Tuesday, June 18, 2024 Jun 18, 2024
81° F Dallas, TX


This maverick investor is shooting for a billion-dollar deal.

Unlike many men who control great wealth, Harold Simmons is not hard to reach. He’s not protected by a phalanx of yes-men and yes-women who zealously screen him from the world. Call him at the offices of Contran, the parent company of his empire, and he’s likely to answer the phone himself. Ask to see him, and he’ll probably give you a couple of hours, not just 10 minutes sandwiched between a meeting and a business lunch.

Harold Simmons does work, though. No doubt about it. Through Contran Corporation, a many-tentacled holding company 99 percent owned by the Simmons family trust, he controls more than 20 companies with total assets of more than a billion dollars. Given a little time, he could liquidate his personal holdings to the tune of $200 million.

And yet, dressed in a faded madras shirt and jeans, dwarfed behind a mammoth desk curiously free of paper work, the 51-year-old Simmons is not an imposing figure. He looks too slight to have played on the University of Texas’ 1951 championship basketball team. And he looks too mild to have once whipped super-conglomerator Jim Ling in a particularly vicious proxy fight.

But don’t let appearances deceive: This soft-spoken ex-country boy from Golden, Texas (pop. 200), may not look like the stuff of which tycoons are made, but he strikes fear into many corporate hearts. Not for nothing did a Wall Street Journal report cite his reputation as “a financial gunslinger from Texas” and “a ruthless takeover artist.” Let Harold Simmons look their way, and lots of directors on lots of boards break into a sudden sweat. Some memories from the Simmons portfolio: – When Simmons bought 20 percent of troubled Pacific Southwest Airlines (PSA) in 1978, PSA president William Shimp was quick to go to the mattresses. He convinced shareholders to vote an amendment making it almost impossible for Simmons to get more of the stock. The rules change might as well have been called the Simmons Amendment, since it was designed exclusively to prevent a Simmons takeover of the airline. But can you blame PSA? Simmons had openly declared that if he gained control of the company, he would close it and sell off its assets. To him, PSA was worth more dead than alive.

Needless to say, PSA’s management was not eager to sacrifice itself on the altar of Simmons’ ambition. He lost a bitter proxy fight in opposition to the amendment, but wound up on top by trading his PSA stock for four Boeing 707s – which he then leased back to PSA for three years. Simmons netted far more than his stock was worth, and PSA got rid of what Forbes called “an unwelcome suitor.”

In 1980, when Simmons bought 29 percent of the LLCCorporation of St. Louis (the old Liberty Loan Company, with54 personal finance offices and 100-plus fast-food restaurants),LLC slapped him with an anti-takeover lawsuit and placed anad in The Wall Street Journal warning stockholders againstyielding to Simmons’ “legal but devious” business practices.The action was to no avail; Simmons soon increased his share inthe company to 40 percent. Then, to calm corporate fears, heagreed to limit his ownership to 40 percent until at least 1984 –if no other party acquired as much as 10 percent of LLC stockand if no two parties got as much as 15 percent. Whatever Harold wants.. ..

– THAT SAME year, Simmons acquired about 33 percent ofArtco-Bell of Temple, Texas, distributors of Herby’s Foods andmakers of school furniture. Artco-Bell officials made no bonesabout the company’s attitude toward Simmons. “We know hispast history of investment, and he scares us to death,” said one.According to Simmons, Artco-Bell denied his request for a seaton its board and formed what he calls “a shell company,” B&MInvestment Co. Artco-Bell then issued 300,000 new shares toB&M, a move Simmons charges diluted his interest in Artco-Bell from 33 percent to 24 percent.

– LAST SUMMER, Simmons turned his attention to the Ben E.Keith Company of Dallas and Fort Worth, distributors of Anheuser-Busch products in the North Texas area. Using an ex-Keith employee as middleman, Simmons bought 8 percent ofthe company’s stock and retained an option for 3 percent more.All the stock is non-voting, meaning that Simmons will not beentitled to any representation on Keith’s board of directors.But his actions still have the Budweiser distributors over abeer barrel.

Simmons bought the Keith stock through one of his holdings, a public company called NLI Corp. Problem: Anheuser-Busch has an equity agreement with all its distributors stating that its stock cannot be owned by any public company. Ben E. Keith’s president, Robert Hallam, says he is sure that Simmons knew of the agreement when he bought the stock; Simmons says he’d never heard of such a stipulation. Simmons says he asked Ben E. Keith to transfer the stock to his own name; Hallam says Simmons is lying and has refused several Keith requests to transfer his stock.

As several of Simmons’ critics will attest, it’s hard to figure out what he’s thinking, but he’s thinking all the time. Some observers believe that Simmons’ machinations can have only one result: profit for Simmons. If Anheuser-Busch decides to hold Keith to the agreement, the company will have to buy back Simmons’ stock or lose its lucrative Budweiser franchise. And if Keith wants to regain the stock, Simmons will sell – but for much more than the $100 a share he paid. Both sides have filed suit, each charging violations of Securities and Exchange Commission (SEC) regulations.

The attempted takeover and the corporate power play, of course, are solidly in the spirit of American capitalism; empire-building is the name of our game. Harold Simmons draws the lightning more than most of his breed because of his method and his manner. He once told a national magazine that he was “not afraid to get into a pissing match with anyone.” The record bears him out. He’s been loud and clear with his investment philosophy: “When buying into a company, he gives ex-isting management a chance to live up to Simmons standards. One chance. Then he sweeps clean, bringing in his own people.

To hear Simmons tell it, corporate managers fear him only because of their own sloth and greed. He believes there’s a built-in, irreconcilible conflict between management and “the real owners” of a public company: the stockholders. The stockholder’s main interest is in a higher price for his equity. If management does not achieve an increase in the share price over a period of years, Simmons says, they’re failing the stockholders.

“Management’s goal is not to increase the value of the stock,” Simmons says. “They want to increase their own compensation and their own power. Hell, that’s just human nature. I’d do the same thing in their position. The first thing they think about is their job and their paycheck and their ability to go out and get in the company jet. If it comes down to a conflict, they’re going to help themselves and not the stockholders.”

That’s the corporate world according to Simmons. He sees himself as the friend of the shareholders and the natural enemy of sleek managerial fat cats. As evidence of his concern for the shareholder, he cites his experience with a recent acquisition, TIME/DC, a trucking concern based in Lubbock. Hugh Shurtleff, president of the company, says that soaring union wages were hurting TIME, especially after deregulation brought new, non-union competitors into the market. A receptionist at TIME was making $26,000 per year plus some $9,000 in fringe benefits. With contract negotiations approaching, management knew that something had to give.

Enter Harold Simmons, who has never been a fan of Big Labor:

“In some cases it’s better for the stockholders if you stand up to the union and say, ’No, you ain’t getting any more. If you want to strike and take the company down, go ahead.’ “

The Teamsters went ahead with their demands, rejecting the proposed TIME contract. They struck; Simmons struck back, locking out the strikers and closing the company. The last thing a professional manager wants is to close his company, but Simmons is not a professional manager. He is now liquidating TIME, arguing that the shareholders will come out better this way. “If we’d stayed with that same contract, in a year the company would have been broke,” he says. “This way, they’ll get something out of it.”

That’s the Simmons style. He looks for companies that have not been able to raise the price of their stock to what he calls “a realistic price under a little different circumstances.” Then he creates the circumstances. That, say friends and enemies alike, is the genius of Harold Simmons.

“He has the finest mathematical and analytical mind I’ve ever seen,” says a former Simmons associate. “If he’s not a genius, he certainly comes close.” Dallas attorney Tom Thomas, who describes himself as “an admitted Simmons watcher,” says Simmons has an amazing ability to detect values that go unseen by others. “Many of the managers he deals with are not as good as he is at perceiving their own company’s value,” says Thomas. “Naturally they’re nervous. Not the stock-holders, though. They invariably do well with Harold.”

“I’m not hurting anybody,” Simmons says. “They call me a takeover artist and make you think I come and steal something. Hell, 1 offer to buy that stock at a higher price than anyone else will pay. Too often, though, management likes to keep the stock widely dispersed so there is no boss. They always couch this in some very interesting language, like saying this is in the best long-term interest of the shareholders. Well, what is in the best long-term interest of the shareholders? Nobody knows. The question is, what’s the stock worth today? Do the shareholders want to sell it?”

Harold Simmons’ parents were smalltown schoolteachers, which almost by definition means they bequeathed to him (1) an inquiring mind and a respect for learning and (2) very little money. Like the sons of many lower middle-class families, Simmons had enough of a financial cushion to prevent his having to leave school and work merely to survive, but nowhere near enough money to provide him an entree into society. If he was going to make it, Simmons knew from an early age, he would have to make it on his own.

At the University of Texas, Simmons majored in economics, received a master’s degree and was Phi Beta Kappa. But intellectual superiority and athletic skill were not enough to help him overcome the social awkwardness that he says has bothered him all of his life. “I’ve always been socially retarded,” he says. “I’m better now than I was in college, but I’m still not the biggest talker in the group. I go to a party and meet 10 people, and the next day I can’t remember a single name. I’ll never be elected to public office.”

Harold has no gift for small talk,” says a longtime friend. “Talk to him on substantive matters like politics or the economy and you’ll find him remarkably well-informed. But make some light remark about the weather and he’s likely to just stare at you.”

Simmons believes his inability to slap backs and swap stories has made it harder for him to buy into new companies without a fight. “I do think it would be an asset if people liked me,” he says. “Many people don’t like me immediately. I buy stock in their company and they start suing me. If I had a more pleasing personality and more insight into how to deal with people, 1 might have fewer problems. My brother Glenn [Contran’s chief operating officer] is better than I am, but he’s not very good either. We have other talents.”

While completing his master’s at the University of Texas, Simmons married Norma Jean Fairchild. Before long, a child was on the way, and Simmons knew he could not afford the leisure of a long career search. He took a job with the U.S. Civil Service Commission, and when that job was phased out, became a bank examiner. That led to a five-year stint as a loan officer with Republic National Bank – and problems with the Simmons ego.

“I thought that I was smarter than the people I was working for,” he recalls. “I had trouble getting along with superiors. Anyway, I didn’t want to work all my life like other people. I wanted to think of creative ideas and be a capitalist, the guy who controls the money.”

So in 1961, on the brink of the euphoric Sixties, Harold Simmons set out to be a capitalist. With $5,000 in cash and a note of $95,000, he bought University Pharmacy across from SMU. Simmons had planned to own a chain of drugstores within five years but found the world not quite ready to roll over at his command. At the end of five years, he still had only University Pharmacy, the flagship of an imagined fleet. And then, things began to happen.

Simmons bought five drugstores, then seven more at one blow, convincing a small drug wholesaler in Waco to back him in return for his wholesale business. A year later, he had the chance – and the capital – to buy Mading Drugs, a 30-store chain in Houston. The age of the conglomerates in Texas was beginning. A man named James Ling, whose career would intertwine with Simmons’ at several points, was building a kingdom known as Ling-Temco-Vought, later LTV. Harold Simmons, watching Ling from afar, sensed that a new sort of financier was needed for a new economic climate. “Everyone was optimistic,” Simmons remembers. “We had a very strong economy and very low interest rates. It was really a time to do deals, a booming time. I took advantage of it.”

Simmons rode the wave of prosperity through the years of the Great Society, wheeling and dealing with the best of them. He added an East Texas drugstore chain and bought and sold a chain of 20 stores in Denver. As a result of a Dallas Morning News story touting him as “the builder of an 80-million-dollar empire,” Simmons got a call from a Dallas investment banker asking if he was “big enough” to handle the purchase of the Ward Drug chain. The asking price was $18 million. Simmons jumped.

As the Sixties drew to a close, Harold Simmons was already rich beyond the dreams of ordinary people. With conservative investments, Simmons and his family could have lived quite well on accumulated interest. Nobody from Golden, Texas – and few people from Dallas or Houston – had ever done so well. But Simmons knew that Contran was still minor league compared to the LTVs and Tele-dynes of the world. Money alone was not enough; Simmons is too intelligent and too competitive to be satisfied by the ostentatious trappings of wealth.

So, in the grip of what he calls “con-glomeritis,” Simmons began to take the steps that have clouded much of his career in controversy. To many investors of the Sixties, the royal road to empire led through casualty insurance companies. Though such companies provided only cyclical profits themselves, they could generate large volumes of cash reserves to be invested in other companies. Find some good casualty insurance outfits, said the common wisdom. If they just break even, you’ve got all that money to play with.

Simmons bought the common wisdom, though by his own admission he knew nothing of the “nitty-gritty” of the insurance business. No matter. For $500,000 cash he bought Dealers National Insurance of Dallas, which in turn swallowed up Liberty Universal Insurance Co. of Fort Worth for $1 million.

Reportedly, Simmons acquired Fidelity General Insurance of Chicago through a then-legal technique known as bootstrapping. He borrowed several hundred thousand dollars from a Houston bank to acquire Fidelity, which bought debentures from Simmons’ Mading-Dugan Drugs. Mading-Dugan used its money to buy stock in Fidelity. Simmons used those proceeds to pay off the loan and, in effect, bought Fidelity with its own assets.

Now, fast forward a couple of years. Simmons’ Texas insurance companies have foundered and been put in receivership. That’s a fact, but almost everything else connected with the matter is hazy. There are several conflicting versions of what happened. According to Simmons, an associate named Harry Stuth convinced him that Dealers National was doing much better than it actually was. In reality, the company was writing much “bad business” and paying out more than it was taking in through premiums. Simmons says that Stuth, who was managing the company, showed him “false and misleading” financial statements that greatly underestimated Dealers’ losses. It was also Stuth, Simmons says, who led him into Liberty Universal and Fidelity General Insurance Co. of Chicago, both of which had serious problems.

When Simmons finally learned the somber truth about his companies, he says, he stripped Stuth of his authority and put his brother Glenn in charge. By that time, however, Dealers’ vital signs were failing. When the insurance companies reported their losses, the news caused the Contran and Mading-Dugan Drug stocks to plummet. The insurance companies were not only losing capital from operating losses, but were also suffering from the decline of their supporting stock.

Simmons was worried. So were the state’s insurance examiners. At the suggestion of the state insurance commissioner, Contran and Mading-Dugan arranged a swap of the stock of the insurance companies for the stock of Texas Consumer Finance Corporation, another Simmons holding. This complicated trade separated the drug companies from the insurance companies.

In 1970 came the fall. Texas Consumer Finance, which was supposed to be shoring up the tottering insurance companies, began to lose its credit lines as interest rates rose and money grew tighter. The company filed Chapter 11 bankruptcy. Then, more surprises: Texas Consumer Finance had made some bad loans and was not salvageable. As a result, Dealers National and Liberty Universal filed for voluntary receivership. Both companies were liquidated, and Simmons lost virtually his entire investment.

Lawyers in Texas and Illinois claimed to see several improper moves on Simmons’ part. They alleged that the stock transactions, rather than being for the benefit of Dealers National, were part of a conspiracy to “loot and defraud” the company.

In 1974, just before the statute of limitations on the insurance problems would have expired, a federal grand jury in Chicago brought a 15-count indictment against Simmons, his brother Glenn, Harry Stuth and others, accusing them of defrauding Fidelity General and its stockholders. After seven months of trial by media came the actual trial, in which a federal judge found Simmons and his friends not guilty.

However, Simmons’ problems with the courts – and the court of public opinion – were just beginning. Next came the Texas civil case against him, in which the plaintiffs were asking for dollars beyond what Simmons could pay -$25 million, to be exact. A defeat would have wiped him out, but a jury and appelate courts held that Simmons had acted responsibly.

Simmons believes there’s cause for “legitimate criticism” of his business acumen during the period, but not of his ethics. He says he can be accused of nothing worse than naivete – and naivete, according to a Reader’s Digest article he once read, is a quality almost inseparable from genius.

“I was naive to have gotten in [the insurance business] not knowing any more about the business and the manager [Stuth] that I had. If I’d had more sophisticated financial controls, I might have caught the problems sooner. But there was nothing dishonest or illegal.”

Harry Stuth says he’s tired of being used as a “scapegoat” for Harold Simmons. According to Stuth, Simmons magnified the insurance companies’ problems to take pressure off himself for the failure of the drug chains to produce as he had predicted they would. Simmons’ “naivete” defense gets little sympathy from Stuth. “Harold Simmons is not at all naive,” he says. “He can look at any set of figures and tell you more about them than if you’d prepared them yourself.”

His legal ordeal was over, but Simmons found that many people continued to believe that where there’s smoke, there’s fire. “People who don’t know the facts say I just beat that rap,” Simmons says. “Those times were very damaging to my reputation. But it was good experience. It made me learn to be self-reliant and realize that I had to take care of myself.”

In the insurance debacle, Simmons found further confirmation of his “lone wolf view of the world. More than ever, says one friend, Simmons began to see himself as the outsider who would never be invited to the tables of the mighty. Simmons was looking out for number one long before the book (which happens to be one of his favorites) was written.

“Bad publicity generates bad publicity,” Simmons says. “They’re like wolves. They see somebody attacking you and they want to attack, too. After the 74 indictment, I was fair game for anybody.”

For a time, Simmons feared that the hangover from the indictment might never go away. Shortly after he was acquitted in Chicago, the Securities and Exchange Commission began investigating a $6.3 million loan made to Contran by the City of Dallas pension fund. There was no formal accusation that Simmons had broken any law, but his presence so near the city coffers was grounds for suspicion to many.

The loan had been made in 1972 and 1973, with the city acting on the advice of investment counselors Campbell, Henderson and Co. But Campbell, Henderson had been advising Harold Simmons, too. SEC regulations prohibit registered advisers from being compensated by both parties in a transaction. (Simmons, by the way, says he was unaware of the firm’s two-sided involvement.)

Simmons’ voice drips disgust as he remembers the public outcry over the affair, which ended with the city breaking its ties with Campbell, Henderson and setting new guidelines for city pension fund investments. “There was never any loss or possibility of loss.” Simmons says. “The loan was adequately secured at all times. They made the whole deal look suspect.”

In late 1973, Simmons learned that not all troubles came from outside the walls of his Contran fortress. A “palace revolt,” much like the one that deposed Jim Ling at LTV, was begun by two Contran stockholders with combined assets of around $400,000 in Contran stock. The trouble stemmed from a proxy solicitation Simmons had sent to his stockholders asking for their votes to merge Ward’s Drugs, Williams Drugs and Contran.

The stockholders approved the merger, but forgot to look at the fine print. In a letter sent to stockholders a few months before the proxy solicitation, Simmons had announced that he had given his children SI ,800,000 in preferred stock. It took a while for stockholders to realize that the move gave the Simmons children the power to elect a majority of Conlran’s board of directors.

Asking for $12 million in damages, the angry stockholders alleged that Simmons had violated the fraud section of the Securities Act of 1934. Worse for Simmons, Judge Robert Hill appointed a special master to examine Contran’s inner workings. Between them, the special master and the attorney for the stockholders charged that Simmons’ second wife, Sandra Saliba, had been using the company’s million-dollar Cessna Citation to train as a pilot (she would later become Braniff’s first female pilot) and that Simmons and his family had taken numerous pleasure jaunts in the aircraft, including a trip to Mexico City one Christmas Eve. Eventually, the matter was settled out of court, with Simmons agreeing to convert his children’s preferred stock to common and to reduce their influence in the corporation.

Simmons dismisses the stockholder’s complaints as a “nuisance suit motivated by an attorney’s desire for legal fees.” He also says his wife served without compensation as copilot on the company plane (which he piloted), thereby saving Con-tran the expense of hiring another pilot.

Of all the controversial struggles of Harold Simmons’ career, the battle with Jim Ling and Danco may have been the toughest – and the most lucrative. The Danco fight began in late 1976 when Ling and another Contran stockholder, William Tinsley, saw that Simmons was increasing his holdings in Contran. Simmons had 37 percent; Ling held 10 percent and Tinsley 5. Neither man wanted to be a minority stockholder if Simmons gained a majority of the stock. A series of tender offers ensued from Danco, the company formed by Ling and Tinsley for the express purpose of taking over Contran and ousting Simmons. Amid a flurry of suits and countersuits, the Danco rebels increased their share to 43 percent, but could go no further, even after increasing their tender offer from $35 to $50 a share.

Eventually, Ling’s backers in Danco grew tired of what Tinsley calls “a Mexican standoff.” Ling’s support evaporated, and Danco sold out to Simmons. It was a major coup for Simmons, giving him control of Contran and victory over Ling, Simmons’ role model back at University Pharmacy. The wheel had come round, and Harold Simmons was on top.

Not all Simmons’ dealings with his far-flung subsidiaries are tinged with fear and loathing. At Keystone Consolidated, a Peoria steelmaker, Simmons met with “no opposition whatsoever” when he acquired more than 40 percent of the company’s stock, according to Keystone vice chairman J. Walter Tucker. Tucker describes Simmons as “an astute businessman and a fine individual. He doesn’t disrupt anything. He takes a substantial interest in the company, mostly in a policy-making role. 1 think having that caliber of individual on the board is good for the company.”

When Robert Hallam of the Ben E. Keith Co. says today that he’d rather not have Harold Simmons investing in his company, he’s thinking about that controversial Simmons past. Hallam does not fear a Simmons takeover – virtually impossible since the Hallams and a few others own 67 percent of the company’s voting stock – but he does wonder about Simmons’ reasons for acquiring the stock and about the method Simmons and a former Keith employee used in buying the shares. Simmons’ middleman allegedly asked that the stock certificates be signed in blank, so the sellers wouldn’t know who was buying the stock.

Simmons denounces Ben E. Keith’s “delaying tactics” and says its offer to buy in shares (at $70 per share, with $20 paid in cash and a 5-year note on the rest) was unfair to stockholders.

“While that offer was out to the widows and orphans,” Simmons says, “they paid a Wichita Falls bank $175 a share for their stock in the company (shares that Simmons has also tried to buy). The SEC forbids buying at another price after a tender offer.”

Again, a familiar Simmons pattern: a deal, an accusation, a suit, conflicting versions of the truth. Ben E. Keith’s Robert Hallam says that the $70 per share offer had expired well before the higher offer was made to the Wichita Falls trust. As for the Anheuser-Busch equity agreement forbidding just the sort of purchase Simmons arranged, Hallam says Simmons was told about the violation on May 12, the first time the two men ever met.

Simmons is unimpressed. “Anheuser-Busch can’t control stockholders or Harold Simmons,” he says. “They just don’t want any strong, sophisticated group to deal with as a distributor. They want one guy out in the boonies that they can manipulate. If they [the Hallams] had a concern about this, 1 would have been glad to talk with them and perhaps put the stock in my name. But what did they do? They refused to talk to me and accused me of racketeering. I don’t think people act like that unless they’ve got something to hide.”

The courts may ultimately pick out the truth – or a truth – in the Ben E. Keith matter. Whatever the outcome, it’s unlikely to change the ways of this maverick financier. His friends say that Simmons, now living with third wife Annette Cald-well and their four children, is a remarkable corporate analyst using some often unorthodox techniques. His enemies say he deliberately exploits the gray areas of the law and that he’s grown suspicious almost to the point of paranoia. Everyone who has dealt with him says he has one of the keenest minds they’ve ever encountered. Nobody would be surprised to see Simmons keep raising his sights – not a gunslinger’s sights, he says – until he reaches his own private goal.

“When you’re trying to do a little deal, say for $500,000, you’ve got all kinds of competition,” Simmons says. “Try a $10 million deal, and it thins out some. Whenyou get to making a billion-dollar deal, and you can move fast and make your own decisions, there’s not many people up there with you. My goal is to get to where I can do a billion-dollar deal. I may not ever make it, but I have something to shoot for.”