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Fast Talk, Fat Cigars, And Big Deals In The '90s


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FAST TALK, FAT CIGARS, AND BIG DEALS--IN THE '90s

On one side of his office overlooking Park Avenue is something Henry R. Silverman likes to call his "wall of shame." In fact, it looks more like a wall of pride. Eschewing the austere decor favored by many banker types, the Blackstone Group LP general partner has adorned his wall with a hodgepodge of mementos: tombstone ads, press clips, baby pictures, and even a framed collection of his favorite witticisms in giant type. Among them: "Time wounds all deals" and "Let's rob the train before we split up the loot."

That sounds like 1980s talk. But then, Silverman is an `80s sort of guy. Unbowed by `90s protocol, in which humility is supposedly in and greed out, he presses on. The former head of a Saul P. Steinberg buyout fund, he still puffs Cuban cigars and drives a Bentley--only he is now at Blackstone, an investment boutique headed by former Commerce Secretary Peter Peterson.

Silverman, 51, was brought in early last year and is now coordinating the firm's LBO activities. Tapping the group's $850 million equity fund, he bought the Ramada and Howard Johnson hotel chains last year for $200 million. This year, say several people familiar with the deal, his fund is teaming up with Time Warner Inc. to buy the 80% of Six Flags amusement parks Time Warner doesn't own. Silverman won't comment on that purchase.

HOT POTATO. The deal that excites most curiosity, though, is Silverman's proposed purchase of Days Inns Inc.'s key assets. He has bought and sold parts of the hotel chain twice already (table) and is considered by some to be partly responsible for the unwieldy financial structure that may soon force a new sale. He first bought Days Inns in 1984, when running Reliance Capital Group. He took it public in 1986, private again in 1988, and in 1989 sold it to Days Inns' largest franchisee--Tollman-Hundley Lodging Corp. The sale netted $125 million--nearly a 400% gain for the original investors, Silverman says.

Silverman's original LBO was highly leveraged, and Stanley S. Tollman and Monty D. Hundley bought the company hoping they could restructure the debt before big payments came due. That proved impossible, and Tollman-Hundley defaulted on some bond payments in late 1990. Ever since, they have been wrangling with bondholders. Now, Silverman shows up, offering $225 million to buy Days Inns' franchising agreements and reservations system--its crown jewels. The property would join Ramada and Howard Johnson in Silverman's Hospitality Franchise Systems.

Many Days Inns franchisees appear relieved by the idea, since it would mean more secure financial footing. But some bondholders are wary. One person close to the transaction calls Silverman's offer ironic, considering that he is "figuratively, the guy who brought them Pearl Harbor." Tollman has also been heard to blame Silverman, but the dealmaker says he recently told Tollman: "You guys were not naive babes. Don't tell me you didn't know what the debt was." Tollman and Hundley didn't return calls.

HAPPY WARRIOR. Smooth, articulate, and hard to ruffle, Silverman is respected as a dealmaker. But though he transformed the sleepy Southeastern chain to the nation's third-largest, some in the lodging industry still see him as an outsider, a Wall Street wizard whose debt-heavy transactions put Days Inns in a precarious position. "He has got a silver tongue," says one industry executive.

Silverman himself is filled with a cocky self-confidence. He is fond of describing dealmaking as "like going to war, without the bloodshed" and clearly relishes the power. "You say `jump,' " he says, "and legions of lawyers and bankers and investment bankers and accountants and consultants and PR guys and everybody else sort of jumps."

He's never short on boasts. His Park Avenue apartment once belonged to Walter Chrysler, he says. His country house in Bedford Hills, N. Y., makes him a neighbor of Carl C. Icahn. His Cuban "Punch Punch" cigars are so rare that for years they could only be procured by a Lebanese arms merchant friend, who allegedly got them through the Cuban Defense Minister. Silverman smokes one a day, the seven-inch stogie protruding from his youthful face to give him a comical look.

Coming from a family of lawyers and businessmen, Silverman says he always knew he would go into business. The Westchester County (N. Y.) native got a law degree at the University of Pennsylvania, but practiced just a short time. He spent the next 15-odd years as a professional investor and dealmaker and also worked for various Wall Street firms.

In 1982, Steinberg invited Silverman to come to Reliance and set up an investment fund. Starting with $60 million, Silverman invested in a flurry of medium-size deals, buying radio and TV stations, the Yoo-Hoo chocolate beverage company, and John Blair & Co., which he turned into the Spanish-language television network Telemundo Group Inc.

UPHILL SLOG. The deal that gave Silverman the biggest stage was Days Inns. With the idea that the best advertisement for a Days Inn is another Days Inn, Silverman as chief executive put together a high-powered sales force to persuade hotel owners to convert to Days Inns. He also marketed the economy chain aggressively through a large reservations system, TV ads, and discount "travel clubs." Silverman's record as an "excellent operating manager" made him a good catch for Blackstone, says CEO Stephen Schwarzman.

But Silverman will face a tougher climate if he gets Days Inns again. The recession has put a damper on travel, and the chain has grown so large that it's tough to add new units without cutting into the business of existing franchises. Also, another company could still end up buying Days Inns.

Silverman has plenty else to keep him busy. He has already added 200 hotels to the 900 Ramadas and Howard Johnsons he bought last May, and he is pushing for further growth. With roughly $450 million left in the Blackstone fund, Silverman says he's interested in buying cable-TV properties, which he says have a big "upside" in pay-per-view and ad revenues. But he'll consider any good company with too much debt. "We're looking for businesses that are overleveraged but haven't lost their franchise yet," he says. That sounds a lot like Days Inns, coming from someone who should know.

HE OWNS IT,

HE OWNS IT NOT...

SEPT. 1984 Henry Silverman, head of Reliance Capital Group, buys Days Inns in leveraged buyout for $570 million

JAN. 1986 Hotel chain goes public

JUNE 1988 Silverman takes Days Inns private again

AUG. 1989 Tollman-Hundley Lodging buys Days Inns for $765 million. Profit to original investors: $125 million

JULY 1991 Now at Blackstone Group, Silverman

offers Tollman-Hundley $225 million for key Days Inns assets

DATA: BWAndrea Rothman in New York


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