BUSINESSWEEK ONLINE : JUNE 5, 2000 ISSUE
INTERNATIONAL -- FINANCE

The Man Who Loves Disasters (int'l edition)
Nomura's Guy Hands has become a top turnaround star

London's Millennium Dome, the enormous exhibition center near Greenwich, is a fiasco. Since it opened on New Year's Day, it has been plagued by management troubles and a disappointing turnout. Executives blew through $750 million in government-lottery money and had to go begging for more. The government reluctantly agreed to kick in $43 million, provided Dome chairman, former British Airways PLC chief Robert Ayling, was booted out.

So who would want to buy the Dome? Guy Hands, managing director of Nomura Securities International Inc.'s Principal Finance Group in London, for one. He is one of two finalists to take over the project when it goes private at year's end with an expected $225 million price tag. ''I am looking for businesses that really need operational improvement,'' he says.

Hands has become one of Europe's most prominent financiers by finding gold in businesses that others have spurned. Since persuading Nomura to back him in 1994, he has brought in about $12 billion worth of deals, making him one of Europe's top private equity operators. Nomura sources say Hands's returns average about 60%; he has earned $1.9 billion for the firm and a tidy sum for himself. The peculiar opportunities to be found in fading industries are what appeal to Hands. ''There's a lot of profit to be made from understanding decline,'' he says.

Certainly, his portfolio of companies would make a Silicon Valley venture capitalist wince. Pubs, for example, are supposedly going nowhere as a business. But Hands is Britain's second-largest pub landlord. He has put together five chains totaling 4,750 bars, which give him more purchasing power and allow him to cut costs through central management. He also owns Thorn, a TV-rental business, and he's a steady customer for British government privatizations such as railroads and real estate. Hands is currently bidding on an estimated $3 billion contract to take over and manage some 500 properties from Inland Revenue, the British tax authority. And he would like to purchase Hyder PLC, a Welsh water and power company drowning in $2.85 billion of debt. There are some obviously troubled companies that Hands won't go near, though--British retailer Marks & Spencer, for example. It is too well-managed for him to be able to make a difference, he says.

AGGRESSIVE STYLE. Hands has taken over some of the most traditional businesses around using some of the most unconventional strategies. Along the way he is helping to modernize European finance. He was one of the first Europeans to do billion-dollar buyouts. He has introduced ideas from the U.S. such as financing deals with bonds backed by the revenues of his purchases. And he has nurtured a team of high-powered financial analysts whose models of target companies are far more sophisticated than those used by investment banks.

But the former bond trader's aggressive style makes some bankers wary. Like all buyout operators, Hands could be hurt by a big rise in interest rates or a drop in market values. Analysts also wonder if Nomura, which has been burned by lone operators before, exercises enough control over him. Others speculate that Hands's enthusiasm about the Millennium Dome has more to do with the project's high profile than its business prospects. A rival believes that the bid for the dome ''is about Guy's ego.'' Could be. It is also, though, an indication that in an increasingly competitive industry Hands may have to take on more risky deals if he's going to keep earning 60% returns.

At Nomura's staid London headquarters near St. Paul's Cathedral, the 40-year-old giggles over past successes and gushes about his team of backroom quants. Many have doctorates in mathematics; four of the 12 are veterans from CERN, the European nuclear-particle lab near Geneva. Nonetheless, at least one banker dismisses Nomura's expensive number-crunchers as ''a placebo'' to ease Hands's anxiety about making high bids.

CONSERVATIVE TIES. Hands himself studied science, but after nearly blowing up a high school chemistry lab, he switched to economics and philosophy at Oxford University. He also worked as an art dealer on the side, earning enough money to purchase a rental property. One of his tenants was William Hague, now the leader of the Conservative Party. The two became friends, and Hague served as best man at Hands's wedding. Today, Hands lives with his wife and four children in the prestigious London suburb of Sevenoaks, in a mansion that boasts two rooms for playing snooker, five wine cellars, and Winston Churchill as a former owner.

He seems to revel in being different from the usual buyout players who are under constant pressure to invest. Nomura's backing means that Hands can take his time closing in on deals. He calls on the firm's capital when he's found a worthy investment and then repays it when he sells. ''We pay a lot of attention to small details,'' he says. ''That gives us a huge advantage in spotting things.''

For example, Hands says that his group's analysis of the TV-rental industry showed that Thorn, which he bought for $1.4 billion in 1998, was targeting the wrong demographic. Thorn management sought those who couldn't afford to buy TVs. Research showed that the stores should instead aim for well-off clientele who preferred to rent the latest model rather than buy what would soon become obsolete. Last year, Thorn's profits in Britain were up about 70%, to $66 million.

In bidding for the Inland Revenue property, Hands's brain trust built a computer model that produced 1.2 million pages of data. Nomura went through a similar exercise when it bought some 55,000 homes from the Defense Ministry for $2.6 billion in 1996. Hands hopes to build a property-management organization that he can either take public or sell off.

A tenacious negotiator and a demanding boss, Hands is also something of an opportunist. For instance, he bought William Hill, a chain of 1,500 betting parlors, at a liquidation sale for about $1 billion in October 1997. Sixteen months later he was ready to sell. But when investment bank Warburg Dillon Read failed to secure what Hands thought was a high enough flotation price, Hands ditched them. Instead, he cut his own deal with two rival firms--Cinven and CVC--and sold the business for a $151 million profit. That, associates say, is typical Hands. ''I have a very high opinion of him, but I wouldn't want to work for him,'' says an investment banker in London.

Mostly, though, Hands has earned a name for himself through his innovative financings. In the late 1990s, he made a killing by financing acquisitions with bonds that were backed by the project's revenues. His most profitable deal was Angel Trains, a railroad rolling-stock unit he bought from the government for $1 billion in 1995. Hands quickly sold investors more than $1.1 billion worth of securities backed by train leases. Then he sold the actual business to Royal Bank of Scotland in 1997 for $646 million, bringing his total profit on the deal to $675 million. ''He's a brilliant financial engineer,'' says a rival.

But that was 1997. Now, Hands says, those techniques are so well known in Europe that there's no more money to be made from them. That's why he is bidding for such white elephants as the Millennium Dome, and it's why he will be looking for industrial companies in other European countries. He has already set up an office in Frankfurt. But in his first foray in 1998, he lost out on a bid for 112,000 railroad workers' apartments though he was the highest bidder. He has also brought in two senior deputies: Michael C. Johnson, former head of high-yield finance at Donaldson, Lufkin & Jenrette in London, and Mike Kinski, former CEO of British rail company Stagecoach.

Hands has still got his rocket scientists beside him, Nomura behind him, and his own knack for innovative ideas. But in an increasingly competitive buyout industry, he will no doubt find it harder to make his mark--and those 60% returns.

By Stanley Reed in London

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The Man Who Loves Disasters (int'l edition)

TABLE: Hands's Quirky but Profitable Deals



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