You Thought Gerry Tsai Was Retired? So Did HeRon Stodghill II
It's a familiar scene: Gerry Tsai, framed dramatically by a panoramic view of Manhattan's skyline, is waving a packet of financial data like a magic wand and predicting big things. "I thought I was retired," he says. "But now, I'm officially back in business."
The business is Delta Life Corp., a small, closely held insurance holding company in Memphis whose principal unit specializes in annuities. In March, Tsai led a group of investors that collectively purchased 48% of Delta Life for $26.8 million. His hunch: that financial woes and bankruptcies among larger insurers will cause a flight toward safer, untainted companies such as Delta Life. About 75% of its $751 million in as-sets is invested inU.S. government securities, and it has few bad loans. By offering safety in a time of turmoil, "we will grow at least 20% a year," Tsai forecasts.
So begins the next chapter in the roller-coaster saga of Gerald Tsai Jr.--the hyperaggressive moneyman who spurred the "go-go '60s" on Wall Street and who has alternately wowed and frustrated American business ever since (table). Once hailed as the Street's Most Likely to Succeed, Tsai has often promised more than he could deliver. The result is an odd reputation as both legend and letdown.
`IN THE HUNT.' Three years ago, his reputation--if not his wallet--took a beating when he departed unceremoniously as chairman of Primerica Corp. Now 63, Tsai is counting on Delta Life to put him back on the fast track. Says buddy E. John Rosenwald Jr., senior managing director for corporate finance at Bear, Stearns & Co. and part of the group that purchased Delta Life: "Gerry's back in the hunt and raring to go."
The affable Chinese immigrant certainly radiates brash self-confidence. He has grown his hair ponytail length ("It's my way of rebelling") and built a palatial house in Palm Beach, Fla., that includes two bowling alleys ("I entertain a lot"). He bats away notions that he should become a spokesman for his race ("Seriously, what do I have in common with the people in Chinatown?"), and despite his high-rolling lifestyle, he remains an intensely private person ("Let's just say Donald Trump and I have different ideas about publicity").
Some Tsai-watchers, however, say that the financier's gains have come largely at the expense of others. Benjamin F. Ward, a Delta Life co-founder who left the company two years ago but retains an interest, was worried about Tsai's plans. "Tsai has been up, down, and around, but he has never lost any of his own money," Ward says. Grumbles another Tsai observer: "Let's just say that Gerry Tsai has the unique ability to buy cheap, sell high, and pass on problems to other people."
Others, such as longtime friend Shirley Young, a marketing vice-president at General Motors Corp., defend Tsai as a visionary "who knows how to spot opportunities that others can't and has a keen sense of when to get out." Tsai himself believes he has built value in all his ventures and makes no apologies for his up-and-down career. "If I were going to live my life again," he says, "I would do it exactly the same."
NEW BREED. Born in Shanghai, Tsai has been controversial ever since he joined Fidelity Investments in the 1950s as a junior stock analyst fresh out of Boston University. Tsai wowed Wall Street with an unprecedented method of picking speculative stocks for short-term appreciation and selling them the moment their growth slowed. The method shook up the conservative money-management Establishment and inspired a whole new breed of portfolio manager. By 1966, Tsai had quit Fidelity to launch the Manhattan Fund, which he seeded by raising a then-unheard-of $247 million.
The market turned in 1969, however, exposing the risks of Tsai's approach. The once-hot Manhattan Fund was pummeled, as more than half of its 45 stocks lost 90% of their value. Tsai emerged untouched, though. He had bailed out a year earlier, when he sold the fund to insurance giant CNA Financial Corp. for a cool $27 million.
Tsai resurfaced in 1978, when he acquired a small insurer called Associated Madison for $2.2 million. Four years and several acquisitions later, he sold it to American Can Co. for $162 million. Tsai joined American Can, too, and his efforts to help transform the old-line manufacturer into a high-growth financial services company won him the CEO spot in 1986. He boasted then that within five years, American Can would be "an enormous company and very profitable."
Not on his watch. American Can, which Tsai renamed Primerica, wound up buried in the debt taken on to finance such acquisitions as Tsai's 1987 purchase of troubled Smith Barney, Harris Upham & Co. Operational problems--especially at Smith Barney--also emerged, resulting in a severe capital crisis. Tsai was forced to sell out to financier Sanford I. Weill's Commercial Credit Group Inc. for $1.7 billion in cash and stock. The deal gave Primerica stockholders $30.25 a share, a 10% premium over market value, but it hardly made up for the steep drop in value from Primerica's 1987 peak of $54. Tsai, meantime, received payments of about $40 million from the company as part of the deal, according to the 1988 proxy statement.
As Weill set out to repair Smith Barney and turn Primerica into a solid performer, Tsai sold most of his Primerica stock and began looking for new investments. He targeted the annuity business. With the help of Salomon Brothers Inc., he mulled rounding up investors to buy a large insurer. But then he spoke with a friend on the Delta Life board. Delta, whose single largest shareholder is Federal Express Corp. Chairman Frederick W. Smith, longed to expand but was wary of besmirching its pristine balance sheet. Tsai offered to pump in fresh capital for an equity stake, and Delta found the match irresistible.
LOCAL HERO. Tsai is barreling ahead. He placed $8 million of his own money on the bet and put together an all-star group of investors that includes Bear Stearns's Rosenwald; Herbert J. Seigel, chairman of Chris-Craft Industries; and Saul P. Steinberg, chairman of Reliance Group Holdings. Tsai says raising the cash was a breeze. "Because the investors knew I was involved, some didn't even bother reading the signing document," he says.
In Memphis, at least, Tsai is a hero again. Over the next two years, he plans to take Delta Life public, diversify into asset management, expand out of the South, and acquire more companies in related businesses. So what's Tsai's new title? "Anything I want it to be," he says. But as Tsai knows, titles don't matter much without performance.
TSAI'S WILD RIDE 1958 At Fidelity, Tsai helps revolutionize money management with an ultra-aggressive trading style 1966 As the 'go-go '60s' godfather, he starts the Manhattan Fund. Sells it to CNA for $27 million in 1968 and when market plunges, so does the fund 1978 Buys insurer Associated Madison, tacks on several acquisitions, and sells to American Can for $162 million in 1982 1982 Leads American Can's charge into financial services and is named CEO in 1986. Renames company Primerica and eventually buys Smith Barney 1989 Acquisitions load Primerica with debt, forcing Tsai to sell the company for half 1987's peak market value 1992 Tsai leads purchase of 48% of Delta Life for $26.8 million DATA: BW