Phil Anschutz: Qwest's $7 Billion Man
Most billionaires get rich, then acquire a taste for expensive art. But Phil Anschutz did it the other way around. At age 27, the young art buff traveled to Chicago from his home in Denver and charmed his way into a meeting with the chairman of the Santa Fe Pacific Corp. Anschutz had learned that the railroad owned hundreds of rare paintings stored in its headquarters basement. For the rights to buy a few, he proposed cataloging the collection, which had been originally commissioned to make Santa Fe travel posters.
Talk about an undervalued asset. Until Anschutz showed up, many Santa Fe executives weren't even aware the collection existed. Four days later, he bought 85 paintings for a pittance, walking away with what has become the core of a rare Western Americana collection. "I took the best of their collection," says Anschutz, now 57. Today, the paintings--worth several million dollars--line the walls of his Denver home and a cabin on his 30,000-acre ranch.
For Philip F. Anschutz, life has been one long adventure in ferreting out hidden treasures in unexpected places. Now, the little-known billionaire may have uncovered his biggest prize yet. After three decades of shrewd dealmaking in oil, railroads, and agriculture, he has tripled his net worth, to over $7 billion, with Qwest Communications Corp., a small but fast-growing telecommunications company he took public earlier this year.
Yet that's hardly the only iron the soft-spoken, reclusive Anschutz has in the fire. He's also branching out into high-profile sports and entertainment ventures. In 1995, he and a partner purchased the Los Angeles Kings for $114 million and are now building a $300 million dollar arena for the team, with plans for nearby hotels and restaurants to follow. "I am a student of strategic timing and cycles," he says of his new ventures. "And, I think these will prove to be right."
Heaven knows, Phil Anschutz has been right before. He made his first billion meticulously timing the oil and railroad markets. And his timing on Qwest also seems impeccable. Initially, few investors thought much of Anschutz' plans to take on the telecommunications industry with a new fiber-optic network. So, in 1991, he put in $55 million of his own money and raised another $400 million in debt to get the company off the ground. Since then, with the explosion in Internet traffic taxing the capacity of existing networks, WorldCom, Frontier, and GTE have signed deals worth a combined $1.1 billion for capacity on Qwest's network.
TALENT HUNT. With the IPO, Anschutz raised another $321 million, as well as $600 million more with a pair of debt offerings. And to boost Qwest's chances for success, the usually tightfisted Anschutz has been liberally doling out his money to lure the best in the business. Earlier this year, he hired Joseph Nacchio, the former head of AT&T's $26 billion consumer operation, to run Qwest. Nacchio has gone on to pluck top talent across the industry. That has Wall Street all agog. Since going public in June at 22, Qwest's stock has soared to 52, putting a $4.9 billion value on Anschutz' remaining 84% stake.
Qwest is the child of a previous Anschutz megadeal--and his eye for the hidden asset. Before he sold off the struggling Southern Pacific Rail Corp. two years ago to Union Pacific Corp. for $5.4 billion, he kept a gem for himself: He paid SP for the right-of-way to lay fiber-optic cable along the railroad tracks. That right-of-way is now the foundation of the 16,000-mile network he is building. When the Qwest system is fully deployed in 1999, it will have as much capacity as Sprint Corp. has today. "This is an industry at an historic inflection point," says CEO Nacchio.
If Anschutz is jumping onto the fast-growing telecom bandwagon, he is bucking the trend in the sporting world, where most owners relish the spotlight but write more checks than they cash. But to Anschutz and partner Edward P. Roski, the Kings are purely a real-estate play. Ownership of the team ensures a permanent tenant for their glitzy downtown arena and entertainment center, set to open in 1999. And with an option to buy a 25% stake in the Los Angeles Lakers, the duo have a deal with Laker owner Jerry Buss to move the basketball team to their arena as well. Down the road, Anschutz also intends to add theme restaurants, shops, and a hotel to the site.
For the Western oilman turned railroad baron, Qwest and the sports ventures are unfamiliar territory. But in one regard, what Anschutz is doing with both is nothing new. In all his deals, he typically holds on to the lion's share of equity, raising the rest in debt. When he ultimately sells or goes public, the returns can be phenomenal. In 1982, he sold $1 billion worth of drilling rights to Mobil Oil Corp. and others after spending most of the 1970s deeply in debt. His $5.4 billion cash and stock sale in 1996 of SP to rival Union Pacific came six years after acquiring the railroad for $1.8 billion in a leveraged buyout.
Playing the high-stakes leverage game comes naturally to Anschutz. As a boy, he grew up traveling around Kansas and Wyoming watching his charismatic father, Fred, wheel, deal, and at times go deeply into debt in the rough-and-tumble 1950s oil market. The young Anschutz saw his high-rolling father pull in a pile of money one year, only to lose it the next when oil prices crashed. Some months, the family would be hard pressed to make the mortgage payment. "You never knew what was going to happen next," he recalls.
His father's turbulent dealmaking gave Anschutz a zest for business early on. As a fourth-grader, he mounted his Kool-aid roadside stand on two pairs of roller skates and rolled it up to the nearby college campus. A bright and diligent student, he won entry to the elite University of Virginia law school. But the family's finances took a turn for the worse when his father fell ill, and he returned home to help run the business. The next five years were the hardest of his life, Anschutz says. "As a wildcatter, 95% of everything you do is a failure," he says. "Most holes are dry."
Even his first big strike in 1968 nearly ended in catastrophe. After the well he was drilling for Chevron Corp. exploded, Anschutz took a gamble. Borrowing money, he bought up dozens of surrounding leases. To his horror, a spark from a truck ignited the entire field, threatening to bankrupt him.
He quickly turned the mess into money. In a do-or-die move, Anschutz called famed firefighter "Red" Adair, who helicoptered in a day later to cap the blazing well. He then persuaded another driller to sign over his interest in the wells in exchange for Anschutz assuming all his liabilities. Desperate to raise money, he called Universal Studios, where he knew John Wayne was making a film about Adair called Hellfighters. Universal agreed to pay $100,000 for the rights to film his burning well. The money covered Adair's fee and Anschutz eventually went on to make a mint from the wells. "It's important to have your back to the wall," he says. "It teaches you how to think outside the box."
Perhaps because of his early struggles, Anschutz went in an opposite direction from his hard-living, easy-come, easy-go father. Instead, he developed the fastidious perfectionism that has been the trademark of his career. He's also a single-minded penny-pincher. To earn a little extra revenue, he rents out one of his ranches and three private railcars to corporations for retreats and parties (the cars go for $3,500 a day). For his own transport, he refuses to buy new cars, convinced they are a waste of money. Today he drives a five-year-old used Lexus; he has also driven used hand-me-downs from his wife. And when he needed bicycles for his three ranches in Colorado, Texas, and Wyoming, he called up friend David M. Schulte, a merchant banker with Chilmark Partners Ltd., looking for a deal. "We owned Schwinn, and he called me to see if he could get bikes wholesale," explains Schulte. "He is so cheap."
For Anschutz, though, thrift is just one aspect of a complex struggle to maintain a "normal" life for himself and his family. He was 16 when he met a 12-year-old named Nancy at a friend's house. "He didn't notice me until eight years later," says his wife of 30 years. "But I knew I wanted to marry him then." Today, the couple have three adult children. A regular churchgoer, Anschutz doesn't drink, apart from an occasional beer on cracked ice. And to keep the close-knit family in touch, his wife and children often fly to wherever he is on business.
OBSESSIVE PRIVACY. Anschutz' obsessive privacy--he avoids having his picture taken or conducting interviews for the most part--allows him to walk around a Kings game unnoticed by the crowds. His insistence on rigid discipline also permeates his home life. He gets up at 4:30 each morning and runs about 10 miles to train for his next marathon. He has already run some 15, many with his children. Always the perfectionist, he designed the family house in Denver, with its extensive library full of books on the American West.
Even his annual dove-hunting party has to be just so. The day before a hunt, Anschutz called Timothy J. Travis, CEO of Eaton Metal Products Co., insisting that Travis and his son come up that instant to plant newly blooming flowers. "Here we are digging holes, with him running up and down the driveway holding a shovel, shouting, `Not the red, I want the yellow there,"' says Travis.
That persistence has served Anschutz well throughout his career. In 1978, Amoco Corp. struck a huge reservoir of natural gas adjacent to a ranch he and his father had acquired years earlier on a hunch. Immediately, Amoco tried to buy out his oil rights. But he would have none of it. Then four years later, Anschutz sold half of his interest in the property to Mobil for $500 million and unloaded another $500 million of rights from other holdings. Cashing in ahead of the 1980s oil crash, he was able to pare down his billowing debt. "That was the single smartest move Anschutz has ever made," says one banker. "If he had held on, the world could have closed in on him."
Despite his newfound wealth, Anschutz still ran his company as if it were on the brink. One person who worked closely with him says Anschutz would personally inspect every piece of company mail himself. "He doesn't trust a lot of people," says the ex-employee.
What Anschutz trusts most are his own instincts. With deregulation presaging a big consolidation, he bet big on railroads. Three years after gaining control of the tiny Denver & Rio Grande Western Railroad, he acquired control of the sprawling but troubled SP for $1.8 billion. He put $90 million into the deal and raised an additional $486 million in equity and junk bonds. The rest was financed with bank debt.
Over the next several years, Anschutz struggled to stem SP's huge operating losses. Plagued by problems, it was losing more than $40 million a year. The outlook was so dire that his bankers, including Morgan Stanley, urged him to break up the line and sell it off piecemeal. Anschutz stubbornly held on, propping up the bottom line by selling $2.2 billion in real estate. He used a 1993 IPO to pay down debt and spruce up the line. "He is the most doggedly determined person I have ever met," says Schulte. "He sits there in meeting after meeting scribbling microscopic notes to himself with a red felt-tipped pen."
Again, Anschutz' perseverance paid off. When the Burlington Northern and Santa Fe merged in 1995, he entered into talks about a sale to archrival Union Pacific. Although his intent was always to sell, Anschutz played round after deft round of stone-faced poker. In the space of less than a year, he broke off negotiations three times.
In the end, Union Pacific agreed to pay out $5.4 billion. Anschutz cleared $1.4 billion in profit, including a 5.4% stake in the combined company. "He lays down his stipulations and then won't budge," says Richard K. Davidson, Union Pacific's CEO. "He's a smart guy out to make a buck. The amount he's already made doesn't matter."
How much is enough for Phil Anschutz? His friends and business associates are betting he will keep right on tallying up his winnings. "He is constantly not satisfied," says Morgan Stanley CEO John Mack. Adds Robert F. Starzell, Union Pacific's vice-chairman: "He will never stop trying." Whether it's paintings, railroads, or fiber-optic communications, Anschutz seems to enjoy the hunt for hidden assets as much as the art of turning them into ever more billions.