Apple's Arabian Knight?

Saudi investor Alwaleed may rescue Apple-his way

The scene in the Saudi desert is almost Biblical. Under a crescent moon, 40 or so robed Bedouin sit on carpets around a huge log fire, sipping tea or cardamon-flavored coffee. Nearby, a camel is being milked in the dark. At 3 a.m., the desert is silent.

Well, almost silent. This, after all, is the weekend encampment of one of the world's wealthiest and most powerful investors, Prince Alwaleed bin Talal bin Abdulaziz Alsaud. As huge TV monitors erected on the sand drone out Wall Street's closing prices eight time zones away, Alwaleed is on the phone with his lawyers in Washington, ironing out a Securities & Exchange Commission filing for the 5% stake in Apple Computer Inc. he recently picked up.

Apple could be a turning point for Alwaleed. It is the first-ever sortie into the Wild West of technology investments for the savvy 41-year-old Saudi prince, whose $11.7 billion portfolio (table) runs from banking and hotels to real estate and entertainment. Alwaleed could also bring about a turning point for Apple: The prince has made it known that if CEO Gilbert F. Amelio can't turn around the embattled computer maker, in which Alwaleed has bought $115 million worth of shares, then Lawrence J. Ellison's Oracle Corp.--or another group--will have to do the job.

WAR CHEST. If he joined forces with Ellison, it would mark the first time the prince has ever gone against existing management in a company he invests in. "The important thing is to get the share price back," says the prince, who thinks the stock, now trading around $19, could go as high as $70 or $80.

Alwaleed certainly has the clout to shake up markets: a war chest of $2 billion in cold cash, held in short-term U.S. dollar deposits at banks around the world. Earnings from investments this year alone will yield around $460 million. "He's far and away one of the most liquid players in the world," says Michael Jensen, corporate finance head at Citibank Private Bank in Geneva.

Now that Wall Street's record-breaking rally is cooling, Alwaleed calls that cash the "ultimate weapon" in his quest for value. With his "very optimistic" outlook on the U.S. economy, he is targeting about a dozen American public companies, as well as industrial combines in Germany and vast real estate ventures in the Middle East. There's just one restriction: Alwaleed will not buy more than a 9.9% stake in any listed U.S. company because of stringent SEC disclosure requirements.

A speedy--and contrarian--investment style has been Alwaleed's trademark ever since he made his first splash in international markets in 1991. From the stake he took in ailing Citicorp that year to his subsequent interests in Saks Fifth Avenue, Euro Disney, London's Canary Wharf, and a far-flung empire of luxury hotel chains, the prince has followed a formula. He consistently targets troubled outfits with global brand names, good management, and battered values.

"Look," says Alwaleed in the fluent English he perfected at California's Menlo College and Syracuse University in the 1970s, "we lifted every guy off his knees: [Citicorp Chairman John S.] Reed, [Canary Wharf founder Paul] Reichmann, [Four Seasons Hotels CEO Isadore] Sharp. Even [Silvio] Berlusconi," referring to the Italian media tycoon who sold off a portion of his television interests to Alwaleed and others in 1995.

That philosophy applies not only to Apple but also to another big-name company Alwaleed would like to rescue: loss-plagued Trans World Airlines Inc. Alwaleed in March plunked down $20 million for a 5% stake in the airline. The prince believes that new management under CEO Gerald Gitner can save the airline with more fuel-efficient planes and cost controls. And he is prepared to inject more capital and increase his stake, if necessary.

Alwaleed never invests on a whim, and his April investment in Apple was a case in point. Starting early last year, Alwaleed and Mustafa Al-Hejailan, a fellow Saudi and longtime business adviser, started collecting dozens of technology company analyses and reading background material, such as Intel CEO Andrew S. Grove's best-seller, Only the Paranoid Survive. By late last year, Alwaleed and Al-Hejailan had homed in on seven or eight leading companies, including Oracle, Novell, Netscape Communications, and Apple.

That's when Alwaleed turned to Citibank. As the bank's largest shareholder--and one of the biggest single clients of Citi's growing Geneva-based Private Bank--Alwaleed gets special attention. Two key execs at Citi's Geneva office, Jensen and relationship manager Cedric Grant, are on call 24 hours a day. Says Jensen: "We'd rather have him come to us at 2 a.m. on Sunday morning than have him go to J.P. Morgan, say, or Deutsche Bank."

Citibank brought in Morgan Stanley & Co. for more detailed analyses in the electronics sector. By December, when Alwaleed was on a 10-day tour to look at U.S. real estate, the prince met with Morgan Stanley's Menlo Park (Calif.) Managing Director D. Rex Golding for a lengthy presentation.

But Alwaleed was also doing field research on his own. Winding up a series of meetings with Walt Disney's Michael D. Eisner, Travelers Group CEO Sanford I. Weill, and Allen & Co.'s Herbert A. Allen, Alwaleed headed for San Francisco to see Oracle's Ellison. During the late-night meeting at Ellison's San Francisco apartment, the two talked about Netscape, Microsoft, and the future of the Internet. By early March, back in Riyadh, Alwaleed began quietly picking up Apple shares. When Ellison personally telephoned Saudi Arabia later in the month to find out whether Alwaleed would be interested in joining forces for a run on Apple--unaware that the prince was already buying--the call was referred to Alwaleed's lawyers, for fear of transgressing any inside information regulations.

Apple may or may not work out--but it won't be because Alwaleed hasn't done his homework. So far, the prince has avoided getting burned, in part thanks to expert advice and in part because he shuns the trophy investments that have waylaid other tycoons. After preliminary talks recently between Al-Hejailan and Rupert Murdoch, Alwaleed nixed the idea of getting involved in News Corp., saying the company is "too political." Similarly, the prince mounted a secretive plan last year to take over MGM in a bid with the studio's management--but refused to match the rich $1.4 billion offered by Kirk Kerkorian. Troubled Italian computer group Olivetti was another concern that got the thumbs down from Alwaleed after a careful look, as was New York-based Avon Products Inc.

A SAUDI SAKS. On Wall Street, Alwaleed must compete with the pros. But in the Middle East, as a leading member of Saudi Arabia's ruling Alsaud clan, he has unbeatable entree. In Cairo, where he has two major real estate proj-ects, Alwaleed is treated like a head of state. The same is true in Lebanon, whose first Prime Minister, Riad Al-Solh, was Alwaleed's maternal grandfather. The prince, who has stakes in two Lebanese television stations and a local investment bank, is negotiating with Prime Minister Rafik Hariri over two multimillion-dollar Four Seasons hotels.

Those hotel projects are part of a $1 billion program to put up Four Seasons hotels in 10 to 12 cities in the Middle East, an area with few high-quality hotels and one that Toronto-based Four Seasons has neglected until now. Alwaleed finds local partners to join him as minority investors and secures a management contract for Four Seasons. The Canadian company, 26% held by Alwaleed, is thrilled to have the prince own its real estate, since hotel groups are heavily taxed on property they own.

Nor is Alwaleed neglecting his home market in Saudi Arabia. With a portfolio that already includes the nation's largest supermarket chain, two banks, and various industrial companies, the prince is getting set to start construction in September on the Kingdom Trade Center. At 300 meters, the $500 million futuristic office building will be the tallest in the Middle East, housing a Four Seasons hotel and a three-story Saks Fifth Avenue, the retailer's first international outpost. It will resemble other Saks stores except in one respect: Because Saudi society frowns on mixing of the sexes, one floor will be for women only. By way of market research, Alwaleed's aides interviewed hundreds of Saudi women.

Given Alwaleed's high profile in Saudi Arabia, it's hard to avoid speculating on a future political role. But Alwaleed insists that business, not politics, is his game. The way he sees it, he has accomplished about 25% of what he wants to do in business. He also predicts that he'll double his fortune in the next 10 years. "With everything in my mind, I'd say we're just getting started," he says. And with $2 billion in cash, the possibilities are just about endless.

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