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This Buyout Game Ain't Over Yet


When Tom Hicks walked out the door in 2004 after 15 years at legendary buyout firm Hicks, Muse, Tate & Furst Inc., he had in mind a dream retirement. He would revive his Texas Rangers baseball team and Dallas Stars hockey franchise, and develop real estate that came with the teams.

That would be enough action for most 60-year-olds. But Hicks found that his appetite for acquiring companies was as voracious as ever. "It's what I've been doing for 30 years," he says. "It's hard to stop."

Just 18 months after launching Hicks Holdings, a vehicle for his billion-dollar sports and real estate empire, Hicks-the-dealmaker is on a tear. He has bought an upstart electronics firm with 1,000 employees in China, started a new venture with DirecTV selling bundled TV-telecom services to condos, and made bets on such eclectic businesses as landscaping materials in the Midwest and pet food in Argentina. And he has revved up expansion of Gammaloy, an oil field rental outfit he bought from his wife's family a decade ago. Having paid about $20 million, he may sell it or do an initial public offering, which could fetch more than $200 million, according to Wall Street sources.

So far, Hicks, who invests with backing from three local families, is keeping his wagers in the $10 million to $250 million range, compared with the multi-hundred-million-dollar ones he did at Hicks Muse. But he isn't ruling out megadeals. Hicks disclosed to BusinessWeek that he has recently arranged to partner with buyout heavyweight Blackstone Group "in case we stumble into something large that's a great opportunity -- something over $1 billion."

The portfolio may sound like a hodgepodge, but to Hicks it's consistent with the buy-and-build strategy that established him as one of the masters of leveraged buyouts. Going all the way back to his first megadeal -- Dr Pepper/Seven Up -- he likes to use an initial stake as a building block that can be enhanced with strategic investments. With Dr Pepper, he and then-partner Robert Haas bought a bottling operation for $88 million in 1985 and parlayed it into ownership of the entire Dr Pepper/Seven Up business, which sold for $2.5 billion in 1995.

That same formula worked at Hicks Muse for more than a decade. The firm, formed with fellow Texan and former Prudential Securities (PRU) banker John R. Muse in 1989, raised more than $12 billion in funds and notched $50 billion in acquisitions by the time Hicks retired in 2004. (It still operates as HM Capital Partners under Muse, who was unavailable for comment.) But the business had hit a rough patch by the early 2000s. Hicks Muse and investors in its Equity Fund IV were burned by a $1.2 billion plunge into telecom investments in 1999. Hicks got plenty of bad press as a result.

At about the same time, the Rangers were falling apart. Hicks was being skewered for his unprecedented spending spree on Alex Rodriguez ($252 million over 10 years) and other players who were supposed to, but didn't, catapult the Rangers to the World Series. By the end of 2003, after Texas had finished in last place in its division, Hicks resolved to rebuild his ailing club, shipping Rodriguez off to the New York Yankees.

FAT ROLODEX

That task was supposed to take up most of his time after his self-described retirement a year later. But before long his hundreds of business contacts swamped him with investment proposals, jump-starting his new deal machine. Sheldon I. Stein, a Bear, Stearns & Co. (BSC) senior managing director whom Hicks has known for 20 years, called his attention to Ocular LCD Inc. last year. The Richardson (Tex.) maker of liquid-crystal displays was looking for capital to finance its expansion as a supplier to such companies as General Electric Co. (GE) (alarm systems) and Dresser Inc. (gas pumps). Hicks liked Ocular's low-cost manufacturing structure, with all but a handful of its 1,000 employees, including 60 engineers, in China, where its factory workers average about 50 cents an hour. There was one problem: Another bidder was willing to pay more.

Hicks applied pressure to the two founders. When he learned that Ocular Executive Vice-President Larry Mozdzyn played in a hockey league, Hicks invited him to Stars games. CEO and co-founder Ben Kwong had a son who was an avid Rangers fan; father and son were suddenly guests in the owner's box. "We had an opportunity to connect pretty easily," says Hicks, who got the deal done in January. One key was insisting the two founders remain large equity owners and continue leading the company. "The big thing to us was Tom's track record of supporting growth strategies for the long term, vs. some of the other suitors that seemed to be more short-term oriented," says Kwong.

The calls kept coming. Paul Savoldelli, another longtime colleague, presented Hicks with an idea to bundle TV, telecom, and alarm systems for multiple-dwelling units (MDUs). They often contract with a mom-and-pop with spotty service, Savoldelli noted. He argued that buying up regional providers and investing in superior service capabilities presented a giant opportunity. Hicks Holdings bought its first MDU provider in Florida last November. Hicks talked to another longtime contact, DirecTV CEO Chase Carey, whom Hicks knows from negotiating broadcast deals for his sports teams. Hicks and DirecTV agreed to become partners in a new venture called DirecPath, with Savoldelli as CEO. DirecTV will contribute programming and Hicks' people will choose the other vendors -- telephony, broadband, security -- in each region and market the service. Hicks has since added acquisitions in Atlanta, North Carolina, and Texas, and is prowling for more deals.

Of course, giant cable and telecom companies also are gearing up to provide bundled services. Hicks says the scrappy DirecPath will bring an entrepreneurial spirit to the MDU market. It's similar to the rollup strategy Hicks Muse used to buy small radio stations in the 1990s, culminating in the $23 billion Clear Channel Communications Inc. (CCU)/AMFM deal.

And then there's real estate. Hicks has teamed with Ross Perot Jr.'s Hillwood Capital to build a $3 billion, 75-acre urban district called Victory Park next to American Airlines Center, home of the Stars. He's also partnering with Steiner + Associates to build a commercial, residential, and retail complex in Arlington, where the Rangers play and where the Dallas Cowboys are building a new stadium. Hicks hopes to create a destination of shops and restaurants that will help attract fans. He has a third $1 billion-plus multi-use project surrounding suburban Frisco's sports complex.

If retirement has taught Hicks anything, it's that sports teams are still his passion. He's given up signing superstars in favor of nurturing future talent. For all his business accomplishments, Hicks says his Stars' Stanley Cup victory in 1999 was the high point of his life. He's not sure a World Series win would top that, but he sure wants to find out.

By Mark Morrison


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