After Stereos, Hotels, Oil, And Gold, What's Next?William C. Symonds
In early 1990, only weeks after the fall of the Berlin Wall, entrepreneur Peter Munk flew into East Berlin for a private meeting with the mayor. Munk's Toronto-based Horsham Corp., he told the mayor, was prepared to play a huge role in remaking the city. As an incredulous Erhard Krack listened, Munk energetically presented a plan to replace vast sections of the aging city with Western-style offices, residences, and shopping areas. "The existing buildings are totally unsuitable," says Munk. "It provides unparalleled opportunities for the right players."
Now, almost two years later, Munk has a good shot at becoming one of those players. While his plan to redo downtown East Berlin has run into some stiff political opposition, he vows that the idea is still alive, and he expects to make an announcement by yearend. In the meantime, Munk is plowing ahead with another ambitious real estate scheme. On Sept. 26, he announced that Horsham had purchased 500 acres just south of Berlin for $12 million from Treuhandanstalt, the state agency responsible for privatizing East German assets. Horsham, primarily in oil and gas at the moment, may transform this farmland into a gleaming, modern business park.
Munk, 63, has had one of the most eclectic careers of any entrepreneur in North America, ranging from home electronics to resort development to gold mining. Although he has suffered some spectacular failures, he also can claim some heady victories. His American Barrick Resources Corp. is one of the largest gold miners in the world, with a market capitalization of around $3 billion. Many analysts consider it North America's top gold stock, even after the July collapse of its plans to merge with giant Newmont Mining Corp.
Meanwhile, the Munk-controlled Horsham, 21% owner of Barrick, is fast becoming a major player in oil refining. In three years, thanks mainly to its acquisition of Midwestern refiner and marketer Clark Oil & Refining Corp., Horsham's revenues have shot from around $200 million to $2.8 billion. And now, with the Berlin project, Munk aims to make Horsham a major force in real estate.
LEAN STAFF. Unlike most 1980s takeover specialists, Munk is careful to avoid excess leverage. Barrick and Horsham have strong balance sheets, with debt-to-capital ratios of 36% and 49%, respectively. But unlike many CEOs, he is contemptuous of layers of middle management, meetings, and other trappings of the corporate world. Operating from an elegant townhouse in Toronto's tony Yorkville district, Munk works with a lean staff of about 15 executives. "We didn't even have a corporate chart until we talked with Newmont," recalls Barrick Vice-Chairman Howard L. Beck.
Newmont and Barrick would have made quite a pair. "Barrick would have chopped off 75% of Newmont's senior staff," predicts one analyst. Sir James Goldsmith, the financier who controls 49% of Newmont, says management "incompatibilities" between Newmont and Barrick made them call off the deal.
One-on-one, Munk is an engaging conversationalist who can switch comfortably from Eastern European politics to the art market. He speaks at a rapid clip and doesn't mask his impatience when a subject starts to bore him. As a boss, he drives his employees mercilessly, and those who don't measure up are quickly shown the door.
HIGH LIFE. Munk's demanding style is understandable: He has a huge personal stake in both enterprises. Munk's 10.3% stake of Horsham's common stock now is worth about $80 million. In August, he announced plans to sell 2 million Barrick shares, worth about $42 million, which he acquired for about $12 million by exercising options.
His wealth allows Munk a lifestyle Robin Leach would appreciate. In addition to a home in Toronto, Munk maintains four retreats: an island in Canada's Georgian Bay, a rustic farm near Toronto, a London townhouse, and a chalet in the exclusive Swiss ski village of Klosters. Munk also likes to socialize. In Klosters, he mixes with Prince Charles. And for his 60th birthday, his British-born wife, Melanie, threw an elaborate party at Cliveden, the former summer home of the Astors in England. Some 150 friends attended. Says Beck: "It was right out of The Great Gatsby."
But Munk's life hasn't been all wine and roses. Much of his current success stems from what he learned during one of the most celebrated failures in Canadian history. In 1958, when he was just 30, Munk and partner David Gilmour founded Clairtone Sound Corp. to make hi-fi gear. They got endorsements from Frank Sinatra, among others, and soon Clairtone was the fastest-growing industrial company in Canada. Munk was Canada's boy wonder. By 1966, Clairtone had expanded to color TVs and to cars through its control of Canadian Motor Industries. CMI even acquired the rights to produce and distribute the then-unknown Toyota--plans that never materialized.
HUMILIATION. Then, Munk accepted Nova Scotia's lure of financial help in return for moving Clairtone there. The money was easy, but it came with the strings of government involvement. In Nova Scotia, the company ran into big labor troubles, and its color TVs were getting off to a slow start in the nascent market. Alarmed by a loss of $6.7 million (Canadian), the provincial bureaucrats took control, and Munk was forced out. Clairtone limped on until 1971, when the government finally shut it down.
Clairtone's collapse still haunts Munk. When Upsala College in New Jersey awarded him an honorary doctorate last spring, he devoted his address to the failure. "I was fired in the first annual meeting that had been televised in the history of Canada," he told the grads in a voice filled with emotion. "You'd be surprised how rapidly you lose your friends . . . and how suddenly the invitations become thinner and then disappear entirely." The phone company even demanded a deposit, "in case I made too many long-distance calls." And the media had "an orgy of pleasure," he told the students. "The man who was held out to be a national symbol of creative genius" was now "an incompetent idiot."
But the humiliation only increased Munk's determination. In part, his intense will stems from his harrowing childhood. Born into one of Hungary's wealthiest Jewish families, he was destined for a concentration camp after the Nazis invaded. But his grandfather worked out a deal with the Nazis for the family's safe delivery to Switzerland. Still, he says, "I found myself homeless and penniless." In 1948, at the age of 20, he emigrated to Canada and began studying engineering at the University of Toronto.
SPLASHY RESORT. Following Clairtone's collapse, Munk and Gilmour turned their attention halfway around the world: to Fiji. When their splashy Pacific Harbour development emerged as one of the South Pacific's top resorts, the restless Munk expanded. In 1972, backed by arms merchant Adnan Khashoggi and others, he bought control of the region's largest hotel chain, Travelodge Australia. Munk unloaded many of its Australian motels and realigned the chain as the competitive hotel and resort operator it is today.
During this period, Munk hatched an especially audacious scheme: a sprawling, $400 million luxury resort at the base of the Egyptian pyramids. President Anwar Sadat gave the resort full government backing. But it was bitterly opposed by Sadat's political foes, who argued it would desecrate the pyramids, and the project was canceled in 1978. Three years later, Munk and his partners sold their hotel chain, renamed Southern Pacific Hotel Corp., for $130 million--seven times what Munk paid.
Back in Canada, Munk quickly jumped into the oil and gas business. But he was buying when the market was at the top. "It was a classically stupid error," he says. By 1983, with oil prices sinking, Munk was despondent. "You don't mind losing money in your 30s. But when you're over 50, you have good reason to hate yourself." Munk slunk away to Klosters. Finally, pacing the hallways in the wee hours one morning, he decided to bet everything on gold.
GOLD BUG. His logic was sound: He figured the price of gold was nearing the bottom, and with South Africa in turmoil, there would be growing demand for North American gold equities. Munk began using Barrick, his troubled oil and gas company, as a base for acquisitions. In 1986, he and Barrick President Robert M. Smith learned the Goldstrike Mine in Nevada was for sale. Recalls Smith: "It was a ma-and-pa operation tied together with haywire." But Munk astonished the industry by paying what seemed an exorbitant $62 million for the mine in early 1987. He was gambling that Barrick would be able to extract the mine's low-grade ores with advanced technology.
Has it ever: Next year, Goldstrike will become one of North America's two largest gold mines, producing over 1 million ounces. Production could hit 1.5 million ounces by mid-decade, analysts say. Barrick looks doubly good to investors because Munk has an extensive hedging program to insulate the company from downward price swings. With gold sagging, the strategy helped boost Barrick's earnings to a record $40 million in the first half, up 46% from the year before.
Now that Barrick is running smoothly, Munk spends most of his time on Horsham. His first big move came at the end of 1988, when he bought 60% of struggling Clark Oil & Refining. Under Horsham, Clark's filling stations are being spiffed up, and refining margins have climbed 43%. Of the 29 energy stocks tracked by Donaldson, Lufkin & Jenrette Inc.'s Curt Launer, Horsham is one of only four to beat the Standard & Poor's 500-stock index this year.
Now, Munk hopes to pull off a similar coup in Germany. While his original plan for razing blocks of downtown Berlin may be quashed by local opposition, his business-park idea has strong support from the state of Brandenburg. Horsham does not plan to do all of the development itself. Says Munk: "We are going to conceive it and market it and make sure it happens." Already, there has been some activity nearby: Both Mercedes-Benz and BMW are planning big factories close by, and a new airport is slated for the area.
Still, in what sounds like a warning to Berlin officials, Munk is careful to emphasize that he hasn't made an "irrevocable" commitment to Brandenburg. He wants "at least two significant projects" in the Berlin area, he says. So if his idea for redeveloping downtown Berlin fails, Munk's whole German plan could fizzle.
If so, Munk will doubtless have other big ideas. His drive is unslowed by the years. When a biographer approached him about telling his story, Munk demurred. "Maybe I'll be ready when I'm 95," Munk told him. Until then, he wants to write some more chapters of his own.
MUNK MILESTONES 1944
Flees Budapest home to Switzerland following Nazi invasion. Emigrates to Canada four years later
Forced out as CEO of financially troubled Clairtone Sound, the consumer-electronics company he founded 10 years earlier
Leaves Canada, builds Southern Pacific Hotel Corp. into prosperous hotel chain in Australia and the South Pacific. Sells chain in 1981 for $130 million
Unveils plans for $400 million resort project near Egyptian pyramids. Political opposition derails project in 1978
Forms Barrick Petroleum to invest in oil and gas exploration
With oil prices falling, shifts focus to gold. Renamed American Barrick Resources grows spectacularly
Munk's Horsham Corp., growing fast in oil and refining, announces sprawling East Berlin real estate development
DATA: BW, COMPANY REPORTS
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