A Sports Mogul And A Mystery

As Malcolm Glazer buys into ManU, the SEC looks into runups of stocks he controls

A transatlantic tug-of-war has broken out over control of Manchester United, the British soccer club that is perhaps the most lucrative and powerful sports franchise in the world. On one side are Irish horse-racing tycoons John Magnier and J.P. McManus. On the other is Malcolm I. Glazer, the reclusive owner of the Tampa Bay Buccaneers, winners of the 2003 Super Bowl.

This is a high-stakes game. Magnier and McManus own just under 29% of the team; if they hit 30% they will have to make a formal bid under London Stock Exchange rules. That could trigger a bruising battle with Glazer, who has put up about $200 million for almost 17% of ManU, which is publicly traded and has a market value of $1.3 billion.

As a yearlong chess match between the horse breeders and Glazer has played out, remarkable runups of two stocks controlled by Glazer and his family -- runups that have increased the value of their stake by some $50 million -- are being probed by the Securities & Exchange Commission, BusinessWeek has learned. An independent BusinessWeek investigation raises serious questions about whether sudden increases in the value of Zapata Corp. (ZAP ) and Omega Protein Corp. (OME ) were orchestrated. The Glazers own about 50% of Zapata, a holding company. Omega is a fish-oil company in which Zapata has a 60% stake.

Zapata Chairman and CEO Avram A. Glazer, Malcolm's eldest son, says that no shares in Zapata, which is traded on the New York Stock Exchange, were used as collateral to finance the position in ManU. However, spikes in the stock prices of both Zapata and Omega, which Avram Glazer also chairs, came after curious buyout offers and coincided with the Glazer family's increasing accumulation of ManU shares.

"MIGHT HAVE BEEN". The BusinessWeek inquiry led to Theodore Roxford, a mysterious, would-be corporate raider who takes credit for putting Zapata "in play" and pushing up its share price from a low of 22 on Nov. 8, 2002, to a high of 62.40 on Dec. 17, 2003, for a 184% increase. He tells BusinessWeek that he first approached Zapata management with an undisclosed offer in late 2002. He says he wrote to Malcolm Glazer but got no response. Then, Roxford says, he initiated a public bid in March, 2003, at the behest of an investor group with a large stake in Zapata. He declines to identify the group but says he "might have been" acting on behalf of Malcolm Glazer.

Avram Glazer calls Roxford's suggestions absurd. He says that, aside from the offers, neither his 75-year-old father nor anyone who represents him has "had any dealings with [Roxford]." Malcolm Glazer declined to comment.

The Tampa Bay Bucs are worth an estimated $700 million, but NFL rules bar Glazer from pledging that asset as collateral. Meanwhile, Glazer's bid for the Los Angeles Dodgers last year went nowhere partly because the financing was shaky, according to a Major League Baseball executive. Avram Glazer denies that financing was an issue.

The Glazers certainly have plenty of other assets in addition to Tampa Bay and Zapata. Closely held First Allied Corp., the holding company for the family's real-estate empire, boasts shopping centers in 15 states and claims to have $500 million ready to invest in new properties.

While the Glazers appear not to have taken advantage of the boost in Zapata's shares by selling, an SEC source says that the stock's value as possible collateral has indeed jumped. The agency is looking into the mysterious leaps in price in an attempt to determine whether they resulted from market manipulation or were orchestrated on behalf of someone else. The SEC recently subpoenaed Roxford, and Omega General Counsel John D. Held confirms that the agency requested company documents last fall. Avram Glazer would not comment on whether the SEC has sought similar information from Zapata.

The strange story begins on Nov. 8, 2002, when Roxford claims he approached Zapata. Roxford says he wanted to discuss taking Zapata private, since its share price, then 22, did not reflect the full value of its 60% stake in Omega and the fact that Zapata was sitting on $115 million in cash and short-term securities. On Mar. 3, 2003, after getting no reaction, Roxford made a $45-a-share offer for Zapata. Avram says neither he nor his father knows anything about Roxford trying to reach Zapata in 2002.

WRONG NUMBERS. The bid came as an e-mail to Zapata from Hollingsworth, Rothwell & Roxford, a self-described Melbourne (Fla.) mergers and acquisitions firm. HRR's address is a mailbox at a UPS (UPS ) store in a shopping mall. A phone number listed on the HRR Web site belongs to a man who says he has never heard of the firm. And the fax number connects to a voice line belonging to an elderly local woman who also has never heard of HRR or Roxford.

Roxford and two partners he identifies as Hugh Hollingsworth and Ken Rothwell offered to acquire Zapata "contingent on Zapata Corp. making a public announcement" that HRR had made a bid "so that everyone can hear about our offer at the same time." On Mar. 5, 2003, Zapata publicized the bid in a press release because, says Avram, the offer had been revealed in an Internet chat room. At that point, the shares climbed nearly 4%, from 36.39 to 37.78.

After two days, Zapata threw cold water on HRR's offer, announcing that "it would not be in the best interest of Zapata or its stockholders to pursue this matter." The shares closed out the week at 39.27, up almost 11%. On July 13, 2003, HRR raised its offer for Zapata to $51 a share. Two days later, with Zapata trading at 54.80, it withdrew its bid and announced support for the company's board.

Roxford insists that he "never made a penny off [the Zapata] deal," because he owned no shares. Then why bother with Zapata? In a face-to-face interview, Roxford said his pursuit of Zapata was "a test" designed in large part to prove his investing prowess to a potential client.

Roxford says the investor group he was trying to impress owns "between a half-million and a million shares" of Zapata. The only group that comes close to filling that bill is the Glazers. In a phone interview on Feb. 24, Roxford said it was possible that the Glazers were working with the unnamed investor group, but he didn't ask "because I didn't want to know."

Six months after the Zapata offer, the same pattern -- a questionable bid, a public announcement, a runup in the stock, and management's rejection a few days later -- repeated itself, only this time it was an even more out-of-the-blue bid for Omega Protein. The suitor was Ferrari Investments. In an Aug. 29, 2003, letter, Ferrari offered to acquire Omega for 9.50 a share, well above its trading price of 5.80. The offer was anonymously posted on Yahoo's (YHOO ) Raging Bull message board, sending Omega shares up to 7.08, their highest level since early 1999. Zapata shares also shot up to 62.40, a 52-week high. By week's end, Omega shares remained 10% above the pre-offer level.

Also like Zapata, Omega's management dismissed Ferrari's offer as "not credible." That may have been an understatement. The e-mail came from a sleepy Argentine coastal town, Comodoro Rivadavia. The purported sender, one Louis Antonio Carlo Giovanni Ferrari, misspelled the town's name as Comodoro Rivadava. At the local Chamber of Commerce, just three blocks from the address on the e-mail, no one has heard of Ferrari.

DEEPER MYSTERY. Also casting doubt on Ferrari's bona fides: A company Web site (ferrarinvestments.com), hosted in the Netherlands and registered to Swiss-American Global Investments Corp., no longer functions. When it was working, however, the site linked to firstunionoffshorebank.com, which encouraged visitors looking to move money offshore to deposit funds into accounts at a Latvian bank. It also said that Swiss-American's offices were located in the London neighborhood of Clapham, but a building pictured on the Web site doesn't exist at the address shown.

Further deepening the mystery, Roxford claims that he is engaged to Ferrari's niece. Indeed, Roxford says that until recently he had been living in Ferrari's home in Buenos Aires. "I see him every day when I am there," says Roxford, 50, an intense man with shoulder-length hair. Why does no one else seem to know Ferrari? "He likes to be private," Roxford notes.

Roxford sees himself as a mergers and acquisitions expert in the same league as oilman T. Boone Pickens Jr. and financier Henry R. Kravis. In 1995, news articles reported that he boasted of cheating companies out of millions of dollars, but now he says he was misunderstood -- that he was trying to promote a novel he was writing. He also says he changed his name -- until 1994 he was Lawrence David Niren -- because the manuscript, which was never published, was so controversial he needed a pseudonym.

Curiously, despite the slamming that the Zapata and Omega offers got in company press releases, the shares stayed aloft for the better part of last year. Two events in the fall of 2003 might account for some of the uptick. In October, Zapata spent about $50 million of its $115 million trove of cash to buy Safety Components International Inc. (SAFY ), a Greenville (S.C.) maker of air-bag fabrics. The market may have seen this as a positive move since Zapata management finally seemed to be harnessing its cash to boost sales and profits.

And on Nov. 25, Omega Protein's shares jumped 9%, from 5.67 to 6.17, when Timothy S. Ramey, an analyst at D.A. Davidson & Co., a financial services firm in Great Falls, Mont., began covering the fish processor. He gave it a buy recommendation. Ramey thinks Omega, whose fish oils currently are sold as animal feed, could vastly increase sales of its omega-3 fatty acids as a human food supplement because of the growing awareness of the health benefits. "It doesn't take a rocket scientist to see that Zapata is a very good value," says Avram.

WHY THE FROTH? Still, the fundamentals of neither company support the shares' frothy behavior: In October, 2003, Omega's third-quarter earnings were just $740,000, while in November, 2003, Zapata showed a $2.3 million loss for the third quarter. For the first nine months of 2003, Zapata's net income came to just $799,000, down from $4.8 million in the 2002 period because of higher operating expenses and lower revenues at Omega.

Last year, however, Zapata and Omega outperformed the overall stock market, as well as their peer companies. Zapata's nearly 90% total return for 2003 exceeds the 38% return for the Standard & Poor's 600 SmallCap stocks -- the index with which Zapata compares itself in its annual proxy statement. Omega did even better: Its 95% total return was far higher than the food processors in its peer group, including Tyson Foods Inc.'s (TSN ) 20% and Archer Daniels Midland Co.'s (ADM ) 25%.

So why would investors push up the shares despite serious doubts about the bidders' credibility? Analyst Ramey says that he assumed both offers came from "blatant stock manipulators" out to make a quick buck. Investors were less suspicious, he says, "because it's hard for the market not to react to the words 'takeover bid.' The market always trades on speculation."

If Ramey is correct, the SEC could have a case. In 1998, it adopted a regulation that says that anyone who announces an offer but is only fooling the market into believing that a company is an acquisition target, could be subject to civil fraud charges. Such bogus offers may result in criminal prosecution, says Brian Lane, an expert in corporate law and the SEC official who oversaw the rule's adoption. Roxford insists his offers were valid and says he "did nothing wrong." The Glazers disclaim any involvement in the bids.

The Glazers are no strangers to ambitious offers, however. During 1998's high-tech mania, they created a separate company, Zap.com, to acquire Web sites for an Internet portal. In May, 1998, the startup -- whose shares are 98% owned by Zapata -- made an unsolicited $1.7 billion stock offer for Internet portal Excite.com. Zapata's market value was $250 million. "Zap's goal is to become one of the largest Internet companies in the world," Avram Glazer enthused in a press release. The deal was spurned: A company spokeswoman said at the time that Excite viewed the offer as a publicity stunt. Excite later merged with @Home Corp. Zap.com has ceased operations.

Malcolm Glazer, the son of Lithuanian immigrants, began thinking big at a young age. In 1943, after the death of his father, Abraham -- a Rochester (N.Y.) pawnbroker who also repaired watches -- he became the family breadwinner. At 15, he was selling watch parts from a suitcase. By 21, he had obtained a watch-repair franchise at a nearby U.S. Army base. The profits were plowed into mobile homes, nursing homes, and other real estate.

DERAILED OFFER. By the time Glazer paid $192 million for the ragtag Buccaneers in 1995, he had made his mark as a corporate greenmailer. A 1984 offer for Conrail Inc. was one of Glazer's first forays into the public markets. His surprise $7.6 billion bid for the bankrupt rail line was especially audacious since it included only $100 million in cash, with the rest coming from Conrail's future profits. The offer failed due to doubts about financing.

Next came hostile takeover attempts at Formica Corp. in 1988 and Harley-Davidson Inc. (HDI ) in 1989. In both instances, he eventually sold his stock at a substantial profit. On the Harley investment, he pocketed about $11 million.

In the early 1990s, Glazer began accumulating shares in Zapata, the oil-and-gas outfit started in 1954 by former President George H.W. Bush. After Bush sold his stake in the mid-1960s, Zapata remained focused on energy, though in 1972 it acquired a fishing company in Reedville, Va., renaming it Omega Protein. By the time Glazer forced himself and Avram onto the board in 1993, Glazer had new ideas for Zapata.

Installing himself as chairman in 1994 and Avram as CEO eight months later, Glazer ditched Zapata's oil and gas assets and went shopping, coming up with far-flung ventures, from Caribbean supermarkets to a company that made sausage casings. The scattershot strategy produced mostly losses.

An aborted attempt to sell Houlihan's Restaurants Inc. to Zapata in 1995 cast Glazer in a questionable light. If Zapata had bought the string of eateries, Glazer, as 73% owner of Houlihan's, stood to gain $59 million. In response to a lawsuit alleging that Glazer was enriching himself at the expense of Zapata, a court ruled the deal had to be approved by 80% of shareholders, and the proposal was dropped.

That wasn't Glazer's only plan to make a buck off Houlihan's. After buying the Bucs, Glazer arranged for the restaurant chain to pay $10 million for naming rights to the team's stadium -- a head-scratcher of a deal since Houlihan's had just two outlets in Florida at the time, neither in Tampa. Avram says Houlihan's was looking to publicize new restau-rants it planned to open nationwide.

Malcolm Glazer stepped down as chairman of Zapata in 2002, but he hasn't gone far: Zapata's board O.K.'d a consulting deal that pays him a total of $6 million -- or $122,500 a month until April, 2006. Zapata says his duties include acquisitions analysis and asset management.

Glazer probably didn't have to push hard for his paycheck: The chairman of Zapata's compensation committee, Robert V. Leffler Jr., is a longtime friend who worked for Glazer in the past. Leffler's sports marketing agency, in fact, dreamed up advertising for the Bucs from 1995 until 1999. Even now, the Web site for Leffler's agency lists the Bucs as a client. And when BusinessWeek contacted the Bucs to interview Malcolm, a spokesman suggested that a reporter speak to Leffler. Despite appearances, Leffler maintains he does no paid work for the Glazers. "We're friends. We have been friends for a long time," he says. Avram insists that the compensation committee is independent.

Corporate-governance expert Nell Minow, editor of research firm The Corporate Library, says Malcolm's lavish contract may mean a board failure. Besides Avram, the board includes two other sons, Bryan G. and Edward S., and their sister, Darcie S. Glazer. Along with Leffler, five of seven directors have personal or financial ties to Malcolm, who is the largest shareholder.

Zapata's strategic plans have been as unconventional as its corporate structure. As its stock languished in 2001 and 2002, management seemed content to sit on a $115 million pot of money and to own precious little else. Until late 2003, Zapata's single holding was the 60% stake in Omega Protein. In April, 2002, institutional investors became restive. Gates Capital Management, for example, protested that investors would have been better off if Glazer simply liquidated Zapata and distributed the proceeds. But he didn't budge. Later that year, Zapata and Omega shares began moving up, the dissent quieted down, and the Glazers ventured into the soccer business. Now the questions are: Did someone manipulate the share prices of Zapata and Omega? And did the Glazers just get lucky?

By Mark Hyman in Orlando and Paula Dwyer in Washington, with Laura Cohn in London and Robert Barker in Melbourne, Fla.

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