When you're H. Ross Perot Jr., the only son of you-know-who, it's tough to go against your father's wishes. As he says now: "Rebelling wasn't a big option in our household. We never wanted to do anything that would make our parents ashamed." After Perot Jr. graduated from Vanderbilt University in 1981, his father asked Texas developer Trammell Crow to give his son some career advice. Crow had just one word for young Perot: warehouses. Six years later, Ross Jr. jumped into real estate development, using several thousand acres of his family's Texas land as the springboard. And when, in late 1999, his father began needling him to take over computer-services company Perot Systems Corp. (PER ), he soon obliged: "I said, `I'm here to do what you want me to do."'
Of course, Perot père commands more attention than most other fathers. He helped launch the computer services industry when he founded Electronic Data Systems Corp. in 1962, and the company made him one of the richest men in America. He dazzled the country when he arranged for the daring rescue of two EDS employees held hostage in Iran in late 1979 and ran for President twice.
The way Perot fils looks at it, he would be crazy to strike out on his own: "I was dealt some great cards, and I try to play them well," he says. Today, at 43, he is one of the most formidable developers in Texas. His firm, Hillwood Development Corp., specializes in megaprojects requiring big backers, political muscle, and piles of public dollars. It's the kind of company that only someone with a name like Perot could run. Case in point: the $420 million American Airlines Center in Dallas, which opened in July. Located on once-blighted land, it's the most expensive basketball and hockey arena ever built, and nearly a third of the funding came from tax receipts.
But now neither Perot's real estate ventures nor the family company are proving to be sure things. Recession has slowed the real estate market. And Perot Jr.'s reliance on public money, controversial in the best of times, is now being criticized even more harshly. That has put his scheme to surround the arena with an upscale urban streetscape in doubt. As CEO of Perot Systems, in which the family maintains a 32% stake, Perot Jr. is charged with pulling off a tough turnaround during a brutal time for tech companies. Cost-cutting should help increase profits by about 15%, to $65 million in 2001. And the stock has gone up 80% since he took charge in August, 2000. But the company is puny compared with such rivals as IBM and EDS, which Perot Sr. sold to General Motors (GM ) in 1984 for $2.5 billion. And it's growing at about half the rate of EDS. In the fourth quarter, revenues likely rose just 6.7%, compared with consensus estimates of 16.6% for EDS, says RBC Capital Markets analyst Cynthia L. Houlton. Annual revenues at Perot Systems were $1.2 billion in 2001, she estimates; EDS sales were about $22 billion. "They've got a ways to go," says Merrill Lynch & Co. analyst Stephen T. McClellan.
Just before Perot Jr. took over, the company fell into trouble. Perot Systems can still rely on contracts from health-care providers, which account for 39% of its revenue, but sales to other industries are faltering. In 2000, three major clients--UBS, ANC Rental, and East Midlands Electricity--greatly reduced their spending. The result: nearly $200 million in lost revenue that caused sales to decline 3% for the year instead of growing an anticipated 14%. Analysts say a small player like Perot Systems needs to grow more than 20% a year, and for several years it did. But sales were slow in 2001 as well; the company expects to grow at least 15% this year.
Perot has replaced wayward execs and instilled new discipline in a company that some speculate had gotten away from his father. How? By reinforcing his father's maxims: Know your customer. Never be satisfied. Spend each dime like it's your own. "That's the way to get things done," says Perot Sr., who is the company's chairman but doesn't spend much time in the office these days. Replies the dutiful son: "I do anything he wants me to do." Many of the elder Perot's famously stern policies, including mandatory drug testing and no benefits for same-sex domestic partners, remain in place as well.
But the company still isn't quite measuring up. To speed its growth, Perot Jr. needs to broaden the company's skills far beyond serving health-care and financial-services outfits, probably by acquiring other firms. "They need many more prospects," says McClellan. Perot admits as much: "We're certainly not satisfied today."
At least Perot knows a little something about toughing it out. He and his four younger sisters grew up with retired Marine Corps drill instructors as security guards. Perot Sr., a Naval Academy grad, used to tote his son to prisoner-of-war rallies and took him to Cambodia and Laos during the Vietnam War. When Perot Jr. entered Vanderbilt to study business administration, he eagerly joined the ROTC. After graduating, he and a Vietnam vet at EDS, Jay Coburn, became the first to circle the globe in a helicopter, in 1982. Along the way, they had to make a treacherous refueling stop on a ship in the North Pacific. After that adventure, Perot served in the Air Force, then turned to real estate development in 1987. These days he wears the same uniform as his father: a suit, white shirt, and tie.
He has pretty much the same attitude, too. He intimidates other developers with an approach he calls "win or die." His vast assets, connections, and political influence help, too. Says one rival: "I don't like to compete with them head-to-head because you really can't. They can use their might." Perot is almost as rough on colleagues. For years, he fought with financier Thomas O. Hicks, owner of Dallas' pro hockey team, over the arena's direction. They finally agreed to join forces, but it's Perot's vision that's guiding them now. The Perots are "not used to being equal partners with somebody," Hicks says.
Perot Jr.'s first business challenge was convincing his father that he could turn 2,500 acres of the family's pasture land into an industrial airfield surrounded by warehouses and factories. Then he wooed a host of public officials who over time put up $152 million in public funds. Today, the privately held AllianceTexas spans 15,000 acres and is home to more than 100 companies as well as a NASCAR speedway. A research firm hired by Perot estimates the project is responsible for one of every 15 jobs in the Fort Worth area.
That success paved the way for his next big idea: to revitalize downtown Dallas with a state-of-the-art sports palace surrounded by shops, restaurants, and hotels. In 1996, he bought the local NBA team, the Mavericks, and used it as leverage to ask the city to put up $125 million, more than half the arena's initial price tag. The money would come from an increase in taxes on hotel rooms and rental cars. Some balked at bankrolling the son of a billionaire. But, as he did with Alliance, Perot employed a small army of lobbyists to sell the deal. In 1998, he narrowly won a referendum on the arena. Two years later, he sold the Mavericks for $280 million, doubling his investment.
But with the recession straining government budgets, Perot's ability to attract public funds may be diminishing. Some city officials who supported the arena are resisting requests for an additional $45 million in property tax receipts for more amenities. A coalition of Dallas property owners opposes the idea. They say it would siphon resources from other revitalization projects. If the city doesn't put up the funds, then Perot's main investors will walk away. And his opponents are on the attack. Says Laura Miller, a former city councilwoman who is the leading contender for mayor in the Feb. 16 runoff elections: "They ask for way too much. I cannot imagine that we'll give them this kind of subsidy again." The power of the Perot name may be wearing off.
By Andrew Park in Dallas