The Billionaire Who Wasn't (27 page)

In 1989, David Smith negotiated the purchase for InterPacific of Western Athletic Clubs, a San Francisco company that would grow to eleven private health, fitness, and athletic resorts along the U.S. West Coast and employ approximately 2,000 people. Western Athletic Clubs became another “cash cow,” for Atlantic Foundation, said Smith years later in San Francisco. “It is a dues-based business so the cash flows are steady, unlike the retail stores in Hawaii, where the income fluctuated from season to season.
We paid $37 million, of which I borrowed $30 million: it's probably worth now $300 million.” With Feeney's encouragement, the Western Athletic Clubs set high standards for corporate philanthropy, donating 5 percent of all profits to community charities. “They also put on events and sponsor them to raise money for cancer, things like that,” said Feeney. “They call it social responsibility.”

Having acquired health clubs and an address in Savile Row, Feeney liked to joke, pointing to the girth that stretched his Hawaiian shirt, that he still managed to be out of shape and shabbily dressed.

InterPacific Group under Feeney's guidance also developed Pacific Islands Club Resort hotels as models of high-end holiday destinations in Guam and Saipan and invested in the exclusive Bali Golf and Country Club (the setting for the 1995 Johnny Walker World Classic of golf), and the elegant Laguna Beach Resort spread out over twenty acres in Phuket, Thailand. Paradoxically, for a frugal person uncomfortable with the trappings of wealth, Feeney devoted much effort to providing luxury vacations for wealthy people. He would stay in the five-star hotels when on business, though he displayed his by now well-established frugal habits. John Green, a former manager of Laguna Beach Resort, recalled sitting down once for a strategy session with Chuck and slipping his Montblanc pen out of sight when he saw that Feeney was using a pencil.

Feeney extended his—or Atlantic's—hotel ownership in Texas and Oklahoma, where he bought a number of upscale hotels that were branded under the name “Medallion,” and run by Sidney Willner, a former vice chairman of Hilton, and Feeney's associate, Fred Eydt. The star of the Medallion group was the 322-room Seelbach Hotel in Louisville, Kentucky, which was featured in F. Scott Fitzgerald's
The Great Gatsby.
Feeney sometimes attended the Kentucky Derby with his brother-in-law Jim Fitzpatrick, and this was another fine hotel he liked to frequent. The Oklahoma Medallion was located four blocks from the federal building that was blown up on April 17, 1995, when Timothy McVeigh parked his Ryder truck outside with its freight of 5,000 pounds of homemade explosives. Feeney immediately sent word that the hotel, part of which was closed for renovations, was to open its doors and give free rooms to the injured and rescue workers. Staff were also sent from other Medallion hotels to assist.

In London, Feeney was also opportunistically investing in new business ventures. One day at Heathrow Airport he came across a magazine called
Airport,
distributed free by Redwood, a London company that published trade magazines. It looked like a good investment, with advertising revenue that would cover the cost of production. He went to a pay phone and called the co-publisher, Christopher Ward, a former
Daily Express
editor, who, he learned right away, was contemplating shutting the magazine down as it was losing money. Feeney abandoned his travel plans, caught a taxi into London, and bought the magazine. But it failed to recover, and he had to write it off. “We were blindsided,” he said. “Having agreed to give publishing rights to this magazine, the airport authority started their own.” However, he became a major shareholder in Redwood, helping ensure the survival of the company.

At the end of the 1980s, it was evident to anyone following the news—as Feeney avidly did—that there would soon be opportunities for investment in the disintegrating Eastern Bloc of Communist states. After the Velvet Revolution and the overthrow of the Communist government in Prague in November 1989, Feeney flew there to look at the possibility of developing hotels in what was then Czechoslovakia. He checked into the Art Nouveau- style Palace Hotel near Wenceslas Square in January 1990 and got into conversation with the front-office manager, Jiri Vidim, about what was going on in the newly liberated city. For once, Feeney's cheap watch—he was wearing a plastic Casio—made an impression. “It was a luxury product to us,” recalled Vidim, “everyone wanted a Rolex or a Casio!” The Czech hotelier took Feeney around the snow-covered streets, but every hotel was still state-owned and nothing was for sale. Feeney saw, however, that the Czechs were hungry for Western things, just as the Japanese once had a pent-up appetite for luxury goods and spirits. He gave Vidim funds to create a joint venture company with General Atlantic and sent Jim Downey and an Irish colleague, Martin Kinirons, to set up shop in Prague. They refurbished a hairdressing salon in a house off Lesser Town Square, called it New Age Shoppers, and stocked it with TV sets, record players, electronics, watches, jewelry, ties, and cosmetics brought in a forty-foot trailer from Dublin. The shop was besieged when it opened on December 18, 1990, and it took less than sixty seconds to sell the first watch. Two more New Age Shoppers stores followed shortly afterward, but the venture lasted only four years. It was not the duty-free story all over again. Eastern Europeans lacked the hard-currency savings that the Japanese had accumulated. But Feeney was a pioneer. He was the first businessman to open a Western shop in post-Communist Prague.

With his Catholic, Irish American background, Feeney was most pleased, however, that he was able to help rehabilitate an order of nuns struggling to survive in Prague after the fall of communism. In 1950, the Gray Sisters of the Third Order of St. Franciscus, who traditionally looked after the sick, had been ousted by the secret police from their five Prague convents, including a monastery at 9 Bartolomejaska Street in the heart of the historic old city. The Communist government had converted this convent into an interrogation center known as Ruzyne Prison. Its most notable inmate had been Vaclav Havel. After the Velvet Revolution, the 150 surviving nuns were able to return to their convents but many were elderly, and they had no money for renovations.

Chuck Feeney and Jiri Vidim came up with a plan. They traveled to see the seventy-eight-year-old mother superior of the order in Lomec, deep in the pine forests of southern Czechoslovakia, to broker a deal whereby Vidim and a partner would acquire the monastery from the nuns and convert it into an eighty-room budget hotel named the Cloister Inn, with special cloisters set apart for the nuns on the top floor. As an added tourist attraction, guests could stay in Cell No. 6 down below, where Havel had been incarcerated. General Atlantic provided a letter of credit for $800,000 drawn on Chase Manhattan Bank to finance the renovations.

The nuns were delighted with the arrangement and were profuse in their thanks to Chuck Feeney. “They pray for him every day,” said Jiri Vidim.

CHAPTER 18

The Wise Man Cometh

While Chuck Feeney was exploring new ventures in post-Communist Europe, his partners in DFS were ganging up on him. On May 12, 1990, Bob Miller, Alan Parker, and Tony Pilaro filed into the office of the international law firm Allen & Overy, at 40 Bank Street in London, for an extraordinary directors' meeting of DFS. Chuck Feeney was not there. He had long since stopped attending regular DFS board meetings. In his place were George Parker and legal counsel Paul Hannon, and it was they who took their seats around the conference table at the law firm.

There was no small talk. The principals and the lawyers read from scripted legal documents. Miller put on a large pair of spectacles, and, as he recalled, “read the riot act.” After thirty minutes, the three shareholders voted to throw Feeney's representatives off the board that managed and controlled DFS's retail activities. They believed they had the legal power to do so. As Tony Pilaro put it, the will of the majority “can and does control.”

George Parker and Paul Hannon furiously gathered up their papers and left the room. “It was a searing experience,” said Hannon. Chuck Feeney, cofounder, visionary, and owner (through his foundation) of 38.75 percent of DFS, no longer had a voice in the governance of the company.

The four guys in a room had never really been four buddies in a room, but now they were embroiled in a dispute that threatened to break up the partnership. Alan Parker, the least excitable and the most high-minded of the three shareholders, had orchestrated the ousting of Feeney's representatives
from the board. It was the culmination of a campaign he and the other two had waged to get Chuck Feeney to stop his independent retail activities in Hawaii, which the co-owners maintained was competing for the same tourist dollars as DFS, and was therefore unethical competition.

“It was awful,” said Alan Parker. “I felt very badly about doing this. Chuck was the visionary, the brains behind it, and there we were throwing him off.”

The dispute had its origins in Feeney's purchase in 1976 of Andrade, the retail chain in Hawaii that sold ready-to-wear clothes and casual gear such as aloha shirts and muumuus, popular items with tourists. Three years later Feeney had opened a big Andrade store in a new shopping center in the heart of Waikiki, just across the road from the DFS Galleria. In 1985, Feeney acquired three other Hawaiian clothing stores called Carol & Mary and four Honolulu fashion shops purchased from the Japanese trading group Seibu, which he figured “were losing their asses running it.” These stores, trading under the name of their Irish immigrant founder, Patrick Michael McInerny, had traditionally provided garments for Honolulu's kings and high-society shoppers. One of the McInerny stores was located at the Royal Hawaiian Shopping Center in Waikiki, only two blocks from the DFS downtown mall. InterPacific, through which the purchases were made, had by 1990 become the second-biggest retailer in Hawaii, after DFS. Grouped together as the Hawaiian Retail Group, it had 600 employees and also held leases in the Royal Hawaiian Shopping Center, which catered to tourists. “Once they got into the Royal Hawaiian, I think that created the issue,” said Tony Pilaro. “If the customer is a Japanese who has $100, and you are after that, and we are after that, we are in competition.”

Feeney reckoned that he had also gotten up his partners' noses with his 1978 purchase of the 800-room hotel in Guam, where everyone was chasing the Japanese customer. The disagreement had been exacerbated after Feeney hired Paul Slawson, former chairman of the American University in Paris, to run InterPacific, in 1986. Slawson adopted a more aggressive approach to raking in tourist dollars in Waikiki, and Feeney didn't rein him in. Always immaculately dressed and exuding a sense of corporate leadership, Slawson for a time represented Feeney on the DFS board, where his attitude grated on the mild-mannered Alan Parker like sandpaper. “He made himself persona non grata [with DFS directors] because he was clearly competing with them,” said Paul Hannon.

Things got so tense that in mid-1988, Paul Hannon initiated discussions with William Norris, a lawyer representing the other three DFS owners, to see if they could resolve the problem. In five months of meetings they got nowhere. Feeney was clearly not going to budge. In January 1989, the co-owners engaged Mark Kaplan, a lawyer from the Skadden, Arps, Slate, Meagher & Flom law firm in New York who had formerly been Tony Pilaro's designated representative on the DFS board and who had a reputation as a rainmaker, to act as intermediary. Kaplan made a swing through Europe, canvassed the views of the three co-owners, and presented their concerns to Feeney through Hannon. He came up with a series of recommendations, but they were never acceptable to all the parties. Miller thought they were “too legalistic.”

Parker believed Feeney saw no problem with what he was doing. “The bottom line was that Chuck saw himself making a greater contribution to DFS than anyone else. Therefore he could do on the side whatever he wanted to do. I saw it as morally wrong. Chuck never saw it that way.” He also maintained that Feeney's retail business “was increasingly concentrating on selling to Japanese tourists and obtaining supplies from existing or potential DFS suppliers,” and he was concerned that Feeney was using his “DFS hat” in dealings with suppliers to gain favorable price terms for his businesses. Feeney said this was simply not true. His retail business was 90 percent for the local and not the Japanese tourist market, and they never advertised for Japanese customers.

Bob Miller didn't see Feeney's actions as unethical or immoral. He saw the situation as “a sort of ego” play between himself and Feeney, of which Andrade was the manifestation. Why else would he want to compete when he was making 100 times more money out of DFS, he wondered. They all knew Andrade wasn't making any real money. When Feeney set up Andrade “right in our front yard in Hawaii,” Miller said he told him, “You can't do this, Chuck. For Christ's sake, there are plenty of opportunities where you can invest your money on a noncompetitive basis. Why do you want to crawl up our backside?” But he reckoned he knew the answer. “I always figured that deep down beneath the surface he sort of resented the fact that he didn't own more shares of the company [DFS]. This is my own personal opinion.”

Some of Feeney's friends were also critical. “You don't open another store in competition, chasing the same money,” said Jean Gentzbourger. “I think basically that is not a fair way of doing business. I wouldn't do it. Chuck should have stopped.”

The huge bid of $1.151 billion for the Hawaii concession in 1988 had worsened relations. Parker was “outraged” by having Chuck compete with DFS at this time in Honolulu, Pilaro said.

Adrian Bellamy, who was running DFS for the owners, thought it was a storm in a teacup. He didn't think Andrade was taking money out of their pocket, though it was “pissing in your soup to some degree.” He believed Feeney did it because it was what he liked doing. “He has always done various things. Andrade came along and he bought into it. He was fascinated by it.” The truth was, Andrade never made any money, except from Ferragamo shoes, said Mike Windsor, who ran InterPacific before Slawson took over, and many of their stores were on the other Hawaiian islands where there was no DFS presence.