Charles Hurwitz--Publicity-Shy Empire Builder : Kaiser Aluminum’s Bidder Is a Private Person but Controversy Follows Him
Ten years ago, Texas-born Charles E. Hurwitz sashayed into Los Angeles and waltzed away with McCulloch Oil Co. Since then, the mild, owlish-looking takeover artist has been building a natural resources empire centered in California.
Adding to the oil and extensive land holdings acquired with McCulloch, Hurwitz picked up one of the world’s largest holdings of redwood timberland in Northern California by acquiring Pacific Lumber Co. in 1986.
Now, assuming public stockholders go along with management’s deal with Hurwitz, the latest in his collection will be Kaiser Aluminum & Chemical Corp., the nation’s fourth-largest aluminum producer.
Hurwitz, 48, walks softly and carries a big desire for privacy. For a long time after the battle for McCulloch (renamed MCO Holdings Inc.), the Houston-based financier managed to keep out of the California limelight.
Even when he riled Frank Sinatra and other wealthy denizens of Rancho Mirage, Calif., several years ago by overcoming their opposition and building a $75-million resort hotel amid scenic hills of the wealthy desert playground, Hurwitz avoided personal publicity. Everything was handled through his private development company, Federated Development Corp.
But his profile was elevated considerably after he captured Pacific Lumber. The San Francisco firm since has proceeded to double the rate at which it is cutting old-growth redwood trees ranging in age from 200 to 2,000 years. This enraged conservationists, some governmental bodies and many private citizens.
The furor attracted scads of newspaper, magazine and television coverage since last year. After months of withering fire, the firm just last Thursday said that it has abandoned its clear-cutting of virgin old-growth redwood stands.
CBS News staked out Hurwitz’s offices when it tried to talk to him last fall for a critical account of the timber cutting, according to a source close to the financier. The source also noted major negative reports by various national magazines, saying Hurwitz attracts media interest “like a lightning rod.”
Keeps Forging Ahead
In the midst of the media storm, Hurwitz went before a congressional hearing last October that was examining trading of Pacific Lumber’s stock before his buyout. A staff report blasting his lumbering operations overshadowed the primary topic.
One of his attorneys says Hurwitz is expecting no problems from government on the stock matter, which is related to the continuing Wall Street insider trading investigation that sprang from the Ivan F. Boesky scandal. But he got unfavorable press from the hearing just the same.
Some more negative publicity came earlier this year as Hurwitz’s loss-plagued oil and gas operations gave up the ghost, a victim of the industry depression. MCO Holdings wrote them off as discontinued operations.
Hurwitz himself has declined press interviews for the last several years and would not talk to The Times for this article. The scholarly takeover expert shrugs off the negative publicity and keeps forging ahead, his aides say.
Close associates describe Hurwitz as remarkably tenacious and unflappable, and he has demonstrated these traits along the California trail, from McCulloch to Kaiser.
In his latest deal, Hurwitz agreed to buy KaiserTech Ltd., Oakland-based parent of Kaiser Aluminum & Chemical, for $19.375 a share. After an initial struggle, KaiserTech’s board approved the deal and announced the sale last Monday to Maxxam Group Inc., now a subsidiary of Hurwitz-controlled MCO Holdings. Headquartered in Los Angeles, both firms are publicly traded and comfortably profitable.
As with his purchase of Pacific Lumber, Hurwitz is relying heavily on Drexel Burnham Lambert, the investment house famed for selling “junk,” or high-risk, bonds to arrange financing of $850 million to buy the KaiserTech common and preferred stock that he did not already own.
Drexel Burnham’s junk bonds figure in the allegations hurled at Pacific Lumber under Hurwitz’ control. Critics claimed that the company’s frenetic harvest of virgin redwood forests was ordered to pay the interest on the bonds. Although the Hurwitz camp argues the issue, it confirms that the lumber company has, as a result, been able to generate the cash flow for its own acquisition debt.
Hurwitz has a flair for deals achieved with heavy borrowing. But his accumulation of a string of California-based firms was only a series of coincidences, says one of his associates.
His holdings through his public companies include real estate developments throughout the Southwest and the Ozark Mountains in Arkansas; 10 retail store complexes in western New York; a golf resort in Florida and a hotel-condominium resort and 1,300 undeveloped acres in Puerto Rico.
Although the Texas entrepreneur has made California his prime business stomping ground, he continues to live in Houston with his wife of 25 years. He also has had the same office staff there for many years.
According to associates, he plays tennis and, as evidence of a strong curiosity about the world, reads books voraciously--even while pedaling an exercise bike.
Hurwitz divides the bulk of his time between Houston, New York and Los Angeles.
A proverbial small town boy who made good, Charles Edwin Hurwitz was born in Kilgore, Tex. After graduating from the University of Oklahoma in 1962, he went to work for a Wall Street brokerage.
Before long, he was in business for himself as a money manager and an adviser to two mutual funds, Summit Capital Fund and Hedge Fund of America. He got a reputation as one of the bright young financiers and was listed in Martin Mayer’s book, “New Breed on Wall Street,” in 1969.
Much Litigation
Hurwitz had a brush with the Securities and Exchange Commission in 1971 and quickly signed a consent settlement without admitting SEC allegations of filing false and misleading information about one complex deal involving Everest Management Corp. He has said he signed it so he could get on with private financing of his Summit group.
In 1973, Hurwitz acquired Federated Development, a private New York business trust that owned a reinsurance company, and that business generated enough funds for him to buy a 13% interest in McCulloch Oil. The firm, which also had extensive land developments in the West, was founded by chain-saw investor Robert P. McCulloch Sr. It was losing money when Hurwitz came on the scene, largely on real estate operations.
Hurwitz has acquired a reputation as a corporate raider, a term he reportedly dislikes. Although he has followed through on many takeovers, he gave up a 1984 move against food processor Castle & Cooke and was bought out by that firm’s management, which paid him a $13-million “greenmail” profit.
The financier has spent his career in a veritable cloud of litigation, most of it generated by his various takeovers and mergers. Like others in his line of activity, he provides a massive amount of employment for lawyers.
In addition to lawyers, Hurwitz has shown a disposition for gathering academic types around him, both in advisory and operating positions. His brain trust for years included George Kozmetsky, dean of the University of Texas business school until his retirement several years ago.
And about six years ago, Hurwitz hired the president of the University of Houston, Barry Munitz, as president of his private holding company in Houston, Federated Development. Munitz also is vice chairman of MCO Holdings. Another key man, William C. Leone, who runs MCO Holdings from day to day as its president, holds a doctorate in nuclear engineering.
Munitz, who says he was a friend and tennis playing buddy before joining Hurwitz’ business enterprises, notes that Hurwitz has a strong curiosity about how universities work. “What it is rooted in,” Munitz says, “is a great curiosity about structure and decision making.”
Hires Former Adversaries
A veteran member of the Hurwitz brain trust is Ezra G. Levin, of the law firm Kramer, Levin, Nessen, Kamin & Frankel in New York. Levin represented an investment banker that was underwriting securities for Hurwitz when the financier hired him about 15 years ago as his outside counsel in his takeover wars.
It says something about Hurwitz’s pragmatism that, time and again, he has hired people who a short while earlier had been engaged in fighting against one of his takeovers. These include not only key management people from the original McCulloch firm and from Pacific Lumber, but even a financial public relations firm that had waged verbal warfare against Hurwitz on behalf of the lumber firm.
Hurwitz’s “principal personal characteristic,” according to Levin, his longtime attorney, is “his extraordinary persistence, particularly in the face of adversity.”
Levin said prime examples were his campaigns in the face of early fierce opposition from management at McCulloch and at Pacific Lumber, and to a lesser extent at KaiserTech.
Another example, says Munitz of Federated Development, was the long campaign that culminated in the opening last March 11 of the luxurious 238-room Ritz-Carlton Rancho Mirage. When it was announced in March, 1982, Sinatra and others opposed the Mirada, the overall, 105-acre development that includes the hotel and residential development on an extension of Frank Sinatra Drive. Federated donated 350 acres to the city as a bighorn sheep and wildlife corridor to assuage environmentalist criticism.
It didn’t hurt the Hurwitz cause that former President Gerald R. Ford was a limited partner in his project. Ford was given part of his share in exchange for publicly supporting the project. Opponents finally threw in the towel in October, 1984, after losing an expensive court fight.
Another Legal Battle
Hurwitz got his foot in the door at KaiserTech last February by taking advantage of a sudden opportunity to buy a 27% block of its stock from its beleaguered chairman, Alan E. Clore, who had defaulted on bank loans as a result of the October stock market collapse.
Again, Hurwitz faced a legal battle before he achieved his target. In March, a judge refused KaiserTech directors a court order to bar Clore’s sale to Hurwitz, who meanwhile accused KaiserTech in another suit of planting false information to keep him from bidding for the firm.
Associates emphasize the rising prices of aluminum as the prime incentive for Hurwitz, who this month elbowed past reluctant management with an offer to buy the company. Analyst Thomas Van Leeuwen of Shearson Lehman, Hutton agrees.
However, Smith Barney, Harris Upham & Co. analyst William G. Siedenburg believes that the biggest attraction is the tax advantage of $400 million to $500 million in loss carryforwards on the company’s books. These can be used to shelter a lot of profits.
One thing seems certain: Aluminum smelting isn’t likely to stir up a fresh environmental backlash for him.
