The Contrarian

Sanford I. Weill gazed out the window of a helicopter transporting him from Hartford to his home in Greenwich, Conn. Holding a glass of gin, the Primerica Corp. CEO was savoring a successful meeting with employees of Hartford-based Travelers Corp. about the acquisition of their company by Primerica, which will be renamed Travelers. The way he described his sense of accomplishment was telling. "Travelers is bigger than American Express," he boasted, referring to his $10 billion in equity capital vs. AmEx's $8 billion.

In a way, Weill, 60, is getting his revenge on American Express Co. Weill left the credit-card giant in 1985, after it became clear he wouldn't be able to ascend to the top AmEx job and replace James D. Robinson III. He ducks the question, but friends say he blames the white-shoe, Establishment board of directors for obstructing his AmEx career. When the purchase of Travelers is completed in December, Weill will have the keen satisfaction of having created, in just seven years, a brand-name financial-services company that not only

eclipses AmEx by some financial measures but also will be able to go head-to-head with Merrill Lynch and the giants of the insurance world, Metropolitan Life and Prudential. "My goal is to build the No.1 financial-services company in America," says Weill, who just ordered 15,000 Travelers trademark red umbrellas to give out as gifts.

BROADER BASE. If Weill succeeds at his lofty ambitions, it won't be because he followed conventional wisdom. More than anything, Weill is an inveterate contrari-an. He has assembled a financial-services conglomerate with $16 billion in revenues by doing things very differently from his competitors. While rivals are jettisoning businesses they bought in the heyday of the financial supermarket era, Weill is busy making acquisitions. When others are narrowing their focus, Weill is rapidly broadening his.

Unlike conventional empire builders who tend to overextend themselves, Weill has plotted his expansion prudently. He has been careful not to dilute Primerica's earnings or load on debt that would cause his credit rating to fall, as AmEx did when it bought E.F. Hutton and Shearson Lehman Brothers. Despite several acquisitions since 1988, Weill has pared debt and upped equity from $1.2 billion in 1988 to $4.2 billion at yearend 1992. He acquired Travelers with stock, taking advantage of Primerica's appreciating market value. The new Travelers is even under review for a ratings upgrade. "We see more diversification of earnings," says Alan G. Murray, senior analyst at Moody's Investors Service Inc.

The result has been steady growth in assets, earnings, and stock price. Since 1986, Primerica's earnings per share have grown 21% a year. Its stock has soared from 9 to 47 since 1990. With Travelers, Primerica's assets will be $100 billion, up from $23.4 billion--still well below its rivals but making it a contender the others can't ignore. Boasts Primerica President James Dimon: "We can double our earnings over five years."

Further, instead of competing for healthy properties, Weill buys vulnerable, troubled companies that few want, most notably Travelers, which was burdened with billions of dollars' worth of ailing real estate. "We were the only ones that didn't turn Travelers down," says Weill. He has made an art of buying companies on the cheap, from Commercial Credit Co. to Smith Barney, Harris Upham & Co. And even though he runs each business as a separate unit, Weill is pursuing the discredited 1980s notion of synergy. "The next test is to show that we can cross-sell products, something that hasn't been done effectively elsewhere," says Robert F. Greenhill, the new head of Smith Barney Shearson Inc.

REFUGEES. Weill's management style also goes against the grain. Unlike many financial-services monoliths where chief executive officers and employees own little stock, Weill runs his sprawling conglomerate as if it were a small family business with the owners' money on the line. Directors and managers are required to be big shareholders. And Weill obsessively eschews such bureaucratic hallmarks as organization charts and memos. "We're all refugees from larger, more traditional financial institutions," says longtime Weill lieutenant Robert I. Lipp, who spent 23 years at Chemical Bank. "A large, publicly owned company can be run like a privately owned company."

Yet Weill now faces the biggest turnaround test of his career. To engineer Travelers' comeback, Weill will have to unload some of its weaker businesses, although he denies that any sales are in the offing. "Our intention right now is to keep everything," he says. Then he will have to integrate Primerica and Travelers, which have very different cultures. Travelers' 35,000 employees and rigid managerial structure could overwhelm Primerica's entrepreneurial, decentralized system, which has a full-time headquarters staff of only 100. At the same time, Weill is seeking to repair Shearson, which lagged badly at AmEx, then combine it with Smith Barney and build an investment bank to challenge industry leader Merrill Lynch & Co.

"A BUILDER." The risks in his contrarian strategy are not inconsequential. He is building a securities firm after three stellar years for Wall Street. If the market tanks, a slump in trading volume combined with high fixed expenses would cost him dearly. Then there is the chance real estate could fall further and depress the value of his new Travelers assets. The biggest risk is hubris. "Everybody who has gotten big in this business has stumbled--Citibank, Bank of America. When is Sandy overextended?" asks one banker.

Weill claims his shopping spree is over. "I would be very surprised to see us do anything of any great substance in the foreseeable future," he says. But few believe he is finished with empire-building. "Don't dismiss the possibility that in three to four years, Sandy takes over American Express," says Perrin Long, research director at First of Michigan who sees a good fit between AmEx's and Travelers' businesses.

People expect big things from Weill because he has spent his career launching small companies and making them grow. He started with a small brokerage in 1960. It was the nucleus for an agglomeration of many securities firms that became Shearson, which he sold to AmEx in 1981. After leaving AmEx, he started all over with Primerica, which began as Commercial Credit in 1986. "Sandy is a builder, and he is driven by his love of building things," says James Robinson.

But it is Weill's skill at refurbishing new businesses that most sets him apart from other financial dealmeisters. "He is one of the great business managers in America," says John J. Byrne, CEO of Fund American Enterprises Holdings Inc. and a savvy insurance investor. "He likes to invest in things where he knows his operating and managing touch can make it a lot better."

To begin with, Weill is well-known as a shrewd buyer of companies. While others battle for the most widely coveted companies, his juices start flowing when there is blood on the floor. Travelers was interesting only because it was weighed down by bad real estate, allowing Weill to buy in for a slight premium to its market value. And he drives a hard bargain. He bought Shearson's 8,400 brokers, state-of-the-art back office, and Manhattan real estate while leaving AmEx with most of Shearson's considerable litigation liability.

Weill's reputation as an aggressive bottom-fisher can turn some people off. Despite two weekend sessions with General Electric Co. CEO John F. Welch Jr. in May, 1992, the two couldn't ink a deal for Weill to buy Kidder Peabody & Co. One problem was that the two CEOs didn't get along--Welch even kept Weill waiting for an appointment, say sources close to the negotiations. Some Kidder insiders say Welch turned down the deal because in their negotiations with Weill, Kidder officials were bargained into putting a lower value on their own company. When this was brought to Welch's attention by GE's corporate financial officials, Welch walked away. According to a GE spokes-man, Welch and Weill get along very well.

In absorbing acquisitions, Weill avoids using consultants and trendy management techniques. He gets to know the people at the company by spending time in the field and talking to employees at all levels. "He has always got better intelligence than others do," says John Castle, chief executive of investment firm Castle Harlan Inc. Then, he figures out who has to be replaced, whether it's just the CEO or other employees. Weill typically deputizes trusted aides to oversee the integration of new purchases. At Travelers, Primerica Vice-Chairman Lipp will be taking over as CEO from Edward H. Budd.

INCENTIVE PAY. Weill is ruthless in paring expenses. He sets up precise reporting systems so he can calculate profitability down to the level of individual offices. He roots out extravagance, such as Commercial Credit's lavish annual employee conference for agents that featured a performance by the Pointer Sisters. Economies of scale account for big savings. At Smith Barney Shearson, the large Shearson back office replaced Smith Barney's, eliminating 1,000 jobs. Some analysts believe he can save by combining some of Shearson's and Travelers' operations, such as the administration of their mutual-fund businesses.

Another key is revamping the compensation structure to link hard work to higher pay. At Travelers, Lipp is designing a compensation system, similar to the one at Commercial Credit, that will measure productivity only on the basis of factors that line managers can control. And bonuses are not spread so thinly that they become ineffective motivators. Just 45% of branch managers get a significant amount.

Employees at all levels are encouraged to own stock. Some 11,000 Primerica employees own 9% of the outstanding shares. And 2,900 senior managers get up to 25% of their pay in stock, which they aren't allowed to sell for two years. "Large companies tend to get very inward," says Lipp. "Sandy brings an outward orientation and a real feel like we own the place."

Smith Barney is a case study of Weill's modus operandi. The firm, says Weill, was "asleep" when he bought it in 1988. It lost $100 million that year. By 1992, return on equity was 30%, one of the highest in the industry, and in the first half of this year it earned $115 million. To carry out the job, Weill tapped Frank G. Zarb, a longtime partner, to take over as CEO. Zarb removed, retired, or reassigned all the division heads, revamped the accounting systems, slashed fixed expenses by shutting down businesses, and redefined its previously muddled mission to focus on catering to upscale clients.

Weill, indeed, makes a big point of pruning businesses that don't fit in, such as the 1992 sale of Margaretten & Co., a mortgage company. In 1992 alone, Primerica raised $625 million by selling nonstrategic assets. This keeps his managers focused. And it gives him cash to raise dividends, buy back stock, and pounce on new companies when the opportunity arises. Several analysts believe Weill will sell Travelers' health-insurance business because it is so far afield from his other businesses.

"HE GROWLS." One key to Weill's ability to stitch companies together is his strong personality, which can be both benevolent and harsh. His gregarious and informal manner hides a tough-as-nails interior. "He has an intuitive sense of dealing with people and getting them to think he's warm and fuzzy, even though he isn't," says a former employee. "If you work for him, he's demanding. He growls."

Yet Weill is best known for his personal warmth. He is the opposite of the stiff, distant CEO isolated in a corner office. He insists on getting to know his top workers' spouses, and he frequently socializes with employees. One recent evening, he was found sharing a drink in his office with Greenhill and several young investment bankers half his age. "Sandy is a very open, very approachable person," says Castle. "When I call him, he's back to me instantly--in a few minutes."

Weill's personal touch is already breaking the ice at the somewhat stuffy Travelers. One late September afternoon, after Weill and Budd held a large meeting for Travelers employees, Weill walked over to Richard H. Booth, Travelers' chief operating officer, and patted him on the back, signifying that he was doing a good job. Booth, whose father worked at Travelers for 41 years and who is a 20-year employee himself, was visibly moved. "It was a highly emotional moment for all of us," says Budd, who will become chairman of Travelers' insurance operations.

Weill's other side was apparent in his hardball treatment of some former employees of Primerica's predecessor company, America Can Co. Some 2,500 retirees and their spouses are suing him for allegedly reneging on the company's promise to provide lifetime health insurance for $5 a month. Primerica also canceled employees' life-insurance policies, says Judd Alexander, former head of American Can's paper division. Primerica says the benefit agreement allows the company to stop subsidizing employee premiums, which American Can managers dispute. "Primerica is one of the richest, most profitable, most idealized companies," says Alexander, 80. "And part of it comes from pennies taken off a dead man's eyes. I'm mad." Primerica says it offered retirees group health insurance, albeit at a higher price, and that employees signed a statement telling them the cost was subject to change.

Weill runs the company like a private Wall Street partnership where the senior officers have a say. A close-knit management team called the Primerica Planning Group meets monthly at a company house in Greenwich, Conn. It has grown to 14 with the addition of two Shearson and two Travelers managers. "It's almost like family," says Edwin M. Cooperman, who runs Primerica Financial Services. "Sandy likes to argue with you. We have heated disputes. The purpose is to test you."

LAVISH PRAISE. At the meetings, the managers discuss one another's business problems. One reason Weill believes he can cross-sell Travelers' and Shearson's financial products is because of the cohesive management group and its ability to cooperate and coordinate their separate businesses. In general, financial-services companies have failed to cross-sell products because of bureaucratic confusion and infighting.

Big decisions are put on the table. "When the issue came up, what are we going to pay for Travelers," says Greenhill, "the whole group talks about it and the risks, and we develop a consensus."

Although Weill ultimately calls the shots, his managers regularly disagree with him. Zarb recalls clashing with Weill during late-night negotiations to buy Shearson. Weill was furious at him for digging in his heels on what Weill considered a minor point. Zarb recalls how Weill capitulated to him: "He was red in the face. He slapped his hand on the table. He said, 'If we don't do this deal, I don't want to talk to you about an acquisition for Smith Barney for'--and then he paused--'at least 30 days.'"

The one who argues most with Weill is Dimon, his 37-year-old president, chief financial officer, and all-around alter ego. He worked with Weill at AmEx and followed him when Weill struck out on his own in 1985. Smart, quick, and likable, Dimon and his boss enjoy the rapid-fire banter of two people who spend more time together than they do with their families. When Weill at one point insisted that his planning committee feels free to disagree with him, Dimon corrected him. Only "five people would say" what they think, said Dimon.

Weill is lavish with his praise of Dimon. "Jamie does the work, and I criticize," says Weill playfully. They both deny any father-son dynamic. "I have a son, and he has a father," says Weill. "It's not a need that has to be filled. But there's a lot of love there."

Yet Weill doesn't hesitate to reshuffle his most loyal managers if he thinks it necessary. When he nabbed Greenhill from his job as president of Morgan Stanley & Co., Weill gave him the title of CEO of Smith Barney Shearson and kicked Zarb upstairs to a more senior but lower-profile position. Louis Glucks-man, a longtime Wall Street trader, was shifted from the top investment-banking job at Smith Barney and became a "senior adviser."

The biggest test of Weill's management style will be how he deals with the operational issues at his company. At Shearson, Weill has a hugely ambitious plan to build up Smith Barney's small investment bank so he can compete with the likes of Merrill Lynch and Morgan Stanley. Greenhill has hit the ground running. He is mapping out a three-year plan to target derivatives, currencies, emerging markets, and trading in Europe and the Far East. And as adviser to Viacom Inc., he is in the middle of the takeover battle for Paramount Communications Inc. Says Greenhill: "Smith Barney Shearson will be one of the primary earning engines of the combined companies."

Rivals question whether it's possible for anyone to build a sophisticated global operation when many others, from Prudential Securities Inc. to PaineWebber Inc., have failed miserably. There have been serious foul-ups already. Switching Smith Barney brokers to Shearson's computer systems caused dividend checks to be sent out incorrectly and trading delays. And the fact that Lehman Brothers, with its trading savvy, was not included in the Shearson purchase will further stymie Smith Barney Shearson's ability to serve its customers.

BIG AND STRONG. More broadly, some critics say what Weill has created is something of a hodgepodge with clashing businesses. For example, Primerica Financial Services hawks term life insur-ance by aggressively discouraging the purchase of the whole life insurance that Travelers agents sell. Critics say Weill is not a visionary but an opportunist, just nabbing bargains when they come along.

Weill disputes this assessment. He says he has a vision, that of a big, complex financial-services conglomerate with a number of different and separate customer bases. Weill rejects the idea that his many sales forces and products will clash with one another. "We have a much broader outreach to different demographic sectors [than competitors]," says Weill.

His strategy is to get into even more businesses and to garner a more commanding market share in each. With Travelers and its widely known brand name, Weill feels he will have the capability and the capital to create new products to sell to an ever wider variety of customers. Until the acquisition of Travelers and Shearson, the core businesses were brokerage, term insurance, and consumer finance. Now, the core includes property-casualty insurance, life insur-ance, health insurance, money management, and investment banking, which he has long shunned. "Weill clearly believes that to be a significant player in financial services, you have to be big, dominant, and have a strong capital base," says James Quella, a consultant with Mercer Management Consulting.

Weill talks also about reaching critical masses where more and more synergies will be possible. For example, he sees big potential in selling Travelers annuities to Smith Barney Shearson clients.

Despite the demands ahead, Weill is quite visibly having the time of his life. He is basking in the accolades of his friends and shareholders, from Reliance Financial Services Corp. CEO Saul P. Steinberg--who said Weill's buying Travelers "was better than my buying Reliance"--to Connecticut Governor Lowell P. Weicker Jr., who is glad to have Weill in the state as an employer.

Weill's wealth makes him a big man on campus in New York City. In 1992, he earned $67.6 million, mostly from exercising options granted in 1986, making him the country's second-highest-paid chief executive. And he got new options for 3.6 million shares, worth about $20 a share, under a program which replaces some existing options. He is chairman of Carnegie Hall, where his success at raising $60 million for a renovation earned him an eponymous concert hall.

Weill's oldest friends still marvel at his success. "We weren't sure if any of us could run anything bigger than a candy store," recalls Arthur Levitt, the new chairman of the Securities & Exchange Commission, of their early Wall Street days together. "Sandy and I were laughing about taking the People Express plane out to Minneapolis just seven years ago to talk to Control Data about selling Commercial Credit," says Greenhill. "I was working for him without pay because he was unemployed."

Today, Weill travels by private helicopter, not People Express. More than most senior executives, his success has come from doing things his way. That's not about to change. "Sandy is never going to retire," says an investment banker. "He wants to leave a legacy, a great company he built." With the new Travelers, Weill has a shot at just that.

      Spins off Commercial Credit from Control Data in IPO worth $850 million.
      Acquires Primerica, which includes Smith Barney, a brokerage house, and the 
      A.L. Williams insurance firm for $1.5 billion. Later sells several divisions, 
      such as Fingerhut. 
      Buys the consumer lending operations of Barclays American/Financial for $1.3 
      Acquires receivables and branches from Landmark Financial Services.
      Buys 27% of stock of insurer Travelers for $722 billion.
      Acquires Shearson Lehman Brothers from American Express for $1.2 billion in 
      March. In September, purchases remainder of Travelers with $4 billion in stock.

— With assistance by Christopher Roush

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