Shamrock mixes it up with cement firm
It was founded by the family that built the Happiest Place on Earth. But for many executives on the opposite side of the boardroom, Shamrock Holdings Inc. has been more like a house of horrors.
A few years ago, the Burbank investment company owned by Roy E. Disney led a revolt to oust Walt Disney Co.’s then-chief executive, Michael Eisner. It not only was intensely bitter but also thrust the little-known firm into the limelight.
Now it’s at it again, this time agitating for change at one of the nation’s largest cement makers.
Shamrock, created as an investment vehicle for the Disney family, is clashing with Texas Industries Inc., a Dallas company that it says has potential but is being run poorly. For months, Shamrock has criticized Texas Industries Chairman Robert D. Rogers, saying he runs the company as a “personal fiefdom.”
“He doesn’t seem to care one way or another about the shareholders,” said Stanley P. Gold, Shamrock’s president and chief executive. “By almost any metric, the company is underperforming.”
Texas Industries is the latest among a slew of companies that has been on the wrong side of Shamrock and has paid the price.
Shamrock has shaken up companies both big and small. In an unusual show of investor activism, it has toppled chief executives and has pressured upper management to improve the bottom line. In 1984, it drove out another Disney chief executive, Ron Miller.
Its latest targets -- Rogers and Mel Brekhus, Texas Industries’ chief executive -- believe Shamrock is angling for a takeover. Shamrock has been pushing to place three of its people on the company’s seven-member board.
“We can only conclude that Shamrock is agitating for change of control of the company, which we believe will not serve the purpose of creating additional value for shareholders,” the executives said in a letter to shareholders in August.
Shamrock’s Gold says his firm is merely trying to carry out its long-standing mission: hunt down businesses it believes are poorly run and whose shares are trading below value. When Shamrock finds a company that fits this mold, it invests heavily and lays out a plan to turn the company around. “We’re a company that enjoys a challenge,” Gold said. “We are serious investors that are tough but always fair.”
Gold, 67, has been the driving force behind Shamrock since it was founded in 1978 by Walt Disney’s nephew Roy Disney. Gold, a Los Angeles native, previously worked as a lawyer specializing in corporate acquisitions, restructurings, sales and financing.
Gold’s intense competitiveness has set the tone for Shamrock. Gold races Porsches -- an endeavor he calls a “hobby,” and often has a half-chewed cigar in his hands that he frequently uses as a baton to emphasize a point.
Under Gold, Shamrock has gone from an investment fund mainly used as a vehicle to diversify the Disney family’s wealth into a multi-pronged investment company that includes five private equity funds with $2 billion in assets. The Disney family has about $200 million invested in Shamrock.
Its wide-ranging interests have included a Spanish-language media company, Latin Communications Group, and a soybean processor, Central Soya Co. It currently holds stakes in Panera Bread and Coinstar Inc.
Gold, who has strong political ties to Israel, has also pushed Shamrock to invest more than $400 million in companies in that country. Shamrock says it has had about 30% returns on its investments in the Israeli companies.
John Myers, former chief executive of GE Asset Management, which invests with Shamrock, said he was initially skittish about Shamrock’s investments in Israel because of the long history of violence and instability in the region. But when he saw Gold’s personal relationships with Israeli political heavyweights such as Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak, Myers was impressed.
“I haven’t seen an American businessman that’s better connected over there,” Myers said.
Although Roy Disney owns the firm, he turned over the day-to-day operations to Gold from the company’s inception. The two met in the early 1970s when Gold helped Disney buy a ranch in Oregon.
They make an awkward pair. Disney is a Republican and Gold is a Democrat. Disney is shy and Gold is outgoing. But it’s a friendship that’s been financially fruitful for almost 40 years. The company’s historical internal rate of return on investments is about 25%, Gold said.
At times, Gold speaks about Disney, 79, more like he were a father figure than a business partner. “From the beginning, Roy has been our mentor,” he said. “We take our guidance of integrity and quality from him.”
Disney, who has been ill, hasn’t visited Shamrock for some time, but his presence is felt throughout Shamrock’s three-story office building in Burbank. Pictures of the man and the cartoons that made the Disney franchise famous line the walls on the top floor. Gold’s office also features pictures of Disney, who bears an eerie resemblance to his uncle, Walt.
Roy Disney started Shamrock in the late 1970s when he began to see his inheritance -- built by Walt and his father, Roy O., the financial mind behind the Disney studio -- dry up as Disney Co.’s profit margins dropped.
The Shamrock name reflects Disney’s affection for his ancestral Ireland, where he owns a castle. A sailing aficionado, Disney also named his yacht Shamrock.
Shamrock hasn’t always been on the winning end of the deal. In 1991, it paid $100 million for a controlling stake in L.A. Gear Inc., the Los Angeles athletic shoe company. A year earlier, L.A, Gear was behind only Nike Inc. and Reebok International Ltd. in U.S. sales but began to slide sharply.
Gold overhauled the company, replacing its top executives. He even stepped in as chief executive in 1992. He cut inventory and tried to redesign the brand.
But Shamrock could not stop the brand from its slide. It sold its stake in the company in 1997, incurring millions in losses. A year later, L.A. Gear filed for bankruptcy.
“It was one of those things where management was making decisions on where they thought the brand should be, rather than what is was,” said Jim Moodhe, a former L.A. Gear senior vice president of development and design.
In the end, Moodhe said, the brand over-reached and fell apart.
“There is no hidden agenda with Shamrock and I respect that,” Moodhe said. “But I wouldn’t want to be on the opposing side of them.”
Shamrock began snapping up Texas Industries shares in September 2008, when the housing market was a shambles and the cement maker’s stock began to plummet. Texas Industries shares peaked at about $90 two years ago but have fallen by more than half since then.
In addition to operations in Texas, the company has two major plants in California, in Riverside and Oro Grande.
“Analysts keep cutting their forecasts, and this is at a time when the building sector is expected to improve,” said Charles Rotblut, senior market analyst with Zacks Investment Research.
Shamrock, the third-largest Texas Industries shareholder with a 10.2% stake, believes that construction will bounce back and demand for cement will increase in the coming year.
Dennis Johnson, managing director of Shamrock Capital Advisors, argues that new directors will bring better oversight. “We’re looking to bring in some fresh eyes on their problems,” Johnson said.
A few weeks ago, Shamrock got a boost when Southeastern Asset Management Inc., which owns more than 9% of Texas Industries’ stock, and Nassef Sawiris, the largest shareholder with almost 15%, agreed to Shamrock’s board nominees. The vote is set for Oct. 22.
“Texas Industries has been underperforming against its peers for some time now,” Rotblut said. “It looks like Shamrock sees that and is asking, ‘What’s going on here?’ And other investors seem to be listening.”
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