After his Dallas Stars won the National Hockey League championship last month, buyout king Thomas O. Hicks donned a fine pair of custom cowboy boots featuring a shiny silver Stanley Cup embroidered on each shin. As sweet a victory as that might have been for Hicks, who also owns the Texas Rangers baseball club, you'd think it would pale next to the relief he felt on July 13.
On that day, shareholders of Chancellor Media Corp., the Dallas-based radio giant backed by his Hicks, Muse, Tate & Furst Inc., approved the $4.1 billion buyout of sister company Capstar Broadcasting Corp. The last time Hicks had tried to fold a related company, LIN Television Corp., into Chancellor, shareholders balked at the terms of the deal, and it was called off in March. In fact, that was just one of several costly about-faces Hicks led Chancellor through over the past year.
But now, renamed AMFM Inc., the company boasts $2 billion in revenues and 465 stations, making it the country's largest radio operator. And Hicks, chairman and chief executive at both AMFM and Hicks Muse, seems unfazed by all the upheaval. "We're the biggest, the baddest, and the best," he crows.
Hicks will need his Texas moxie to fulfill his vision of building a multitentacled media and sports empire. Having raised $10.5 billion from investors in the past decade, Hicks Muse has made its backers plenty of money by following a "buy-and-build" strategy of assembling undervalued companies, bulking them up, and then selling them. The fund has taken stakes in everything from Chef Boyardee canned pastas to printed circuit boards. But media is where the firm is placing its biggest bets--$4.2 billion worth in all. "The common thread about all media assets is that they have strong, inherent top-line growth, very little capital expenditures, and lots of free cash flow," says Hicks.
Beyond AMFM, through a range of companies (table, page 68), Hicks is exploring everything from a regional sports network airing games of the teams he personally owns to increasing Hicks Muse's ownership of TV stations and extending the firm's reach in Latin America. But if it's all going to work, Hicks is going to have to manage his fast-growing web of investments and partnerships better.
FALSE STARTS. If there are traits emerging in the tall, 53-year-old Texas native's dealings, one is financial savvy. But another is a cowboy's penchant for dustups. In several instances, Hicks Muse has launched major deals and then abandoned them, such as its planned acquisition of book-publishing assets from Pearson PLC. These turnabouts have left fuming partners and two lawsuits in their wake. (Hicks says the suits are without merit.) He's now dealing with scandal and feuding at his biggest Latin American investment. And some of his moves at AMFM, including putting the company up for sale in January, only to change his mind in March, have spooked Wall Street and clouded AMFM's prospects.
Although it has risen of late, AMFM stock, at 54 3/8, is trading at the same level as a year ago, compared with a 20% rise at rival Clear Channel Communications Inc. Shares of Infinity Broadcasting Corp., the radio giant controlled by CBS Corp., have climbed 42% since Infinity went public in October.
A year ago, the former Chancellor was on an $8 billion buying binge in pursuit of a multimedia strategy featuring radio, television, and outdoor advertising. But as Chancellor's stock began to sink under the weight of its debt load, Hicks replaced cable-TV veteran Jeffrey A. Marcus as CEO in what one insider describes as a "palace revolt." (Marcus remains an AMFM director.) At the same time, shareholders bristled at Hicks Muse's tendency to pay itself merchant banking fees when combining assets it owns. That led to the LIN deal being called off.
The plan to fold Capstar into Chancellor was similarly imperiled until early July, when Hicks Muse scaled back its demand for a $31.7 million cash fee. Instead, Hicks Muse received $10 million in cash and a five-year option to buy shares at $52--but only if the stock trades at $100 or higher for 30 straight days. "Everybody's on the same page now," says Storm Boswick, a managing director at J&W Seligman & Co., which owns about 5 million AMFM shares and was one of the leading blockers of the LIN deal.
Despite AMFM's recent fumbles, Hicks boldly predicts he will double that company's size and nearly quadruple its stock price to "at least $200" a share, in five years. Backed by strong radio industry and economic fundamentals, Hicks figures he can attract more advertising by capitalizing on AMFM's base of 66 million listeners and by launching Internet broadcasting ventures, including a prospective partnership with America Online Inc.
After unloading its billboard assets and putting in place management led by Vice-Chairman James E. de Castro, a well-regarded industry veteran, investors feel confident about AMFM's direction. "I think they finally have the right assets and the right management team to start creating some real value for investors," says Ron Sachs, a portfolio manager with Janus Capital Corp., one of AMFM's largest shareholders.
ARREST WARRANT. If not, some investors say they expect the company could soon be merged with a rival, such as Clear Channel, or a broadcaster, such as NBC. Not surprisingly, Tom Hicks doesn't see it that way. "We have no plans of merging [AMFM] with anyone in the next six months or the next six years," he says.
For the time being, Hicks might have his hands full in Latin America. In a market seen as risky but ripe for development by savvy investors, Hicks Muse plans to invest up to $1.5 billion in television, radio, and cable companies. "Latin America is one of the most dynamic media opportunities I've ever seen," gushes Hicks.
But on the eve of July 13, Hicks was heading to Argentina to try and put out fires at CEI Citicorp Holdings. Hicks Muse plunked down $590 million to control the holding company with pay-television, cable, and telecommunications interests. Now, he finds himself wrestling with a company whose former chairman and CEO has a warrant outstanding for his arrest on charges related to a bank's collapse. And Hicks and Telefonica de Espana--CEI's partner in Argentina's largest phone company--are openly sparring over the direction of the phone company.
Less contentious is Hicks's newest infatuation: regional sports networks, both in North and South America. In the coming weeks, sources say, look for Hicks to invest more than $300 million in new Spanish-language sports networks with an emphasis on soccer rights. The interest in sports has grown since 1996, when Hicks personally shelled out $84 million to buy the then luckless and money-losing Dallas Stars.
"CAN'T HELP MYSELF." Two years later, he paid down $250 million to acquire the Texas Rangers baseball team. The teams and a rodeo company he acquired were recently rolled up into the newly formed Southwest Sports Group Inc., which also includes the television station in the Dallas area that holds Rangers broadcast rights and the soon-to-be-created regional sports network. That ownership, in addition to a partnership in a new sports arena under development in Dallas, could give Hicks a lock on valuable rights to prime local sports programming.
Hicks says that he's negotiating with Fox Sports and ESPN to develop the network and expects to have the project off the ground within a few months. "Everything I've ever done in private equity investments has been according to buy and build. That's my strength. I can't help myself," says Hicks. Nor, apparently, can he help avoiding controversy. However, anyone who can make Dallas into the continent's hockey capital is not to be underestimated.