Tuesday, November 22, 2011

America Lost a Prescient Financier

  • The Wall Street Journal

Theodore J. Forstmann, a pioneer in the leveraged-buyout business who shifted his focus to sports, media and philanthropy in recent years, passed away Sunday morning after battling brain cancer. He was 71.

Mr. Forstmann, known as Ted, was a longtime bachelor and built a fortune amid the buyout wave of the 1980s and 1990s, even as he railed against the so-called junk bonds used in many deals of that period.

FORST
Reuters

Theodore Forstmann, then-chairman of Gulfstream Aerospace, with one of the company's jets in 1997.

The second of six children, Mr. Forstmann grew up in a mansion in Greenwich, Conn., the grandson of the founder of a textile company. After graduating from Yale University and dabbling in various jobs, including teaching gym at a reform school, Mr. Forstmann enrolled in law school at Columbia University. By then, his family's company had failed and Mr. Forstmann relied on high-stakes bridge and golf games for cash.

In 1978, he helped launch Forstmann Little & Co., an early leveraged-buyout firm. The company led lucrative takeovers of Dr Pepper Co., Gulfstream Aerospace Corp., Topps Co. and others, helping Mr. Forstmann become a billionaire.

With his love of the spotlight, his outspoken opinions and shock of thick, white hair, he graced magazine covers and issued broadsides at his competitors.

Buyouts surged in size in the late 1980s, and rivals completed huge deals using junk bonds—those rated below investment-grade—and riskier debt as currency. Mr. Forstmann lashed out, predicting the deals would end badly.

"It's funny money. It's wampum," he was quoted as saying in the 1990 book "Barbarians at the Gate," which chronicles the takeover fight for RJR Nabisco, a battle Mr. Forstmann's firm lost to rival Kohlberg Kravis Roberts & Co. after declining to raise its acquisition bid.

He is credited with coining the famous phrase that gave the bestselling book its title. According to co-author John Helyar, Mr. Forstmann's RJR Nabisco bid would involve taking on those who would fund their bids with junk bonds. The image formed in his mind.

"The junk bond hordes are at the city gates ...This is where we could stand at the bridge and push the barbarians back. Wouldn't that be phenomenal?"

When the economy slowed in the early 1990s and junk bonds fell in value, Mr. Forstmann looked prescient. Later in the decade, he jumped on the telecom bandwagon, suffering big losses in the early 2000s. He never selected a successor at his firm and chose not to raise a new buyout fund.

By then, Mr. Forstmann had begun to spend more time on charitable efforts, such as education reform and children's causes in Africa. He eventually adopted two young boys from South Africa.

He also made appearances in the gossip pages, being seen with high-profile women including Diana, the former Princess of Wales, actress Elizabeth Hurley and, most recently, television personality Padma Lakshmi.

[forstmann1120]Bloomberg News

Theodore Forstmann, right, in 2004

In 2004, Mr. Forstmann purchased the talent agency IMG, then know as International Management Group, for $750 million. He shifted the focus at IMG, which had been geared toward representing sports stars, to also market major sports and nonsporting events and their content.

He remained a big sports fan but was embarrassed a few years ago when it was revealed that he had wagered on a French Open final involving two clients, Rafael Nadal and Roger Federer.

After being diagnosed with cancer earlier this year and receiving medical treatments, Mr. Forstmann continued to come into the office regularly, expressing interest in expanding IMG so he would have more to give away. He signed the Giving Pledge, a campaign to get the superwealthy to give away the bulk of their wealth, founded by Bill and Melinda Gates and Warren Buffett.

In 2008 he gave interviewer Charlie Rose his diagnosis of the financial system's problems: "You shouldn't loan money when it can't be paid back."

Email remembrances@wsj.com

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

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