Still Dealing After All These Years
Iowa state officials won't soon forget the rock-'em, sock-'em bargaining style of Eli Broad. In the fall of 1989, then-Insurance Commissioner William D. Hager found himself dickering across a table with the Los Angeles financier, who wanted to buy $4 billion of the insurance assets of Integrated Resources Inc., the crippled financial-services combine. Each time Hager thought Broad was ready to make a final bid, Broad would back away and alter the terms. Finally, several shouting matches later, Broad made his winning bid, a low $95 million. This was without the guarantee of keeping jobs in Iowa that he had promised earlier. "He is, bar none, the toughest negotiating opponent I've ever encountered," says Hager.
Opportunistic, shrewd, and usually successful, the 59-year-old dealmaker has over the past three decades built two businesses--homebuilder Kaufman & Broad Inc. and insurance company SunAmerica Inc. ($13.6 billion in assets)--on the uncanny ability to spot openings. In the late 1950s, that meant riding the wave of postwar U.S. homebuilding. In the late 1980s, Broad saw his next market: aging baby boomers. "We served them with their first home, and now, 30 years later, we're helping them plan for retirement," he says.
So he beefed up his line of retirement products through a series of acquisitions from ailing competitors. And in 1989, he spun off the insurance unit from Kaufman & Broad Home Corp. to focus entirely on the retirement market (table). Broad's hallmark is customer service, with policyholders able to get instant policy-status information over an 800 line. The strategy is paying off. SunAmerica earned 13.5% on equity last year, while the industry average was about 11%. Although he has had his share of bum investments, like other insurers, nonperforming assets are a mere $71 million, or 0.7% of total investments.
Thanks to recent debt and equity offerings, Broad has an estimated $500 million to finance another deal. "When we find the right thing, we will have the capital to do it," he says. As less sturdy competitors scramble to meet new industry capital standards, finding targets won't be difficult. Saul P. Steinberg's Reliance Group Holdings Inc. is said to be looking for buyers for United Pacific Life Insurance Co., its annuity subsidiary. Xerox Corp. has its Xerox Life on the block, and smaller insurers, such as Presidential Life Corp. in Nyack (N.Y.), have fallen on hard times. Those close to Broad say he has looked at all three, but he hasn't bought yet.
A key Broad strength is that messy deals don't scare him. Take the case of Denver-based Capitol Life Insurance Co. In 1985, the insurer was low on capital and under pressure from regulators to find a buyer fast. With the list of bidders short, Broad stepped in. His terms: He would take over payouts on the $550 million block of annuities only if he could cherry-pick the insurer's best assets, leaving the rest for other buyers.
EYES OPEN. Broad seems to have inherited his entrepreneurial genes from his Lithuanian immigrant father, who started out as a house painter and ended up owning two small five-and-dime stores in the Detroit area. Together with Donald Kaufman, who had married Eli Broad's wife's first cousin, he scraped together $25,000 from family members and started Kaufman & Broad. The homebuilding company made Broad a millionaire at 24. Kaufman died in a 1983 plane crash. Broad's estimated net worth now: $450 million.
Real estate remains dear to Broad--and now is a bottom-fisher's paradise. A partnership with Los Angeles investor Jeffrey M. Gault has scooped up $190 million in nonperforming apartment and commercial loans seized from busted thrifts. "They make risky investments," says Sanford C. Bernstein analyst Weston M. Hicks, "but they go in with eyes wide open."
Although Broad pledges he will gradually cut down on corporate duties to spend more time on personal passions, such as a 300-piece contemporary art collection, no one believes it. "He is one of those cowboys who will die with his boots on," says a former SunAmerica executive. And with $500 million in cash, he sure can rope a lot of deals.