How Disney Snared A Princely Sumby
Prince Al-Walid bin Talal bin Abdul-Aziz Al-Saud has a 130-room palace in Riyadh. But he likes to spend weekends camping out with his family deep in the Saudi Arabian desert. Not that the nephew of Saudi ruler King Fahd roughs it. His idea of camping involves high-tech caravans manned by servants and bodyguards. And, of course, there's a satellite uplink just in case Al-Walid wants to make a phone call.
Over the past 11 months, those calls have often gone to Stephen L. Norris, seven time zones away. A founding partner of Carlyle Group, the Washington-based investment boutique, Norris has gotten used to hearing the prince's distant voice at three or four in the morning. "He'd say, `We're going over this line by line, word by word,"' says Norris. "And he was, too."
RESCUE TIME. The object of Al-Walid's attention was the deal wrought over months of painstaking negotiations among the Saudi prince, entertainment giant Walt Disney Co., Norris' Carlyle Group, and a host of banks. In early June, Al-Walid agreed to inject up to $400 million to rescue EuroDisney--the debt-ridden, Disney-managed theme park near Paris. If completed as planned, the deal will give the 37-year-old prince a EuroDisney stake of up to 24%. And Disney, which owns 49%, would get relief from an investment that has resembled nothing so much as the La Brea Tar Pits.
The EuroDisney deal was hatched last August, when Norris sent feelers to Disney management about his idea of how to recapitalize a park that has lost over $1 billion since opening in 1992. The 44-year-old former tax lawyer had long ties to Disney executives from his days as a vice-president at Marriott Corp., where several of them had also worked.
Although Norris also showed his EuroDisney restructuring plan to Hungarian-born multibillionaire George Soros, "I already had in mind that it was a deal for the prince," he says. The Alabama-born Norris and Al-Walid started working together in 1991, when the Saudi made a move to buy $590 million worth of preferred stock in New York's Citicorp, which at the time was reeling from bad real estate loans.
The prince already had accumulated 4.9% of Citicorp common stock through open-market purchases. But since the preferred deal would make Al-Walid the largest shareholder in America's biggest bank, "he felt he needed a group that had political clout in Washington," says an Al-Walid adviser in Riyadh. With insiders such as ex-Defense Secretary Frank Carlucci and former Secretary of State James A. Baker III on board, Carlyle clearly had clout. It beat out several more experienced players for the job.
Norris knew the Citicorp deal had whetted the prince's interest in bottom- fishing. (Al-Walid's profit on the investment tops $1 billion so far.) He also was aware of the financial clout Al-Walid can muster. Talal, Al-Walid's father, was known as one of the Saudi "Free Princes" in the 1960s, when he was exiled from the country for his liberal views. After being pardoned several years later, Talal built one of the larger fortunes among the fabulously rich Al-Saud clan.
Son Al-Walid likes to be seen as a self-made prince. Various claims about the size of his personal fortune run as high as $4 billion. If he has control of that much money, it's likely that some of it belongs to other Al-Saud family members. But deals ranging from Citicorp to his turnaround of the troubled United Saudi Commercial Bank have burnished his reputation as a real player.
NEAR COLLAPSE. Once Norris got the go-ahead from both sides, he began the grueling process of putting the EuroDisney deal together. Countless predawn phone calls and several plane trips from California to Saudi Arabia exhausted him to the point that he now says, "I will never, ever do a deal like that again." By May, however, a deal began to take shape. Originally, it looked as if Al-Walid and Carlyle would score big: They not only would buy into EuroDisney cheap (Carlyle offered to pony up $20 million) but they would also get warrants to purchase Walt Disney stock at favorable terms.
In the 11th hour, however, the deal almost collapsed. Sources close to both sides say that up until then, Carlyle had been negotiating with Disney and then discussing the results with the Saudis. But at the last minute, the Saudis decided to negotiate directly with Disney via Al-Walid's top associate, Mustafa Al-Hejelan.
Bad move. "Disney sensed that the prince was falling all over himself to do the deal," says a source involved in the talks. The result: Disney negotiators--who never liked the warrants idea in the first place--told the Saudis they would walk if that part of the proposal wasn't removed. That scared banks central to the restructuring, who threatened to flee as well. As a result, not only did Al-Walid scrap the warrants, but he also agreed to invest $100 million to build a new convention center near EuroDisney. Says another source: "The prince has people working for him who are real lightweights." The prince was unavailable for comment.
Whether the deal turns out to be a Citicorp-like success is hardly a sure thing. Attendance at EuroDisney has been O.K., despite Europe's steep recession But the original economics of the project are out of whack. Penny-pinching guests aren't spending much on food or merchandise. And the recession has killed demand for offices and shopping centers that Disney planned to build on acreage next to the park. Such developments were to draw income to help pay down $3.4 billion in debt. That in turn was to help Disney finance a second park--an MGM Studios film tour site--which would draw visitors to help fill hotel rooms. None of this has happened.
Nevertheless, Norris says, the prince sees nothing but opportunity. He's getting his shares at a bargain price (some 70% below the open market value) and he believes the recession's end will bring economic relief. He also thinks the convention center will help fill the half empty hotels. Still, one source close to Disney says that any sort of princely return is five years away at best.
By then, Norris and Al-Walid will likely have cut more deals. Norris, according to Riyadh sources, has unparalleled access to Al-Walid. He may guide a royal investment in Italy's IP oil-refining and distribution group. With $3 billion in 1993 sales, Genoa-based IP may be spun off by its state-owned parent, energy giant ENI.
Sounds pretty buddy-buddy. But the Norris-Al-Walid relationship has its limits. Al-Walid, for example, almost never socializes with Westerners, preferring the company of his closest relatives among the 4,000-strong Al-Saud clan. When home from the desert, he relaxes at his Riyadh palace, where he plays tennis with his personal trainer, Romeo Rafon, the former top-seeder from the Philippines. Norris has a close business relationship with Al-Walid--but he still calls him "Your Highness." Says Norris: "I never call him Your Royal Highness. Way too formal."
Disney CEO Michael Eisner got a whiff of his new partner's regal ways just as the EuroDisney deal was closing. Anticipating negotiations would be a success, Eisner faxed the prince a message proposing that they meet face-to-face for the first time. That Eisner is Jewish, however, made getting a quick visa to Saudi Arabia problematic, according to aides to the prince. "Plus," says one, "Al-Walid didn't feel he had to hop when Eisner said hop." Al-Walid may be a fairy-tale prince for Disney, but he's still a prince.
TABLE: THE PRINCE'S TREASURE TROVE Saudi Prince Al-Walid's major holdings: Company Stake Value CITICORP 9.7% $1.7 billion UNITED SAUDI COMMERCIAL BANK 50% $200 million SAKS FIFTH AVENUE 11% $100 million** EURODISNEY* 24% $400 million PANDA Saudi grocery chain 100% NA KINGDOM ESTABLISHMENT 100% NA Construction company * Pending investment of up to 24% ** Initial Investment DATA: BUSINESS WEEK, COMPANY REPORTS