The Billionaire Who Wasn't (19 page)

Joe Lyons, head of the Hawaii DFS operation, created a small separate office in Honolulu to prepare sales and projections to help the owners calculate their bid. He brought in Phil Fong, a Hong Kong-born accountant from Price Waterhouse to work the numbers. Fong remembered Feeney arranging morning meetings in the lobby of the posh Waikiki Parc Hotel because there was complimentary coffee.

“I spent a lot of time just listening to Chuck and Alan and built a financial model of the bid,” said Fong. “This was before computers. We used to do everything on calculators. I went to IBM and learned an advanced financial modeling software program called Plan Code, a very simplistic version of the state-of-the-art Microsoft system called Excel that is used today. I had a data terminal in my office. I would key data in that would be transmitted to our computer room several miles away, and we would have the data scrambled at both ends because we were concerned that someone could tap into that line and figure out what we were doing.” Such was their fear of spying by competitors that all papers and notebooks used to make calculations were regularly shredded, and Joe Lyons took the shredded material away in the trunk of his car.

Then Miller, Parker, and Pilaro picked up an astonishing piece of information. Their competition might be Chuck Feeney. They heard he was thinking of bidding himself to be the second operator at the airport. “Chuck clearly had a plan to have an A shop which was owned by Chuck Feeney or Chuck Feeney interests, and a B shop which was owned by DFS,” said Alan Parker. “How you can't see that as a conflict is beyond my comprehension.” The prospect of Feeney bidding offended them, said Pilaro. But it didn't happen. Feeney's explanation was that “we talked about it cautiously because we couldn't collude, that would be against the regulations, but it was a guarantee for someone to get the concession. But we decided against it.”

Fong's analysis showed that only 20 percent of the duty-free business was done at the airport and 80 percent downtown in Waikiki. If they lost the best airport position, they still had downtown, and “any competitor would
have to build a new store in Waikiki very quickly, build up all the suppliers, get marketing in place, and get the customers accustomed to it.”

The four owners finally settled on a bid of $165 million. This meant lodging a deposit of over $6 million—which was 2 percent of their total bid for each concession, plus a fee of $2,500—with the transportation authority. As before, they went to different banks to accumulate cashier's checks, rather than risk a leak from any one bank. On September 16, 1980, they made their way to the Department of Transportation office in Honolulu for the opening of the bids by Transportation Director Ryokichi Higashionna. There were the usual onlookers and financial journalists and a few strange faces. The officials chalked up on a blackboard the yearly guaranteed rent submitted by each bidder. The DFS owners discovered they had been ambushed. Host International bid $246 million, topping DFS's bid by $81 million.

“They were very crafty,” said Feeney. “They were really irritated they had lost before, and they decided to go very quietly, and this time around there was no notice, and we didn't detect that there was anyone out there bidding.” Host made their pitch through a subsidiary called DFI Financial. The DFS radar hadn't picked them up, or the fact that their own former accountant, Desmond Byrne, was advising them as a consultant.

As the numbers went up on the blackboard, the four DFS shareholders looked on shocked, not just because they had been beaten for the prime airport space but because they knew the Host figures were too high. “We sat there, stunned, listening to their yearly come-out, and I knew that that bid would put them into bankruptcy,” said Pilaro. “It was a major mistake on the part of Host. I was looking at Chuck, and he was shocked. We were all shocked by their bid. They couldn't do it.”

The head of Host's duty-free operations, Ira Schechter, moved immediately to open a duty-free shop in the prime air terminal location, from which DFS was now ejected, and to construct a rival downtown store on the mezzanine level of the Waikiki Trade Center on Kuhio Avenue, a couple of blocks from the DFS shopping mall. Host's downtown store opened on January 1, 1981, and was hailed as one of the most lavish duty-free outlets in the world. This was a real fight.

Feeney called on his old friend Maurice Karamatsu, who for years had “looked after” the ten principal travel agents serving Hawaii to make sure they didn't desert DFS. “I told him, ‘We have a second competitor here. We
want to hold on to as much of the business as we can, 80 or 90 percent.'” Karamatsu replied, “I have been working with these people for a long time, and it would be bad for them in Japanese culture to walk, and start supporting someone new, especially as we have been giving them checks for all this time.” He went to the travel agents and said, “You have got to live with the people who put you in business.” Host International found out what DFS was paying in commissions and offered 20 percent more, but the agents stayed loyal and continued to bring the Japanese tour groups to the DFS stores directly from the airport.

“DFS had the advantage of brand recognition,” said Phil Fong. “Chuck knew that the Japanese-speaking sales associates were very loyal and hardworking and hard to come by. There was a scarcity of such bilingual staff. We also had special arrangements with the tour guides, the local guides, the bus drivers, and the taxi drivers. We gave them lunch, and we had a comfortable TV lounge to encourage them to stay longer so their customers could shop. They knew they could relax, and that we had more to sell, and they would get more commission.”

DFS employees also felt a loyalty to Feeney himself, which counted for a lot when the rival store began desperately looking for experienced Japanese-speaking assistants. Having a kind and considerate owner meant more than a salary increase. “He took a personal interest in everyone,” said Fong. “He called employees by their first name. He said, ‘Call me Chuck.' He stopped by my office along with his children one Christmas to say Merry Christmas. That is more to me than any pay rise or bonus.”

It was all over in nine months. Host International needed one-third of the Japanese market to break even. It didn't get one-sixth. It closed the store in September with losses of $25 million. They could not entice the Japanese tour operators to shepherd their flocks through their doors, even by dropping prices. “In Hawaii they used to call us
yoku bari,
which means ‘the greedy ones,' because we were always trying to close down any type of opportunity that came up,” recalled Feeney with a laugh.

In November 1981, the action moved to New York. At Pilaro's urging, DFS made a bid for their hard-hit rival and Host agreed to sell at $24.25 a share, but on the Friday afternoon they were to close the deal, the Marriott Hotel chain topped the offer with $29.00 a share. Feeney was nervous about getting into a bidding war, but on Monday DFS upped the ante again to $29.25 a share. Marriott topped that with an offer of $31.00 a share. The
issue was resolved when Bill Marriott called DFS, and they agreed to divide up the company. DFS acquired Host's duty-free concessions at Los Angeles, Boston, and JFK airports at $29.25 a share—a total of $31.6 million. Marriott got the hotels for $31.00 a share. They had been lucky again: Los Angeles turned out to be, in Pilaro's words, “a gold mine.”

The outcome of the whole thing, said Phil Fong, was that “it took DFS to a new level, strengthened our position on the Pacific Rim, gave us a stronger position on the West Coast and made us a legitimate operator on the mainland U.S.”

It wasn't long before a new front opened, this time in Anchorage, Alaska. In 1983, the four DFS owners bid $71 million to renew this lucrative concession for five years. Feeney was decisive in fixing the final amount. They were topped by a bid of $76.6 million, entered by an outfit calling itself International Duty Free Ltd., of Anchorage. Only someone with inside knowledge could have finessed them. It turned out to be Richard Wade, who had been Pacific regional president of DFS until two years before and had left with a generous settlement.

The owners were outraged. They decided they would not take this lying down. “Chuck didn't like to lose a bid,” recalled Adrian Bellamy, who took over as chief executive of DFS that year. “We moved in with lawyers all over the place to try and find some gap in Wade's bid. Chuck was very much involved in marshaling everybody, and he was particularly good about keeping our chin up.” A handwritten note by Feeney, “It ain't over till it's over,” was pinned up on the wall of the Anchorage office. DFS filed a $20-million damage suit against Wade for allegedly violating a termination agreement not to compete against his old company.

In the end, Wade was unable to come up with a required $17.2 million letter of credit, his bid was declared invalid, and DFS got the concession back by default. It was an important victory. The Anchorage store was ringing up about $100 in purchases from every international passenger, about ten times higher than the global average, in two bursts of frenzied shopping in the morning and the afternoon, when a dozen long-haul flights arrived on the way to or from Europe and Japan.

CHAPTER 13

Rich Man, Poor Man

With the future of DFS secured for several years after the renewal of the Hawaii and Alaska concessions, Chuck Feeney reached an agreement with Danielle that when the day came to sign everything away, $40 million and the houses would be held back for her and the children, and the money paid out over a few years. It was the figure thought necessary to take care of “the houses and the kids and education and clothes and boats and artworks, jewelry,” recalled Harvey Dale.

The Atlantic Foundation had worked well in the two years since its creation in 1982. The Feeneys channeled $15 million through the foundation in that time, of which $14 million went to Cornell. Cornell had given him everything, his Ivy League education, his launchpad to the world, his network of loyal friends. It would always have first call on his generosity. Feeney was overwhelmingly grateful to the Ivy League university for giving him the self-confidence to prosper in business. “I got a lot out of Cornell, more than a simple diploma,” he once explained to students on a visit back to the Hotel School. “It prepared me. When you come out of Cornell you have got good baggage. When you say ‘Cornell University,' everybody knows it's a damn good university, and the Hotel School is the best in the world.” Danielle was supportive, and was happy to receive thank-you letters addressed to Chuck and Danielle. They gave $2 million for a challenge grant to build a performing arts center at Cornell, for which Bob Miller put up a matching grant of $2 million. Their
gifts also provided for scholarships for students from modest backgrounds to study at the Hotel School.

By November 1984, they were ready to transfer everything into the foundation. But a wealth transfer of great magnitude in the territory of Bermuda would require the payment of stamp duty that their lawyer Frank Mutch reckoned could be in the region of $40 million. They decided to do the transaction in the Bahamas. There would be no stamp duty, if it was not a gift to the foundation but a
purchase
by the foundation, and if this occurred outside Bermuda. As everything was in Danielle's name, it was arranged that the foundation would issue promissory notes to purchase the assets from her, namely, the DFS shareholding and the businesses, over a specific time period.

They set a date for the transaction: Friday, November 23, the day after American Thanksgiving. It required the presence of Chuck and Danielle and the two lawyers, Frank Mutch and Harvey Dale. The Feeneys and Mutch arrived that morning at Nassau International Airport on flights from New York and Bermuda. Dale was due to fly in from West Palm Beach, but a thunderstorm lingered over the airport and delayed his flight. When the passengers were finally boarded and the captain announced, “I think there's a window in the weather, and we can get out if you all are willing,” he found himself almost shouting, “We're all ready to do it.” He remembered the occasion as being as near to a disaster as he could imagine. “It was midafter-noon, almost four, when I arrived,” said Dale. “The Trust Company closes at 5:00 PM. The plane landed, I ran out of the plane, jumped into a taxi, ran up the stairs to the conference room, everybody was sitting around twiddling their fingers waiting for me. The closing had been scheduled to take two to three hours. We had one hour.” “Good to see you,” said Feeney as Dale entered, and they rushed through the closing.

When all the documents were signed, the Atlantic Foundation had purchased the assets from Danielle by issuing non-negotiable promissory notes, through an underlying company called Exeter, for payment to her of $40 million over a number of years. In addition, Danielle retained the nonbusiness assets, principally the Feeney homes in various parts of the world, valued at $20-$30 million.

With the stroke, or several strokes, of a pen in the law office, Chuck Feeney, at the age of fifty-three, had signed away his fortune, though as chairman of his foundation he could influence what was done with it. He
was by no means a pauper, and he would also still be running the businesses as chairman of General Atlantic Group Ltd. and drawing an annual salary, even though his business empire was now wholly and irrevocably owned by his foundation. But he had gone from the cusp of billionaire status to someone with a net worth of less than $5 million. He would joke later: “How to become a millionaire? Become a billionaire first!”

Although it was one of the biggest single transfers of wealth in history, not one of the people intimately involved could put a precise figure on what it was worth, even to the nearest hundred million. The foundation would later put it conservatively at $500 million. Frank Mutch believes that the total value of Feeney's assets then could have been $600 million. Harvey Dale reckons it could have been as high as $800 million, a sum equivalent to the gross domestic product of Fiji or Barbados (that if invested at an annual return of 7 percent would be worth $3.8 billion in 2007). Paul Hannon, hired by Feeney as his general counsel two years earlier, suggested in a contemporaneous private memo that the assets were worth between $500 million and $1 billion, rivaling the capital of sizable investment banking firms such as Bear Stearns and far outstripping Morgan Stanley.