Bryan Burrough (66 page)

They began buying Marathon stock in early 1981. By the time executives at giant Mobil Co., seeing the same disparity in values, began making noises about taking over Marathon that autumn, Bass and Rainwater had accumulated just over 5 percent of Marathon’s shares, at a cost of $148 million. At that point federal regulations required Bass to formally notify the SEC of their holdings. Marathon executives, fearing a hostile takeover, panicked. A month later they sold out to U.S. Steel. Once the merger was finalized, Bass and Rainwater walked away with $160 million in profit, more than doubling their investment. It was by far the best deal they had ever attempted. “Wow,” Bass said as the enormity of their gain sunk in. “Let’s do that again!”

They began looking at every oil company of any size, even as they continued buying and selling shares of dozens of non-oil companies. Takeover fever was pushing the stock market higher and higher, and even their smaller investments were paying handsome dividends; the Basses took home $50 million selling their stock in one company, Amfac, back to its executives, a deal so small the press barely noticed. As the number of takeovers began to mount, Bass and Rainwater found themselves for the first time in the “deal flow,” that is, a regular stop for just about any Wall Street deal maker with a hot idea or an open hand.

Their next major investment was Texaco, which found itself the target of rampant takeover speculation in 1984. Bass and Rainwater bought millions of shares, eventually amassing almost 10 percent of Texaco’s stock. They ended up selling it back to the company at a profit of four hundred million dollars. By the time they sold, Rainwater had already selected their next play: the Walt Disney Company. Disney was being hounded by the New York investor Saul Steinberg, who had the backing of one of Rainwater’s Wall Street pals, the junk-bond guru Michael Milken. Rainwater had picked up a Florida real estate outfit the year before, and when Disney inquired about buying it, the talks led to a deal in which the Basses agreed to swap the company, Arvida, for two hundred million dollars in Disney stock, about 7 percent of its shares. It was a way for Disney executives to get a chunk of their stock in friendly hands.

As Sid studied Disney’s financials, he was underwhelmed. It lost money year after year. Its movie studio hadn’t had a hit in decades. The theme parks were aging and worn. Still, Rainwater had done his homework. Disney, he swore, was a neglected gem. The stock was stuck in the fifty-five-dollar range. Simply doubling the thirteen-dollar admission price to the theme parks, money that would sink straight to the bottom line, could make the company worth a hundred dollars a share. With proper marketing and advertising, he told Sid, Disney might be worth as much as two hundred dollars a share.

In the summer of 1984, six months after the Basses acquired their first shares, Disney’s management bought out Saul Steinberg. But no sooner had Steinberg withdrawn than more wolves attacked. The Wall Street arbitrageur Ivan Boesky—later to be imprisoned in a notorious insider-trading scandal—accumulated a massive stake in Disney stock, as did a predatory investor named Irwin Jacobs. Disney executives, who met and liked Sid, turned to the Basses for help. In a series of lightning maneuvers, Bass and Rainwater used their $400 million profit from Texaco to buy out Boesky and Jacobs, giving them a commanding 18 percent share of Disney shares. They bought still more, raising their stake to nearly 25 percent, at a total cost of $500 million. In barely six months, they had taken effective control of the company. In short order Bass pushed to hire a new chief executive, Michael Eisner, who in the years to come would transform Disney into one of the most powerful entertainment companies on Earth. By the early 1990s the Basses’ $500 million stake in Disney would be worth a staggering $2.8 billion.

It was Sid’s crowning achievement. In a span of just sixteen years, in one of the greatest investment performances of the twentieth century, he and Rainwater had increased the Bass family’s fortune from $50 million to an estimated $5 billion or more. With Disney, Sid had put all his eggs in one sparkling basket; he would remain its largest shareholder for years. Though left unspoken, Disney also marked Sid’s retirement from major investing; almost all his capital, in fact, was now wrapped up in Disney stock. Rainwater resigned not long after, moving into offices below Sid’s to make deals on his own; he would go on to be one of the most successful investors in Wall Street history.

Sid’s “retirement,” however, was bittersweet, for even as he took effective control of Disney he was obliged to break up his father’s legacy, Bass Brothers Enterprises. Each of the four Bass brothers would go his own way. The breakup was almost all his brother Bob’s doing. Bob and Little Anne seemed to go out of their way to separate themselves from the rest of the family. Raised Methodist, Bob became an elder at a Fort Worth Presbyterian church. He quit using the family’s security people, preferring his own. Bob and Anne became ardent historical preservationists—Bob later became chairman of the National Trust for Historic Preservation—and led a local fight against a highway extension that the rest of the Basses favored.

For years Bob had been pressing for more responsibilities at Bass Brothers; Sid and Rainwater, however, worked so seamlessly, there was little left for Bob to do. After agitating to manage his own money for several years, Sid had finally agreed to split up Bass Brothers in 1983, at which point Bob established his own company and began making his first major investments. It took the better part of three years, from 1983 to 1985, to finalize the breakup. The problem was taxes. As the laws stood in 1983, the breakup of the far-flung Bass investments would subject each of the brothers to hundreds of millions of dollars in taxes. Sid prevailed upon Texas senator Lloyd Bentsen to draft a bill to change the tax law, but it went nowhere. In the end, however, a favorable IRS ruling achieved the same result. By the time the breakup went through, Sid and Bob were no longer speaking. Each of the four brothers received a quarter of everything, all told, more than one billion dollars apiece.

The youngest, Lee, stayed in Fort Worth to run the oil company. The second brother, Ed, who had returned from New Mexico in 1979 to develop a downtown area of shops and office space he named Sundance Square, stepped up his commitment to environmental causes. By the time of the breakup Ed was already, as the
New York Times
dubbed him, the largest private sponsor of environmental research in the United States. Among his many and varied projects were a 1,042-acre rain forest preserve in Puerto Rico, a backpackers’ hotel in Katmandu, an eighty-two-foot ocean-research ship, a twenty-acre research farm in Southern France, nine hundred square miles of ranchlands in the Australian outback, and the twenty-million-dollar Institute of Biospheric Studies at his alma mater, Yale. He sat on the boards of the World Wildlife Fund, the New York Botanical Garden, the African Wildlife Foundation, and the Jane Goodall Institute for Wildlife Research, Education and Conservation.

Over the years Ed was dogged by accusations that he remained under the influence of John Allen, the futurist he had met at New Mexico’s Synergia Ranch. Ed always brushed off the accusations, but much of his work furthered Allen’s stranger ideas, including a plan to construct self-contained biospheres where humans could restart civilization after a nuclear holocaust. Ed’s most visible project was just such an enclosure, called Biosphere II, a sprawling set of glass buildings in the Arizona desert where, in 1989, a set of “bionauts” would live for two years without any contact from the outside world.

Bob Bass, meanwhile, took his share of the Bass fortune and launched a brief career as an aggressive Wall Street investor, launching a series of hostile takeover attempts and leveraged buyouts during the late 1980s. He and Little Anne remained active historical preservationists. They purchased Ulysses S. Grant’s onetime Georgetown mansion and made a second home in Washington, D. C. Their relations with the rest of the family, especially with Sid, never recovered.

Sid, meanwhile, began spending even more time in New York, where in June 1983 he had laid out a then-record $5.25 million for a sprawling Fifth Avenue apartment. It was as grand a space as Manhattan would know, decorated with fine French antiques, a row of Monets in the dining room, two giant Rothkos and a series of Matisses in the living room. Sid was named to the Metropolitan Museum of Art’s board the following year. Anne became a leading benefactor of the New York City Ballet, until a nasty spat with its creative director. They might have gone on like that for years, traveling the world, collecting the finest art, but in 1986 Sid fell in love with another woman—a married woman, named Mercedes Kellogg. Both left their spouses in a romantic scandal that kept the gossip columnists busy for months.

After the divorce—Sid’s settlement with Anne was said to be $450 million—Sid married Mercedes and retreated from the headlines into a cocoon of gilded luxury. White-coated butlers hovered at every home. A Gulfstream jet always stood ready for weekends in Paris, Rome, Rio, wherever the mood struck. Sid Bass had ascended to a plateau Sid Richardson could not have imagined, as far removed from the scrublands of distant Winkler County as a Texan could get. To many, in fact, his life was a kind of modern-day fantasy, something Walt Disney might have dreamed up, an endless tableau of private jets and presidential dinners and intellectual evenings with New York writers, artists, and politicians. It wasn’t perfect, of course—Sid would tell you that—but as endings went, it beat the hell out of Clint Murchison Jr.’s.

Or, for that matter, Bunker Hunt’s.

After slowly recovering from the financial and emotional shocks brought on by Bunker’s silver play, the remaining children of H. L. Hunt began to go their separate ways during the 1980s. Some flourished; some didn’t. Lamar, who lost a good deal of his money in silver, folded his soccer team, the Tornado, in 1981, then, after years of squabbling with a competing tennis curcuit, surrendered to a merger and dissolution of World Championship Tennis. He retained control of the Kansas City Chiefs, but his best days were now behind him. His sister Caroline, after years as a relatively anonymous Dallas housewife, rebounded from a divorce to open a luxury Dallas hotel, the Mansion at Turtle Creek, and soon began buying and building hotels around the world. Ray Hunt, finally free of the first family’s intrigues, continued to build Hunt Oil. After finding oil in his first international venture, in the North Sea, he signed a drilling accord with the government of the remote Middle Eastern nation of Yemen in 1981. Over the next twenty years Hunt Oil would draw billions of barrels of oil from Yemen’s sandy soil.

What drove the second-generation Hunts apart—emotionally as well as financially—was the massive $1.1 billion loan Bunker and Herbert had taken to escape the silver debacle. The collateral was Placid Oil, still owned by the six siblings’ various trusts. That arrangement was fine so long as oil prices continued to rise; in the early 1980s, Placid was valued at $2.2 billion, twice the size of the loan. But even before oil prices began to drop in 1983, Margaret and the other siblings realized that if the worst happened—if Bunker and Herbert defaulted on the loan—the banks would go after Placid, which could cost the “uninvolved” siblings millions of dollars.

Margaret moved to sever all her financial ties to Placid, and to Bunker and Herbert. All through 1982 and 1983 family attorneys worked to disentangle Margaret, Caroline, and Hassie’s holdings from those of Bunker and Herbert’s. In the end, the three walked away with some of Placid’s most promising oil fields. Bunker and Herbert, shrugging off several years of awful publicity—both were obliged to testify about their silver dealings before Congress in 1980—struggled to break free from the confines of their $1.1 billion debt. The oil fields Margaret and Caroline took from Placid left it a smaller company, with less cash to pay the banks each month. At first the two brothers had some success reducing their debt load, raising $410 million by selling off oil properties to the Petro-Lewis Corp. in 1982; they later raised another $161 million by selling stock in a number of other companies, including Louisiana Land & Exploration and Gulf Resources. Bunker wanted to sell even more assets, but the bank consortium’s managing partner, Morgan Guaranty of New York, resisted, insisting it would need new collateral to replace anything that was sold. Bunker lobbied the other banks to remove Morgan and succeeded, replacing it with two banks, Bankers Trust and Republic of Dallas, who seemed more reasonable.

No sooner had Bunker achieved some elbow room, however, than oil prices began to drop. It was Penrod that first felt the shock waves. Penrod leased drilling rigs, but the drop in prices meant every major oil company froze or scaled back its hunt for new reserves until prices stabilized. As the months wore on, more and more Penrod rigs fell idle. The company had four hundred million dollars in debt, and in late 1983 Bunker asked its banks for better terms, along with fifty-seven million dollars in new loans. The banks agreed, but asked for more collateral. Bunker and Herbert reluctantly went along, handing over 476 acres of land along the North Central Expressway in suburban Richardson. The first payments on the new debt were delayed until May 1985. For the moment, Penrod seemed secure.

The bad news, however, just kept coming. While the Hunts’ oil companies at least still functioned, Bunker and Herbert’s sugar empire was falling apart. A venture that began with the takeover of Great Western Sugar in 1974 had expanded over the years, with the acquisitions of several other sugar companies, eventually rolled into a single holding company named Hunt International Resources, known as HIRCO. The company had been piling up annual losses for years when it was blindsided by the soft-drink industry’s decision to begin flavoring Coca-Cola, Pepsi, and other drinks with corn and artificial sweeteners instead of sugar. All through the early 1980s, sugar prices fell. When HIRCO’s suppliers demanded new contracts to reflect the lower prices, the Hunts refused, then sued. Their business evaporated. Bunker tried to sell the sugar factories, but no one wanted them anymore.