Corporate Savior’s Toughest Test Yet
Alec Gores, the Los Angeles technology turnaround artist who hopes to make a bid for Global Crossing Ltd. as early as this week, has never tackled anything as big or complex as the company responsible for the fourth-largest bankruptcy in U.S. history.
His Gores Technology Group prefers to take control of troubled divisions of large corporations, and his biggest deals to date include buying Learning Co. from Mattel Inc. and the VeriFone unit of Hewlett-Packard Co.
But people who know Gores say he thrives on complex and difficult business deals and delights in doing the unthinkable.
Gores, who declined to be interviewed Sunday, told the Los Angeles Business Journal in October, “I like tough things. I like things that are just a mess, that nobody else can figure out. The messier, the better.”
They don’t get any messier than Global Crossing. The company’s operations are being overseen by a Bankruptcy Court branch in New York, where an unhappy contingent of bankers, creditors and shareholders--with the help of a judge--will decide whether to embrace a restructuring plan or simply liquidate the company.
The only substantive bid for Global Crossing so far has come from a pair of Asian firms, which pledged to invest $750 million to gain a 79% stake in a reconstituted company. That plan has drawn fire from nearly every contingent, so Gores Technology will at least have a receptive audience in the proceeding.
Gores (pronounced Gor-is) has earned high praise for taking companies others deemed unfixable--sometimes at little or no cost--and nursing them back to financial health. Mattel basically gave its troubled children’s educational software unit to Gores for a cut of any future profit. Micron Technology gave Gores $70 million to take its beleaguered personal computer unit off its hands.
Gores, who turns 49 this month, has long understood the importance of business basics. He is the oldest son of Greek entrepreneurs who immigrated from Israel to Michigan more than 30 years ago. His father helped run Frank’s Westside Grocery, a store outside Flint that was owned by his uncle. After studying computer science at Western Michigan University and a short stint as a programmer for General Motors Corp., he borrowed $10,000 from his father and launched a minicomputer distribution business in his parents’ basement.
Gores sold the company in 1986 to Contel Corp., a local telephone company, for $10 million. Then he watched in frustration as Contel squandered his years of hard work, cutting commissions to salespeople and letting a profitable business wither. Gores was so upset that he tried to buy the company back. He was outbid, but the experience pointed him to a career in corporate turnarounds.
After starting out with a word-processor maker called CPT, Gores Technology Group grew slowly, making only a smattering of deals until a few years ago. It has since acquired more than 35 companies with combined revenue of more than $2.5 billion. Some of the companies have been sold at a gain; the rest are operating profitably or have been shut down. The Los Angeles-based buyout firm still owns about 20 of the companies it has acquired.
From a large black leather chair inside his minimalist offices on Wilshire Boulevard in Westwood, Gores routinely juggles three phone calls, scribbles on note pads, and drums out numbers on a small solar-powered calculator.
He is focused mostly on the big picture. His employees scout deals by chatting up investment bankers and poring over newspapers and magazines. Gores decides which opportunities to pursue, then sets the rules of engagement and leaves the details to his underlings.
Typically, he takes aim at businesses that generate lots of cash so he can fund his turnarounds internally. He prefers to focus on small divisions within large companies because they usually have fat that is easy to cut. Most of his targets have been small, with annual revenue between $5 million and $50 million.
Once he makes an acquisition, Gores relies on a team of legal and accounting experts to find ways to cut costs. A team of 20 people or so swoops into a newly acquired company and scrutinizes everything from financial records and real estate leases to contracts with suppliers. The team interviews employees and customers, asking how the business can be improved.
Their biggest success so far has been the Learning Co.
Toy maker Mattel bought it in 1999 for $3.5 billion. Though it boasted popular brands like Carmen Sandiego, Myst, Reader Rabbit and Pokemon, the division lost $300 million in the year it was owned by Mattel--nearly $1 million a day. The acquisition, considered one of the worst in corporate history, cost Mattel Chief Executive Jill Barad her job.
Mattel was so desperate to unload Learning Co. that it gave the division to Gores in exchange for 50% of future profit or the proceeds from any sale of the company. Gores’ operations team consolidated business units and brands, cut hundreds of jobs, slashed spending and won over distributors.
The company stopped hemorrhaging cash within 75 days and made more than $100 million in profit in its first year with Gores Technology, according to the firm.
Gores followed that success with two other high-profile deals. In late April 2001, Micron Technology gave Gores its struggling PC unit, Micron Electronics, along with $70million. Micron Technology, eager to focus on its Web-hosting businesses, calculated the payment was cheaper than the cost of shutting the division down. About a month later, Gores took over Hewlett-Packard’s VeriFone division for an undisclosed price. VeriFone is a leading provider of electronic payment systems for financial institutions and merchants. Both VeriFone and Micron are profitable now.
Gores likes to operate below the radar. But that is becoming increasingly difficult as his successes mount and his appetite grows. His indulgences include a giant house in Beverly Hills, a midnight blue Mercedes CL55 AMG and suits by Italian designer Ermenegildo Zegna.
His younger brother Tom Gores, may be an even bigger player in the turnaround business. He heads Platinum Equity, a Los Angeles firm that also specializes in high-tech buyouts. Platinum has taken on divisions shed by Alcatel, Williams Communications Group and Racal Electronics, and the brothers often compete for deals. Tom Gores, 36, made his debut on the Forbes 400 list of richest Americans this year, his estimated $1.5 billion net worth ranking him at No. 293. Alec did not make the list.
Another younger brother, Sam Gores, owns a talent agency. All three brothers live within a few blocks of each other and often socialize together, according to people who know them. Alec Gores has four children and is twice divorced.
Gores told TheStreet.com last year that he wanted to raise his game by taking over a publicly traded company. Global Crossing, which went public in 1998 and filed for Chapter 11 bankruptcy reorganization less than five years later, would seem to fit the bill.
Gores knows that winning the bidding for Global Crossing--and then fixing it--will be difficult. But long odds have yet to deter him.
“This is what we do for a living,” he told the Evening Standard of London last year. “We practice it every day. It’s like golf--the more you play, the better you are going to get.”
