there is no respect for the boss. So people come in here and take me on, and that's exactly what I want."
Taking on the world is a family tradition. His father, Bernard Zell, a Jewish grain broker, fled Poland on Aug. 31, 1939, just before the Nazis started bombing. He made his way with his wife and daughter through Russia to Japan and finally to the United States, settling in Chicago.
His father got into the wholesale jewelry business and Zell, growing up in Chicago and then Highland Park, Ill., quickly showed an entrepreneurial spirit, taking pictures at school dances and selling copies of Playboy at a markup to classmates who couldn't get to the seedy newsstands that sold them back then.
His father was an exacting patriarch, with a high moral tone and devotion to hard work, with whom the youth, stubbornly independent early on, had his share of conflicts. "I couldn't get along with him," Zell said.
At the University of Michigan, Zell became friends with Robert Lurie, the beginning of an alliance that would last 30 years, until Lurie's death from cancer in 1990.
After graduation, Zell and another friend, Cody Engle - now chairman of Zell-controlled Delta Queen Steamboat Co. - started managing an apartment building for free rent while they were going to Michigan law school.
When they were offered another property to manage, they called in Lurie, who was pursuing a Ph.D. in engineering.
After Zell got bored during a brief stint at a Chicago law firm, he and Lurie started looking for real estate deals. In the early 1970s they began picking up distressed properties from developers laid low by soaring interest rates. The Grave Dancer had started to whirl.
A discordant note sounded in 1976 when Zell and three lawyers, including his brother-in-law, Roger Baskes, were indicted in a federal tax-shelter investigation over a $13 million Reno, Nev., hotel transaction. Baskes got a two-year jail term, but the charges against Zell were dropped in a deal with the government.
But the property empire kept expanding. Equity's current holdings amount to 28,000 apartment units, about 20 million square feet of shopping malls and 29 million square feet of office space. Most of this vast realm, which makes Zell one of the biggest property owners in the country, was acquired before 1980.
In that year, Zell said, he and Lurie decided to devote their time to "non-real estate activities" because there weren't enough property bargains left. "We perceived the real estate market had become efficient, and efficient markets are not my friends," he said.
Inefficient markets - basically those where good deals exist because conditions are confused and buyers and sellers are ignorant or unprepared - existed in industry, they thought.
Rail-car leasing was one example, Zell said. Another was agricultural chemicals, a field in which his fancy financial footwork led to the creation of the New York Stock Exchange-listed Vigoro Corp., which had 1992 sales of $594 million.
Starting in 1984, Zell bought bits and pieces - an ammonium nitrate plant here and a potash mine there, a fertilizer-distribution plant and a lawn-care operation with the widely known Vigoro trademark. All of it ultimately combined into a vertically integrated agricultural chemical business.
"At the time we started, every night you'd turn on the TV and another farmer in Minnesota was being foreclosed on. The reason we got our first opportunity is that everybody en masse had decided that agricultural chemicals was not where you wanted to be.
"And my esoteric conclusion was that people are still going to eat. And if you believe that people eat, then agricultural chemicals were still going to be a reality."
Once he makes his simple decisions, he has an advantage in his ability to act quickly and decisively, he said.
"We sell speed and certainty," he said. "Those are two magic words. You sit across the table from me and do a deal, you know it will get done, and you know it will get done quickly."
Zell's momentum doesn't appear to be slowing. He plans more real estate investment trust offerings, convinced that public money is the only way to finance real estate given current credit conditions, and is seeking $500 million for a third Zell/Merrill Lynch fund.
Given his record, he is likely to acquire more operations to build up his existing companies, particularly those with high-profile trade names such as Sealy and Schwinn. His goal is to dominate particular markets.
And the consummate opportunist won't let new opportunities pass him by, though he said he would concentrate on big deals rather than little ones.
That is a change from past practice, arising from Lurie's death, an event that affected him deeply. "He and I had the most unique relationship of anybody that I can imagine. We were partners for 30 years. We lived out of the same checkbook and in 30 years never had an argument.
"He literally managed our business on a day-to-day basis, and I suppose you could say I was the rainmaker. His death forced me to rethink how this place worked."
He and Lurie both had high curiosity levels and liked to explore different businesses, resulting in, for instance, Eagle Industries, which is a jumble shop of companies making products from food display cases to airplane seats to hobbyists' yarn to air compressors to ski jackets. Without Lurie, said Zell, that experimentation is likely to stop.