The Reincarnation Of Mike Milken
It's 8 a.m. on a brilliant Sunday morning and Mike Milken, looking tanned and fit, is wide-eyed and eager to show off his library and new kitchen. Both are paneled in a blonde shade of pine that, Milken says, helps him to relax. "Listen," he says quietly, pointing to a small fountain running just outside. Milken had that installed, too. Out by the pool, a garden is bursting with flowers. "Honeysuckle and jasmine," the former financier says wistfully, his head tilting back as he savors the faint scents in the air. Having just finished up his yoga routine, Milken shows his meditation technique: He sits cross-legged, his elbows resting on his knees, hands extended, eyes closed. Yet even as he relaxes, the ultracompetitive Milken seems to be setting goals. "You know, if you are really good," he says, half-smiling, "you can stop breathing."
The miracle about Michael R. Milken is that he is breathing at all. Diagnosed with terminal prostate cancer in 1993, Milken was told by his doctors that he had 12 to 18 months to live. Rather than give up, Milken counterattacked. He learned everything about his disease, took up yoga and meditation to reduce stress, and became a strict vegetarian, abandoning his diet of burgers and fries for steamed broccoli and soy shakes. So far, Milken has proven his doctors wrong: His cancer is in full remission.
Had Milken not beaten the odds, cancer would have taken one of the most storied, vilified business figures of our time. From his X-shaped trading desk, Mike Milken, as everyone knows, launched a revolution that transformed the financial system forever. But he also overreached. And when he became ensnared in a federal crackdown on insider trading, Milken's world crumbled. In the public's mind, Milken was the iconic white-collar criminal, a symbol of everything wrong with Wall Street.
It has been eight years since Milken went to jail, but the debate over who Mike Milken is and how bad his crimes were goes on. Junk-bond villain or brilliant financial innovator? There are plenty who think Milken got sandbagged with trumped up, politicized charges, and plenty more who think he simply got what he deserved. And long after many of the less reputable characters he financed have been forgotten, Milken remains controversial. Indeed, he has become something of a human Rorschach test: How you feel about Milken says more about your view of the swashbuckling business atmosphere of the late '80s than it does about the man himself.
That debate will never be fully resolved. All that is certain is that Mike Milken has moved on. As far as Milken is concerned, he has paid his penalties--a total of $1.1 billion--and done his time. But that doesn't mean he has faded from the scene. Far from it. For the past six years, Milken has used every waking moment to rebuild his life and his reputation. First, he became a major cancer philanthropist, raising some $75 million for research and appearing regularly on such TV programs as Larry King Live and The Charlie Rose Show to push efforts to cure prostate cancer. And since 1996, he's moved back into business in a big way, founding Knowledge Universe (KU), a new venture that he hopes to build into a huge presence in the $800 billion educational-services industry. Together, his twin pursuits have given Milken a new platform from which, on his own terms, he is once again a player.
To have risen so high, to have crashed so hard, and then, to just pick up the pieces and move on. That could not have been easy. I can't help but wonder what the past 10 years of this man's life have really been like. How has that experience changed him? What's it like to be Mike Milken today? As I finally come face-to-face with this legend of the 1980s, he reminds me of no one so much as Richard Nixon and his own relentless quest for rehabilitation.
Is Milken, too, driven mainly by the desire to win back his good name? That is certainly a part of it. But it doesn't take long to realize that, despite all he has been through, Mike Milken seems much the same intense and compulsive guy he always has been, passionately worked up by his ideas. As I watch him move through his daily routine, I notice an almost robotic quality to him. He's perpetually in motion, and every minute of his day is scheduled. He strikes me as the opposite of an introspective man. At work and at play, he continues to surround himself with the same loyal family members and business associates who've stood by him since the 1980s. There is about Milken an air of unreality, a need to rewrite history on much of what he has done. It's as if to stop long enough to explain his past would prevent him from doing what he clearly loves best: propelling himself into the future at 500 mph.
Milken hates to talk about the old days. "It would be so time-consuming to deal with," he says. "It is better to focus on the future, that is what gives me energy." It has always been that way with Milken. "Even in prison, he didn't want to talk about himself," says a friend and former junk-bond client who phoned Milken during his time in prison. "He would say, `Let's talk about something more pleasant, something constructive."'
These days, that "something constructive" is Milken's dual quest to find a cure for his own prostate cancer and to build his education company. "In the 1980s, I had one huge idea. Now, I have two huge ideas," Milken pronounces. Just as he once trained all his forces on creating and controlling the then $200 billion junk-bond market, Milken has refocused his efforts, turning his high-energy laser beam on those tasks.
Cancer doesn't seem to have slowed him. The man works--really works--15 hours a day, seven days a week. He seems almost too focused, lacking the little flaws and weaknesses that make the rest of us fallible, susceptible to distraction, and in a word, human. He doesn't touch coffee, alcohol, or even soda. He never swears. His jokes are always hopelessly wholesome and corny. Even as a kid, he never rebelled. When he married his wife, Lori, at the age of 22 in 1968, the pair had been dating since the ninth grade.
Some of his friends and those who've worked closely with Milken say his drive for perfection is both inspiring and maddening. "In so many ways, he is who you hope your kids become. He is diligent, loyal, a great listener, grounded, persistent, optimistic, generous to a fault," says Joseph Costello, who was hired by Milken in 1997 to run KU, only to quit months later after a disagreement over strategy. "But something is missing. He never seems completely relaxed. There is always a point, a purpose. If he could just lose it, let go, he would be easier to relate to."
HIGH CONCEPTS. When I visit Milken in his Santa Monica offices, he immediately explains that driving purpose. Standing at a white board, he shows me a mathematical formula he says he drew up as a 19-year-old at Berkeley. He claims, without a trace of humor or irony, that it has been the philosophical underpinning for his entire life. P=EFT (DHC+ESC+ERA). "Huh?" I ask. "Prosperity is the sum of financial technology times the sum of human capital plus social capital plus real assets," Milken reads, looking at his scribblings with satisfaction.
Milken, I later learn, trots out this neat little theorem wherever he gives a talk. Another story he is fond of telling is how he decided to study business--and eventually went into investment banking--after the Watts riots of 1965 made him realize that underprivileged African Americans and others didn't feel they had access to the financing and credit that fuels the American dream. Self-serving as these stories sound, they do help me get a handle on what he's about. Here's The World According to Mike: First, he was focused on "financial technology" and "democratizing capital"--what the rest of the world knows as the creation of his junk-bond empire. In his mind, that period of his life came to an end not because he was fired from his job and sent to prison but because he solved the riddle, helping men like Ted Turner and William McGowan finance the launch of Turner Broadcasting and MCI Communications. Then he turned his attention to "access to knowledge, and access to social capital." Read: cancer research, education, and public policy.
I feel like shaking him and saying: "But Mike, don't you remember, you went to jail? Will you at least make a joke about it?" He doesn't, he can't. I find it all a bit overbearing, this tendency of Milken's to ramble on in academic-speak and rewrite history. Maybe all the high concepts are true, but they sound like a mental balm, swathing Milken's old wounds. "You don't get complete candor from Mike," says one former junk-bond client. "He never thinks he got a math problem wrong in his life. Forget about admitting he made a legal and ethical mistake." Adds another former close associate: "Do I think he went into investment banking to help people who couldn't get access to capital? I think he now thinks he did. But I don't know any investment bankers who started out that way."
REAL FLOWERS. Yet that ability to focus on only that which he wants to see may also be part of what is keeping Milken alive today. From the day he was diagnosed, he has acted almost as though, through hard work and concentrated effort, he can will his disease away. When Milken learned he had cancer, just a week after getting out of prison, his doctors told him to reduce his stress, to stop and smell the flowers. He took the advice literally. "It was around Mother's Day," recalls his sister Joni Noah, "and all the flowers were in bloom. `Look,' he said, grabbing both me and Lori by the arms, `Let's stop and look.' He said, `It is so special.' He never did anything like that before."
Milken quickly began the usual hormone therapy for late-stage prostate cancer, but he also threw himself into a host of other things. He took up aroma therapy and meditation and became a strict vegetarian, convinced that eating just grains and steamed vegetables would boost his immune system. He went on retreats conducted by celebrity guru Deepak Chopra. He got sesame-oil massages and rented a place on the beach in Malibu to breathe the sea air. Milken even moved a specialist in Eastern alternative therapies into his house. "I had nothing to lose. I would try everything," says Milken, whose father and six other relatives had died of cancer.
But under this New Age surface, the old Milken was still very much in evidence: He attacked his disease with the same intensity that he once saved for scrutinizing a company's balance sheet, determined that the riddle of his advanced-stage prostate cancer could be solved if the right capital and focus were applied. Within a week of being diagnosed, Milken was on his Gulfstream jet with his oncologist, Stuart Holden, to attend a research conference on prostate cancer. "No patients go to these conferences," says Holden. Milken soon made Holden the medical director of a new foundation set up to fund research into prostate cancer, CaP CURE. And he began pouring millions into the foundation, using his status and contacts to accelerate the search for a cure.
HELPFUL CONNECTIONS. Researchers, for instance, had been working for nine years to find families in which three or four members had prostate cancer. "Mike heard this and said, `O.K., we need those families, fine. We'll go on Larry King with Norman Schwarzkopf and myself and make a pitch.' Larry King didn't want to do the show. So Mike called Turner," and the show went on, Holden says.
Soon, says Holden, the research team had the families it needed for the project. "He thinks he can do anything. He said, `Once we get prostate behind us, we'll solve the rest of them.' I said, `O.K., Mike, I'm with you.' And after awhile you believe it. It is like a cult, maybe. But I am a person who is hardly susceptible to cults," says Holden. While it's too early to know if any of this research will yield significant results, leading scientists say Milken's money and his enthusiasm have given prostate cancer research a huge boost it might not have gotten otherwise.
By 1994, Milken was greeted with a welcome development: He was still alive, and his cancer was in remission. Faced with the prospect of actually being around a while longer, Milken vowed to get a measure of quality back into his life. "I felt I had more time," he says. "I had gone from the dash to running the mile." Still committed to his vegetarian diet, Milken was weary of eating the same bland meals. So he hired Beth Ginsberg, a gourmet vegetarian cook. Her mandate: to use soy and other ingredients to make proxies of hamburgers, hot dogs, and the other foods he used to love. "After two years of steamed vegetables and lettuce with nothing on it, I started to think, `O.K., my life expectancy is longer than I thought, what can I do without rocking the boat?"'
It's a thought that applies to far more than Milken's diet. He began spending more time on his Milken Institute, a think tank he created in 1991 to advance debate on the great issues of the day. He was also antsy to get back into the business world that he once loved. But what business? Banned for life from the securities industry as part of his plea bargain, Milken had just gotten a slap on the wrist by the Securities & Exchange Commission for his advisory role in the Turner Broadcasting-Time Warner merger. So he turned to another passion, education.
Ever since Milken began tutoring inner city kids in the 1980s, he says he recognized a business opportunity in private education. As early as 1988, he and the late Steve Ross, then chairman of Warner Communications, had started a venture called Education Entertainment Network. Later, in prison, he put some of his ideas to work, tutoring other prisoners and, on the weekends, their kids who came to visit. So when he was ready to start his next business, Milken--a huge science-fiction fan who loves to make references to Star Trek and Star Wars in his speeches--decided to marry entertainment and technology with education to make learning more accessible for both kids and adults.
As high-minded as it all may sound, make no mistake: This move has as much to do with making money as it does with improving education. He likens the situation to the transformation that occurred in the health-care industry a few decades ago. "There was not one medical company in the top 50. Today, 20% of the top 50 are pharmaceuticals," he says. Milken is convinced that consolidation in the fragmented educational-services business will allow for the creation of huge new corporations--and he intends to be in charge of one of them.
In short order, Milken has snatched up dozens of companies, ranging from Leapfrog LLC, a maker of educational toys now with $80 million in revenue, to CRT Group PLC, a British information-technology training and recruiting company now with $700 million in revenues. In what would have been its biggest deal, last year KU lost a bid to acquire the educational properties of Simon & Schuster to Pearson PLC, which paid $4.7 billion for the divisions.
"MACRO PLAN." To build his new empire, Milken has surrounded himself with familiar faces. He has hooked up with Tom Kalinske, a former Mattel Inc. CEO whom, in another lifetime, Milken saved from disgrace with a 1984 junk-bond offering that staved off bankruptcy at the toy company. Kalinske, who later became CEO of video-game company Sega America, has been working closely with Milken, serving as KU's president and mapping out its business structure. For his board, Milken has picked other old friends and business associates. The list reads like a who's who of the 1980s junk-bond days: Rupert Murdoch, CEO of News Corp.; Leo J. Hindrey Jr., president of Tele-Communications; and Stephen Bollenbach, CEO of Hilton Hotels.
Conspicuously absent from this list of entertainment and telecommunications titans are any real educators, though many education experts run his companies. And so far, KU has won a measure of support from outside educators, in part because of Milken's longstanding record of educational philanthropy. "In this world, anything that is for profit is imputed to have shady motives," says Arthur Levine, president of Columbia University's Teachers College. "The great question is whether any of these companies can make money and deliver better quality. If Milken can do it, more power to him."
Milken's plan is to forge a broad KU brand, which would provide everything from local preschools to computer classes. "The macro plan for 20 years from now," says Kalinske, "is a child who plays with Leapfrog toys, then moves on to KU software in high school, and then takes an SAT prep course from KU," says Kalinske. After using various KU services throughout a lifetime, the plan goes, a retiree could even "get training for a new part-time career." And though he says it isn't crucial to his plan, Milken is likely to go after the difficult and controversial market for owning and managing for-profit secondary schools.
Milken and Kalinske could hardly have set themselves a more ambitious goal. But they have plenty of company. In the last few years, dozens of publicly traded educational companies, like tutoring company Sylvan Learning Systems Inc. and adult-education specialist Apollo Group Inc., have been enjoying hefty profits and soaring stock prices.
But no one except Milken is trying to go after the market so broadly. Critics and competitors wonder if his high-minded rhetoric is matched with a well-thought-out strategy. To many, he seems to be indiscriminately snatching up everything that comes his way without a real plan to put it all together. "What is the core competency, the focus?" asks John Sperling, CEO of Apollo, parent of the publicly traded University of Phoenix.
Milken has no doubts about his strategy. Although he says he spends less than half his time on KU, he heads up KU's Los Angeles-based finance arm, which plots strategy and scouts for acquisition opportunities. He is deeply involved in the details of key deals and doesn't think twice about calling his executives at 6 a.m. or midnight to brainstorm.
Milken's M.O. is to buy small companies that could use his deep pockets to grow. In the preschool market, for instance, Milken bought publicly traded Children's Discovery Centers last year to gain a foothold in the $34 billion market. The poorly run company's stock was depressed. KU has taken it private, overhauled its management, and plans to use it as the core of a national chain to provide in-house day care to corporations. Although bigger chains already exist, such as Bright Horizons and KinderCare Learning Centers, the largest 50 companies have just 6% of the market, says Michael T. Moe, a Merrill Lynch analyst. Milken figures there's plenty of room.
As in cancer research, Milken is throwing around his celebrity status to give his new companies a boost. In 1997, Leapfrog, then a tiny company with $10 million in revenues, needed a spokesperson for its reading toys. Milken called up his friend Whoopi Goldberg, who is also involved in educational programs. "We were a little skeptical that she would show up," recalls Leapfrog CEO Michael C. Wood. A few days later, though, "a car pulls up and out jumps Whoopi. She said, `Show me what you have....What can I do to help, to spread the word? How about Rosie, Katie Couric?"' Plugs from those stars no doubt helped Leapfrog's sales jump from $17 million in 1997 to an expected $80 million in 1999.
Despite all his frenetic activity, ask Milken what he wants his legacy to be and the answer will not be curing cancer or revolutionizing capital or education. Instead, his response seems to jump right out of a 1950s black-and-white TV sitcom. "I'll take `great dad,"' he says without hesitation. "I love being a dad, a husband, a son. Relationships make life worth living. That is what got me through the legal storm." Milken has always been a devoted son, too, moving his entire junk-bond operation from New York to Los Angeles in 1976, when his father became fatally ill with cancer.
HARD TIME. Lori and Mike live in the same rambling ranch house where they have raised their three children since purchasing it in 1978 for $700,000. Built for Clark Gable and Carole Lombard in the 1930s, the house has two stories with a stone front and blue wood-shingled sides and is on what was once rolling ranch land. It is less than a mile from the house where Mike grew up and where his mother, Ferne, still lives. Although the land around the house was subdivided years ago, the Milkens' place feels secluded, surrounded by huge sycamore trees and chaparral-covered hills.
Mike's brother, Lowell, and his sister, Joni Noah, and their families all live a few miles from Mike and Lori as do Lori's brothers and sisters. Lowell, Joni, and their spouses also work with Milken at the Milken Family Foundation, a private educational and medical-research charity founded in 1982. The foundation has a half-dozen programs ranging from support for schools for disabled kids to handing 100 awards a year for $25,000 each to outstanding public-school teachers.
Lori Milken says Mike feels responsible for the hardship his prison days caused his own children. The investigation and prison term dragged on from 1986 to 1993, formative years for Milken's children. When the investigation broke, Milken's two sons were 11 and 9 years old. His daughter was 5. Two of his children suffer from medical problems, and as the trial approached, their conditions worsened, says Lori Milken. Weekends were consumed by the long trip to Pleasanton to visit Milken in prison. When his eldest graduated from high school, Milken wasn't there to see him win awards for outstanding work in science and languages. Says Milken: "My kids know who I am, but people don't realize how difficult something like this can be for families of public figures."
Life is much better now, but Milken is still trying to make up for time lost. He regularly discusses homework with his daughter, now 17. When he travels, he stuffs copies of her books into one of the duffel bags he always carries around. "We were at a charity dinner," says Gresh Brebach. "I saw Mike looking down at his napkin while he was carrying on a conversation. I said, `What are you doing?' He was reviewing his kid's homework assignment as he was talking."
His daughter is studying dance, and Milken likes to amuse her by going up to her room in the evenings, deftly imitating her dance steps. To share her passion, he absorbs every scrap of knowledge on ballet. Did I know, he asked, that there are 1 million people who perform in ballet, vs. 3.5 million in opera? It was as if he had concluded that ballet was undercapitalized.
Milken, of course, isn't just making up for years lost in the past. He's also making up for the near certainty of years lost in the future. Although his cancer is in remission, he knows it could strike again at any time. Says Milken: "My hope is there will be a breakthrough." But that might take a while. And unless new treatments are found, Milken "is living with a ticking time bomb," says oncologist Holden.
That's why Milken is more focused than ever these days. With the time that's left to him, he is striving to erase the painful episodes of the last decade. It hasn't been easy. For Milken, the only answer is to keep pushing. "If I were in his position, I would be in the French Riviera," says Holden. "He loves to work hard. As long as he is doing something where he works tirelessly, he is happy." As Mike and I part company, I feel relieved. He's an exhausting guy to be around and, at the core, a tragic character. But his way of dealing with his situation is to work twice as hard to win everyone over. That ought to keep Mike Milken very busy indeed.
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