Texas corporate raider Hurwitz facing rocky road
By David Howard Sinkman
NEW YORK (Reuters) - Controversial Texas investor and corporate raider Charles Hurwitz is having his mettle tested.
As chief executive of MAXXAM Inc., a holding company with stakes in raw materials production, horse racing tracks and real estate, Hurwitz last month saw his firm's single biggest investment collapse when Kaiser Aluminum Corp. filed for Chapter 11 bankruptcy protection.
MAXXAM holds more than 60 percent of Kaiser's stock and last year counted on the aluminum producer for nearly all its sales. The bankruptcy comes as Hurwitz, 60, is also having to contend with low timber prices hurting MAXXAM's lumber business.
The corporate raider has much at stake. MAXXAM's stock has already dropped by 56 percent since June, which means the market value of his 44 percent stake has dropped about $44 million.
Some shareholder activists say Hurwitz has only himself to blame because they claim he runs a company that owns a mishmash of unrelated investments and pays little attention to the views of minority shareholders.
"Hurwitz has been operating MAXXAM like his own private investment vehicle, even though it is a public company," said Nell Minnow of the shareholder watchdog group Corporate Library.
"This meltdown in shareholder value has been a long time coming and is a result of MAXXAM's mixed-up asset allocation, which looks like a pizza with everything," Minnow said.
Known for its highly leveraged investments, Houston-based MAXXAM is a holding company that eventually grew to include a Houston race track and real estate in Arizona, California, Texas and Puerto Rico.
Active in the go-go 1980s, MAXXAM bought about 220,000 acres of California timberland that included massive redwoods in a leveraged buy-out financed by then junk-bond king Drexel Burnham Lambert in 1986.
Two years later, in another leveraged buy-out financed by Drexel Burnham, it took a controlling stake in Houston's Kaiser Aluminum, North America's No. 3 aluminum producer.
Battered by a heavy debt load, low aluminum prices and the costs of fighting asbestos lawsuits, Kaiser filed for bankruptcy protection on Feb. 12, when it became clear that the company would not be able to make a $174 million debt payment.
Hurwitz, who has angered shareholder activists by not bringing outside members to the company's board of directors, declined to be interviewed for this story.
He is well known in Houston as a feisty businessman. His combative stance against environmentalists, including giving a redwood tree stump his company cut down to the upscale Redwood Grill in Houston, has made him a key target of their protests.
Actor Woody Harrelson was arrested in 1996 with several other activists after climbing the Golden Gate bridge to protest MAXXAM's logging.
Still, while times are tough for Hurwitz and MAXXAM, it is unclear whether it is going to be forced into a restructuring to meet future debt payments.
A spokesman for MAXXAM said it was not under any threat from the Kaiser bankruptcy, which the company has said will not affect its forest products, real estate and racing operations.
DEBT CONCERNS
Indeed, company shares have shrugged off Kaiser's bankruptcy and are up 6.6 percent from the day before the filing. Shares in MAXXAM, which delayed the release of fourth-quarter results and has not set a new date, initially fell 16.4 percent on the news.
Still, the bankruptcy has raised concerns about the company's financial footing. By August 2003, the company is on the hook for $88 million in short-term notes for a subsidiary -- a payment the company said it intends to make.
Wall Street is not as certain. Steven Oman, an analyst with Moody's Investors Service, said there are questions about whether the company will be able to meet the notes payment "because you can't really count on any free cash flow from Kaiser" while it sits in bankruptcy or from its real estate investments.
Moody's placed the notes under review for possible downgrade from a "junk" Caa1 rating in January because of Kaiser's problems and softness in the forest products market.
Standard & Poor's, meanwhile, has warned it may lower the company's already "junk" B credit rating.
"We don't think MAXXAM will necessarily have to default because of Kaiser, but the bankruptcy does raise questions and concerns over MAXXAM's health," S&P analyst Cynthia Werneth said recently.
Answering questions about the $88 million in short-term debt, a company spokesman said the parent company itself has $129 million in cash, more than enough to cover the notes.
MAXXAM's overall debt stems mainly from its Kaiser and timber investments, with total liabilities of $4.22 billion and long-term debt minus current maturities of $1.69 billion as of late last year, it said in a filing with the Securities and Exchange Commission.
But it is not just debt that Wall Street is looking at, as rating analysts are also asking where MAXXAM's cash flow is going to come from.
"The parent MAXXAM is just sitting on cash. But there is not much coming from its investments down below because they are not making money," said S&P analyst Thomas Watters. |
