McCrory’s Chapter 11 Filing Big Blow to Financier Riklis : Retailing: L.A. entrepreneur and wife, Pia Zadora, couldn’t pay rent on N.Y. suites, Trump suit charges.
Under cover of night last October, 68-year-old Los Angeles financier Meshulam Riklis and his 38-year-old wife, actress-singer Pia Zadora, crept out of their two lavishly appointed suites at the Trump Tower on New York’s Fifth Avenue, according to a lawsuit filed by real estate tycoon Donald Trump, because they could no longer scrape up the $100,750-a-month rent.
The undignified exit could serve as a metaphor for the shifting fortunes of Riklis’ financial empire. True, Riklis and Zadora still have matching twin Lear jets plus two multimillion-dollar Beverly Hills houses, including the Pickfair mansion once owned by Mary Pickford and Douglas Fairbanks Sr.
But the network of companies cobbled together by the Istanbul-born wheeler-dealer over the last 30 years appears to be in serious trouble.
On Wednesday, McCrory Corp., the once-venerable “five-and-dime” store chain and a centerpiece of Riklis’ financial holdings, filed for federal bankruptcy court protection from creditors. The York, Pa.-based company, which operates 819 variety stores under the McCrory, J. J. Newberry, McLellan and Kress names, said it intends to stay in business while it reorganizes. Ninety-eight McCrory stores are in California, many in struggling inner-city areas.
The 109-year-old chain was the victim of the recession, mounting debts and fading customer interest in dime stores. It is the latest major U.S. retailer to seek Chapter 11 protection because of rising debts and flagging sales.
It also was the latest--and perhaps the biggest--in a series of financial reversals for Riklis.
Last December, his Las Vegas casino, the Riviera Hotel, filed for bankruptcy protection. Another company Riklis controlled until late 1990, E-II Holdings Inc., a spinoff of the former Beatrice Co., faces a class-action suit brought by bondholders.
And in January, a New York state Supreme Court judge ordered one of Riklis’ companies--formerly the conglomerate Rapid-American Corp.--to pay developer Trump one year’s back rent as well as legal fees and other costs.
Riklis was unavailable for comment Wednesday, according to a spokeswoman for McCrory.
Riklis’ stumble in the ‘90s befits a decade when companies built on debt are unraveling faster than spools on a loom--for debt had no greater champion. He told The Times in a 1986 interview that “I never used a dollar of cash. That was a Riklis principle: Money is to look at, not to use.”
In his master’s thesis at Ohio State University, which was delivered in 1966 and covered his career to that point, Riklis called his strategy “the effective non-use of cash.”
Not all of Riklis’ holdings are in trouble. A private Riklis partnership owns the 230-store Springfield Mall in Northern Virginia that is doing well, and a family holding company owns American Recreation Corp., a sporting-goods company Riklis estimated last month would earn $7 million this year.
But controversy has dogged his financial dealings.
In the E-II Holdings lawsuit, powerful investors such as money manager Forstmann Leff, Saul Steinberg’s Reliance Group and CBS owner Laurence Tisch’s CNA Insurance charge that Riklis “removed hundreds of millions of dollars in cash” from E-II Holdings, which includes such companies as Samsonite luggage, Culligan water treatment systems and McGregor sporting wear.
The scenario sketched by the lawsuit is vintage Riklis. It recounts a tangled skein of relationships that ultimately appear to benefit Riklis to the detriment of the company. Riklis bought E-II in 1988, then sold pieces of his other companies to it. In December, 1990, he resigned from E-II and bought McCrory from it. At that time, the lawsuit alleges, Riklis transferred more than $600 million out of E-II to fund losses at McCrory and left E-II with about $350 million in questionable McCrory paper.
Last March, E-II defaulted on $1.2 billion in junk bonds. Those bondholders claim that Riklis siphoned funds out of the company when he sold those other companies to it, and allege that Riklis forced E-II to declare a $925-million “dividend” that roughly equaled the $950 million he paid for E-II originally. Riklis has denied the allegations.
The entrepreneur married entertainer Zadora in 1977, and the two have long divided their time between New York and Beverly Hills. They have two children.
Zadora, the only child of an Italian violinist and a Polish wardrobe supervisor, made her film starring debut in 1981 in “Butterfly,” and two years later starred in another movie, “The Lonely Lady.” Riklis produced both films, which bombed with critics and the American public.
Zadora also had a cameo role in the hit movie “Hairspray” and played herself in “Troop Beverly Hills.” She also made several vocal recordings, including one top-40 hit, “The Clapping Song.”
For years among the most maligned stars in Hollywood, Zadora managed to upgrade her image after putting together a successful cabaret act in 1985.
But she and Riklis were back in the public ire last year, when they tore down most of Pickfair. Zadora and Riklis bought the property in 1988 for just under $7 million; they are building a Renaissance-style Venetian palazzo in its place. On Wednesday, Zadora filed suit against a general contractor and two others for allegedly violating building codes during remodeling.
Riklis was perhaps the first corporate takeover artist. He grew up in Palestine, where his parents emigrated from Odessa, in Ukraine, then moved to Columbus, Ohio, with his first wife and two children in 1947 to study at Ohio State and teach Hebrew on the side. In 1954 he moved to Minneapolis, where he raised investment funds from brokerage clients at Piper, Jaffray & Hopwood.
Shortly thereafter Riklis employed low-rated, high-interest bonds--later dubbed “junk bonds”--which he called “revolutionary funny money,” to finance the purchase of Schenley, distiller of Dewar’s Scotch. Riklis was on his way to forging Rapid-American into a conglomerate made up of two office-machine concerns, some garment companies, the distiller and the variety stores.
By 1962 however, Rapid was close to bankruptcy after a stock market plunge cut the company’s market value in half. But Rapid recovered and went on to acquire Playtex, B.V.D. and Schenley, as well as Kenton Corp., owner of Cartier, Mark Cross and Valentino. By 1974, the company once again hovered close to bankruptcy, but once again, Riklis recovered. About this time, he divorced his first wife.
By 1978, Riklis’ complicated deals landed him in trouble with the Securities and Exchange Commission, which objected to a series of transactions in which Riklis sold off parts of Rapid to pay down its debt, then took personal loans from the buyers to help pay down his own debt. Riklis agreed to an injunction that forced him to separate Rapid’s affairs from his private deals. He went on to add Elizabeth Arden and Faberge, the cosmetics businesses, to his empire.
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