`Deal Junkie' Jeff Marcus Gets A New Fix
Jeffrey A. Marcus is nothing if not enterprising. To help pay his way through college, he resorted to driving a garbage truck, then bootstrapped his way into the cable-TV industry by selling subscriptions door-to-door. Thirty years of frenzied dealmaking later, Marcus Cable Co. was so large that Microsoft Corp. co-founder and billionaire Paul G. Allen had to pay $2.8 billion last May to get him to part with it. Of that, Marcus cleared an estimated $115 million.
But Marcus hasn't stopped there. Today, he is installed as CEO of Chancellor Media Corp., which is partially owned by Dallas-based leveraged buyout firm Hicks, Muse, Tate & Furst Inc. In his four short months on the job, Marcus, 52, has already cut a dizzying $8 billion worth of deals, some of them controversial. The biggest, a $4.1 billion deal to acquire Capstar Broadcasting Corp., should push Chancellor ahead of CBS as the country's largest radio company, with $2.5 billion in revenues, when the deal closes next year. "It would be nice to think Jeff would slow down now, but he can't," says Wes Hart, director of corporate sales for Marcus Cable. "Jeff's a deal junkie."
ROUGH SLEDDING? Can Marcus pull together Chancellor's sprawling empire--the company also owns television stations and a bilLBOard display unit--and make it run smoothly? The challenges are formidable. For one thing, all the recent dealmaking has left Chancellor deeply in debt--six times 1999 cash flow estimates, vs. an average of four times for its peer group. At the same time, the specter of an economic slowdown will make Marcus' new job especially difficult. Although ad revenues have been rising smartly, in a slowdown, corporate ad budgets are usually the first to get the ax.
In the cable industry, at least, Marcus has an impressive track record. He has been eating and sleeping cable TV since he was 19. Thanks to his father's career as a furniture salesman, Marcus seems to have salesmanship in his blood. To make ends meet in college, Marcus switched from hauling trash to hawking cable subscriptions when he noticed his college roommate at the University of California at Berkeley was putting in fewer hours and making more money. "It didn't take long to figure out who had the better job," Marcus recalls.
MARKETING MIGHT. Marcus started small in the cable brokerage business, though his company's grandiose name, Communications Equity Associates, hinted of bigger things to come. As Marcus honed his dealmaking skills, he started snapping up small, family-run cable companies. He would then fix them up--by adding channels, for example--and resell them to large cable companies at a 20% markup. His "greatest strength was his attention to marketing details," recalls former CEA associate Gene Gawthrop.
At the same time, Marcus was crisscrossing the country with his brokerage's biggest client, TCI Communications Inc.'s John C. Malone, acquiring small cable operations for the cable giant. By the age of 36, Marcus had piled up a small fortune. He moved to Dallas in 1987 and started Marcus Cable in 1990 with a $20 million investment from Goldman, Sachs & Co. Earning a reputation for ferocious tenacity, Marcus quickly assembled the country's largest privately held cable-TV system.
The deal that put him on the map was a $1 billion bid for most of Dallas-based Sammons Enterprises Inc. in 1995. Still a bit player--but with financial backing from Hicks Muse as well as Goldman Sachs--Marcus pulled off
a huge coup against a formidable TCI-led consortium. "To the Sammons family, this deal wasn't just about money. It was about family, and wanting to keep the business in Texas," says Sanjay Patel, a former Goldman Sachs managing partner. "Jeff was very good at convincing the family to sell." Says TCI President Leo Hindery: "We looked like the outsiders, and he looked like a member of their club."
But there was more to it than that. To put his competitors off guard, Marcus floated rumors that he didn't have his financing lined up. To further throw off his opponents, he took his family on a trip to the Virgin Islands. "We had to sort of lie low and make them think we couldn't come up with the money," recalls Marcus. Then, holed up inside his hotel room for several days, Marcus scrambled by phone to persuade the Sammons clan to sell to him. Overnight, the deal vaulted Marcus Cable into cable's top 10.
"MY OWN PERSON." Now, Marcus has to prove himself all over again. He has already found himself at the center of controversy. In assembling the pieces of Chancellor, Marcus presided over the acquisition of two media properties that Hicks Muse held big stakes in. And since his golfing pal, Thomas O. Hicks, and Hicks's LBO firm have backed Marcus over the years, some Chancellor investors question whether Marcus is acting as an independent CEO or merely doing Hicks Muse's bidding. "Jeff's a very talented guy who's good at getting things done," says Storm Boswick, a vice-president at J&W Seligam & Co., which has a 2.7% stake in Chancellor. "My only concern is that Tom [Hicks] might ultimately be making the calls."
Boswick and others are particularly irked about the price Chancellor paid for LIN Television, a Providence, R.I.- based broadcaster. Hicks Muse acquired LIN in March for $1.9 billion, only to sell two stations to nbc for $815 million and hawk the rest of the company to Chancellor in July in a stock and cash deal then worth $1.5 billion. Industry sources say Chancellor's former CEO, Scott K. Ginsburg, chose to resign rather than pursue a diversification strategy into pricey nonradio deals. Chancellor, meanwhile, has been the target of at least one investor suit charging that it paid too much for LIN. Says Boswick: "It was a terrible deal." Since the LIN transaction was disclosed, Chancellor's stock has fallen 45%, to 28.
Marcus is quick to dismiss concerns that he is acting on behalf of Hicks Muse. "I am my own person, and I am attendant to all the shareholders' best interests," says Marcus, adding that "Hicks Muse has $2 billion invested in this company...and its interests are totally aligned with other shareholder interests." And Tom Hicks stresses that all deals must be approved by outside, independent directors. Moreover, "we are long-term [Chancellor] investors," he says. "We want the company to do well." No doubt. But life sure is getting more complicated for Marcus. Still, it beats hauling trash for a living.