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ever bigger deals. • Rial, now 44, a native of McGee, Ark., knocked around after gradua- tion from the University of Arkansas in 1965, found himself in Colorado in [he early 1970s and drifted into the coal business. He tried [o line up enough leases to make a field. Seed capital came from Eustacc Winn jr., a wealthy surgeon-businessman from Greenville, Miss., across the river from McGee. "I'm just content to sup- port Monty and help him as much as I can.... He's honest and totally re- liable," Dr. Winn says. Rtal managed to put together some valuable holdi~tgs. But except for a small tntne called Chimney Rock, he never produced any coal. In 1978, with money hard to come by for coal deals, Rial moved to Enid, Okla. and bought control of an oil company called FCD Ltd., using $1 million put up by Dr. Winn, "Monty borrowed money like a house afire, wheeling and dealing, but he didn't Eind oil," says David Don- aldson,the D of FCD. Rial might not have been much at finding oil, but he was right smart about finding money. He hocked FCD's oil holdings in 1981, the height of the oil boom, to raise $10 million to buy out Dave Donaldson and his part- ners and $12 million to settle coal accounts in Colorado. But oil prices fell, interest pay- mcttts rose and FCD made a disas- [rous investment in drilling rigs. Did Rial despair? No. He went back to coal. Enter the Southwestern Public Ser- sic transit gloria Raiser A i'~J. ~FII: ply "..i.~.i..i ~;'hf ~ "11 ~ . sr.i:: ;k,l y ', . ;;t~;;:Y i' ~ ~~ ~ lij'~~.t ~. 'i~~`: '~++i b Henry J. Kaiser, in Kaiser Sree!'s early days f~here's not much left of Henry l Kaiser's great industrial em- pire, and what's left is troubled. Basic industrial companies don't make money these days, and that's what Henry Kaiser specialized in. Kaiser Steel is moribund. Kaiser Cement, in a business plagued by oversupply, has lost money since 1982 and is being stalked by David Murdoch. Kaiser Aluminum & Chemical, beset by falling alumi- num prices and heavy debt, is un- derattack by Joseph Frates. Kaiser Industries, a holding com- pany for much of the empire, was liquidated a few years ago. Kaiser Resources was sold to a Canadian government company. The auto business is part of troubled Ameri- can Motors. Sad, all this, but typical of what happens to a vision when the vi- sionary is gone. Remy j.'s succes- sor's kept on doing more or less what they thought the old man did, but where he seized opportunities, they played safe. "Henry Kaiser wouldn't be in these businesses. He would have seen this all com- ing," says Stephen Girard, who spent 46 years working for Kaiser family enterprises. "Henry Kaiser wasn't going to carry a sick dog azound. He would have off-loaded this yeas ago."-A.S. and P.F. vtce Co., an electric company based in Amarillo, Tex., which was planning a new coal-fired generating plant. Rial tried to peddle coal to SPS from his undeveloped Walsenburg field in Col- orado, but SPS preferred Kaiser's mine in Raton, N.M. SPS' chief fuel buyer, Kenneth Ladd, explained that Rial could assure himself of the SPS con- tract by controlling both Walsenburg and [he Kaiser property. The Jacobs-Frates battle over Kaiser was then in full swing. Before you could say "hostile takeover," Rial was on a plane to San Francisco, making a pitch to BofA to finance a takeover of Kaiser Steel. Rial appeared at Kaiser headquarters with Ken Ladd in tow, impressing Kaiser management with his coal expertise and connections. Joe Frates' people concede they did only perfunc[ory checking on Rial. They let him in as a 50-50 partner, they say, because their guazd was down after months of slugging it out with Irwin Jacobs, and they needed someone who knew about coal. Rial and Frates Formed a joint venture, Frates contributing his Kaiser stock and Rial putting in an SPS coal pur- chase agreement and the Perma Group's coal properties. Frates valued the contract at about $25 million, the coal properties at $40 million. "The major thing was the SPS contrac[," a Frates man says. "We were weak on coal, and here was this humongous utility offering to buy a million cons a year." Frates staged a classic, no-money- down, 1980s takeover. Kaiser Steel changed hands for $380 million. Where did the money come from? Not from the pockets of the people doing the takeover. The Frates Group used $100 million borrowed from Citibank and $62 million of Kaiser's cash to pay $22 a share to Kaiser's stockholders, and gave them $30 Mace value) of pre- ferred stock for the rest of the price. Thus, for $162 million that wasn't his and $218 million of paper in the form of Kaiser Steel preferred, Frates took over the company. Naturally, Frates took millions of dollars in fees and expenses, so his net cash investment was less than nothing. In December 1984, just ten months after the joint buyout, Rial decided to invoke his right to buy out Frates. Frates got $40 million and left. The buyou[, a paper shuffler's delight, closed in April of 1985. The ultimate result was to leverage Kaiser-which had already been leveraged by Frates-yer another notch. As pazt of the deal, Rial reclaimed the SPS coal contract and the Perma coal properties, then swapped them to 32 FORBES, OCCOBER 20, 1986