Strong-headed . . . and wrong
Sunday, August 19, 2001
Rich today beyond his own imagination as a working-class kid out of Minneapolis North High School in the late 1950s, Irwin Jacobs manages to keep his current financial controversies in perspective.
"I've truly been blessed," Jacobs said in an interview last week. "I know that."
The son of a north side burlap bag merchant, Jacobs eschewed college to follow his father into business, the first step in what would become a vivid commercial career.
At 6 feet 3 and more than 200 pounds, Jacobs, 60, still strikes a courtly figure in his trademark European-cut suits and silk handkerchief. He has a swagger and a gray-streaked mane that casts him perfectly as the commodore of Genmar -- the biggest U.S. builder of pleasure boats -- and as the corporate raider who blasted bloated corporate managements during the 1980s takeover frenzy.
And he still gets wired with excitement over taking an investment position and trying to move a stock price his way, associates say.
Lately, things haven't been moving his way. Embarrassing revelations about murky accounting and possible fraud in foreign sales operations at software maker AremisSoft -- in which Jacobs has a large stake -- have damaged his reputation as an investor and left him open to possible legal tangles.
"This is one of the great disasters of my business life," concedes Jacobs, who steadfastly declines to specify who or what got him into the stock. "At some point in the future, the story will have to be told."
For months, in newspaper ads and on his Web site, Jacobs passionately defended AremisSoft against its critics -- including powerful Wall Street investors and even the New York Times -- only to discover that the critics were right about the company and he was wrong.
It was vintage Jacobs, a man known for a rock-steady belief in his decisions, backed by his rapid-fire oratory.
"He's very smart and not afraid to take a risk," said Rick Zona, a former vice chairman of U.S. Bancorp and friend of Jacobs. "He's not afraid to express his opinion. Irwin once said, 'I'm either your best friend or your worst enemy.'"
A few years ago, when Minnesota Attorney General Mike Hatch went after U.S. Bank for selling customer lists to telemarketing firms, Jacobs called the attorney general a showboat politician, anti-business and "a putz."
Jacobs defended his friend Jack Grundhofer, U.S. Bancorp's chairman, and others at the bank where he is a big and profitable customer for investment and operating loans.
While grousing behind the scenes about what they considered a bushwhacking by Hatch, U.S. Bank executives nonetheless apologized to customers and agreed to pay a seven-figure fine to charity.
The lesson? While many executives privately criticized Hatch, Jacobs was the one to publicly excoriate him.
Captain of industry
As chairman of several companies, Jacobs makes certain decisions but leaves day-to-day operations to executives at Genmar, Jacobs Trading and his other holdings.
He owns a Rolls Royce, flies aboard private jets and lives with his wife of nearly 40 years in a Lake Minnetonka mansion where they raised five kids, two of whom work with him.
His dad, Sam Jacobs, a Russian immigrant, supported his family collecting used burlap bags then cleaning, recycling and selling them.
Irwin joined his father making sales calls when he was 5, "and by the time I was 15, I was a peddler," Jacobs has said. The bag business remains a tiny part of one of several companies Jacobs runs from his IDS Center headquarters in Minneapolis.
Jacobs first became a millionaire in 1975, after a banker named Carl Pohlad loaned him the money to buy the slumping Grain Belt Brewery in northeast Minneapolis. After concluding that he couldn't run it profitably, Jacobs closed the brewery, laid off the workers and sold the equipment and brands for an estimated $4 million profit.
That deal, followed by other business closeouts, earned Jacobs the sobriquet "Irv the Liquidator" and a reputation as a hard-edged executive.
Pohlad, the Minnesota Twins owner whose net worth was estimated by Forbes magazine at $1.8 billion this year, has been an on-and-off investor in Jacobs' deals ever since. Jacobs brought Pohlad into AremisSoft -- a move Jacobs now regrets.
Corporate Report magazine estimated that Jacobs is worth at least $400 million. Two years ago, when he planned to take privately held Genmar public, his stake in the boat company was valued at more than $100 million.
Jacobs, who eventually withdrew the Genmar offering, is not known as a guy who worries too much about liquidity. However, there is speculation in Twin Cities banking and brokerage circles that he may be hard-pressed to cover stock loans he's taken to finance his diminished, unspecified stakes in AremisSoft and the struggling Indiana-based insurance company Conseco Inc.
Jacobs won't discuss his wealth or cash position, except to say, "You don't have to worry about me."
Regardless of whether his net worth has suffered, his reputation in investment circles certainly has.
"His credibility is down," said Clint Morrison, a veteran Twin Cities securities analyst. "He's had a few black eyes in as many rounds."
Morrison said the public perception is that Jacobs made a bad investment "and compounded the issue by shooting off his mouth. He was once 'Irv the Liquidator,' but not many care anymore. 'Big deal,' people say. 'Couldn't happen to a nicer guy.'"
Jacobs' strengths and weaknesses are rooted in his self-confidence.
"He has a tendency to believe in his convictions so strongly that it pulls him through," said a long-time associate who asked not to be named. "But sometimes you can believe so strongly that you go over the cliff."
Buy low, sell high
Jacobs' business success springs from an uncanny ability to spot value. In addition to Grain Belt, he made a huge score buying and liquidating the assets of bankrupt retailer W.T. Grant & Co. in the late 1970s. And he bought and sold chunks of often poorly managed, undervalued companies in the 1980s.
Jacobs built Genmar, his beloved boat company that's expected to top $1 billion in revenue this fiscal year, from the ashes of several companies, including bankrupt Larson Industries of Little Falls, Minn., maker of Lund and Larson boats. He added other, bigger brands through the 1985 acquisition of AMF Corp., and this year's acquisition of Florida-based Outboard Marine Corp.
During the early 1990s, when a recession, high energy prices and the now-repealed federal luxury tax conspired to choke marine industry sales and Genmar's profits, Jacobs put more equity in to keep Genmar running. He has continued to invest in new technology that has gotten Genmar attention for an innovative manufacturing process for fiberglass boats.
Yet Jacobs still kept a hand in the public investment scene. As an investor, he has missed on some deals:
Last year, he pulled his offer to buy electronic-components maker Sheldahl Inc. on a legal technicality -- after a higher bidder did not appear. His Sheldahl holdings remain depressed. He was embarrassed.
Investors lost more than $30 million in the early 1990s betting on Pohlad's MEI Diversified, which went bankrupt in the hair-care business. Jacobs, who at one time proposed a bailout that critics said was nothing more than a bluff, later expressed regret.
Jacobs, Pohlad and affiliated investors lost millions in the early 1990s through their investment in Knowledge Ware, a failed Atlanta software company headed by former Minnesota Vikings quarterback Fran Tarkenton. Jacobs said one-time pal Tarkenton duped him.
Jacobs can be charming and witty -- and a bruiser. Former bankers and associates say he rewards long-time executives generously and comes down hard on those who disappoint. He sometimes gets so excited over deals that listeners get confused between what's real and what's Jacobs' vision.
He is known as a champion of his investments and a vociferous opponent of anyone standing in his way.
Opponents believe the bare-knuckled Jacobs went too far with the wrong guys this time.
In going to bat for Conseco and AremisSoft, Jacobs went to war against short sellers -- investors who profit when the price of the stock declines.
Jacobs is no stranger to shorting stocks himself. The difference, he said, is that the short sellers against Conseco and AremisSoft were blatantly conspiring among themselves and with journalists at The Street.com and even the New York Times to spread lies.
The shorts say they're vindicated by facts. By July and early August, the two stocks were sliding south in a hurry.
Shares of Conseco, which acquired St. Paul-based Green Tree Financial in 1998, have slipped from $20 in May to less than $9.50 last week.
Jacobs has said he bought most of his Conseco stock between $4 and $6 in the spring of 2000, just as former GE Capital CEO Gary Wendt took over. Others estimate his average price closer to $14. The stock rose to $20 last winter as Wendt sold assets and focused on core businesses.
However, Wall Street has turned on Conseco after questions surfaced about the economy, delinquent loans at Conseco Finance and internal accounting. But some analysts believe the stock will rebound.
On Wednesday, it was disclosed that Jacobs-controlled IPI Inc. sold its 1.9 million position in Conseco for $27.9 million and plans to distribute the net proceeds of $4.26 per share directly to IPI shareholders. Jacobs and associates own about two-thirds of IPI.
Critics say Jacobs looks bad backing Conseco while he's selling its stock through affiliated entities.
Unraveling AremisSoft
For Jacobs, Conseco may be a black eye. But AremisSoft is a gaping wound.
Jacobs, the Pohlad family and associates appear to have invested more than $70 million in the software firm. The money is now at risk if allegations prove true that the company's international operation was largely a front for Cyprus mobsters.
Jacobs says he was stunned and pained by the unraveling of AremisSoft.
"I'd still like to see a great business come out of this," Jacob said. "But obviously I'm disappointed.
"There's always stress when you lose money. What bothers me is the other people. Carl Pohlad wouldn't have done this without me."
Jacobs supported AremisSoft executives who now are targets of a Securities and Exchange Commission (SEC) probe. And Jacobs' Internet exhortations (http://www.irwinljacobs.com ) might get him snagged in the SEC inquiry, or expose him to suits by those who invested because of his rosy pronouncements, legal experts say.
Rocker Partners and other short sellers, whom Jacobs referred to as "slime" and "criminal," also are considering suit.
"Irwin has apparently done little actual research on AremisSoft," said David Rocker, managing general partner of Rocker Partners, a 32-year-old, $650 million asset investment firm in New York.
"His investment philosophy seems to rely on bullying. He did that with managements in his earlier days ...and now he is doing it with legitimate short sellers who seem to have done a better job analyzing this company."
Jacobs will not talk about why he defended AremisSoft so mightily this summer, even as detractors were shooting holes in management's stories in May and June.
"This is so hurtful to me," Jacobs said last week. "When people aren't honest ... unfortunately this is not going to just fade away. People should know about it, and the story eventually will come out."
When it does, count on Jacobs to offer his opinion about what went wrong.
-- Staff writer Dee DePass contributed to this report.
Neal St. Anthony can be reached at 612-673-7144 or Nstanthony@startribune.com. |
