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Glazer accused of milking Texas firm to finance Bucs

It was an oil company with a history as rich as Texas crude.

Former President George Bush founded it in 1953 with a couple of Oklahoma wildcatters who later went on to start giant Pennzoil Corp. In one Texas oil field, it drilled 127 wells without hitting a dry hole. It also was a pioneer in the frontier of offshore drilling.

Yet in two short years, storied Zapata Corp. of Houston has been turned and twisted like a drill shaft mired in granite.

Today, the company's only oil interest is in cooking oil used in restaurants.

Through a series of questionable stock deals, Zapata is getting out of the petroleum industry and into the completely unrelated businesses of food and casual dining.

The man behind Zapata's odd and relatively sudden changes: Malcolm I. Glazer, its chairman and biggest stockholder.

Like the purchase and management of his other big investment, the Tampa Bay Buccaneers, Glazer's majority ownership of Zapata Corp. is confusing and confounding.

Yet it is a case study of Malcolm Glazer the businessman _ hard, driven and not afraid to turn everything upside down to make money.

And while Houston and Tampa are far apart, Glazer's transfiguration of Zapata appears closely tied to the Bucs.

In lawsuits filed in Delaware and Texas, disgruntled Zapata shareholders claim Glazer is selling off the company's petroleum assets, forcing Zapata to use the cash to buy stock he owns in three food companies and channeling the profits to banks he owes for his purchase of the Bucs.

The lawsuits seek to block the transactions because they could hurt other shareholders.

"In one respect, he is just taking money from the left pocket and putting it in the right pocket," said Daniel Wake, a Colorado attorney who sued. "But we think (in doing so) Zapata is simply being used as a vehicle to enrich Malcolm Glazer."

Neither Glazer nor his son Avram _ Zapata's president and chief executive _ responded to numerous requests for interviews for this story.

If Glazer's Zapata deals don't work out _ shareholders have yet to approve the latest transaction, and the lawsuits could affect the way they vote _ it could ultimately mean trouble for his ownership of the Bucs.

Glazer reportedly paid $192-million for the Bucs _ more than has ever been paid for a professional football team. To do the deal, he borrowed an estimated $130-million from banks.

If Glazer has problems making the hefty debt payments or if money problems hurt the team, the NFL could theoretically force him to sell the Bucs.

Signs that he may be having financial problems have popped up. Earlier this year, the Bucs deferred players' signing bonuses and payments to other teams for their share of gate receipts. Meanwhile, Glazer has demanded that Hillsborough County taxpayers build him a new stadium because Tampa Stadium doesn't bring in enough revenue.

If, on the other hand, Glazer's cross-company stock deals work out, Zapata will be drained of its history and its cash like an oil field pumped dry.

Either way, many Zapata shareholders aren't getting what they bargained for, the lawsuits claim.

Investors who bought Zapata stock because they wanted to invest in an oil and gas company now find themselves stuck with shares in a food and restaurant business that, according to the lawsuits, is being manipulated only for the benefit of Glazer and the Bucs.

George Gaspar is a stock analyst who has followed Zapata for a quarter-century. He said he thinks Glazer is giving other shareholders a raw deal.

"You often see investment groups come in and take over a corporation and maybe make some significant structural changes, but I don't think there has ever been a parallel to the degree of what has happened to Zapata," said Gaspar, an analyst with stock brokerage Robert W. Baird & Co.

"It's all highly unusual, and in my opinion, justifiably questionable," he said.

Growth of a company

Zapata's Texas roots reach back to a young Easterner named George Bush.

Fresh out of the Navy and World War II, Bush was lured to Texas by dreams of oil and money.

In 1953, he and business partner John Overby teamed up with brothers William and Hugh Liedtke to start an oil exploration company. They named it Zapata Corp., after the Mexican revolutionary Marlon Brando portrayed in the 1952 hit movie Viva Zapata!

"The industry was in its infancy and optimism was the mood," Bush said through a spokesman when asked about Zapata's early days. "Oil people and drilling contractors back then had a can-do attitude. Risk-takers and builders, there was nothing that couldn't be done or that we thought couldn't be done."

Wildcatter's luck was with Zapata; it quickly became one of West Texas' best-performing oil companies. In 1956, it took its success to the sea, becoming one of the country's first offshore oil explorers.

Zapata continued to grow even after Bush sold his stake in the company in 1965-66 and the Liedtkes later started a new company they called Pennzoil.

But in the 1980s, stung by a worldwide oil slump, Zapata began selling many of its petroleum assets. With a fleet of boats once used to service offshore drilling rigs, it cast out into the commercial fishing business looking for new profits, but it barely skirted bankruptcy.

In the early 1990s, Zapata moved into the natural gas industry, and later natural gas compression, a lucrative business in which gas is pressurized for transmission by pipeline or container.

The refocused company's potential caught the eye of Palm Beach millionaire businessman Malcolm Glazer.

At first, Glazer said he was just another investor in Zapata. But by the end of 1992, he was its biggest investor, with as much as 41 percent of its stock.

Then Glazer decided he wanted full control of the company.

In 1993, Glazer sued Zapata and threatened to organize other stockholders and take over its board of directors. Zapata's management dispelled Glazer as an unwelcome corporate raider, but later reluctantly agreed to give him and son Avram seats on the board.

In 1994, firmly in control of Zapata and its board, Glazer was elected chairman of the company. The millionaire who knew little about gas and oil replaced Ronald Lassiter, a 24-year Zapata veteran who had steered the company through some of its toughest times during nine years as chairman.

Glazer's first moves as chairman were undramatic. The company continued its push into natural gas compression, which was seen as Zapata's savior. In his first message to shareholders, Glazer called natural gas compression the company's "flagship operation."

All that changed in August 1994, when Bucs owner Hugh Culverhouse died.

From platforms to platters

With the possible exception of money, Malcolm Glazer's most dogged pursuit in recent years has been a pro sports franchise.

On a warm day in January 1995, Glazer and his sons finally realized their dream when Bucs trustees announced they were the successful bidder for the team.

"The first thing I want to say is the Buc stops here," Glazer told reporters. "Tampa Bay is going to have this team forever, as far as the Glazers are concerned."

While he was promising no changes in Tampa Bay, out in Houston Zapata was poised to change like the West Texas winds. According to some shareholder lawsuits, the changes all were methodically designed to help Glazer pay for the football team.

In April 1995, the company surprisingly announced it would sell all of its natural gas operations and get out of the business altogether. Within a year, it secured deals to sell its two primary gas compression companies for a total of $153-million.

Glazer then set about finding a way to transfer Zapata's newfound cash to himself _ and ultimately the banks he owes for the Bucs, the lawsuits claim. In May, it became clear how he would do it, according to the lawsuits.

Glazer and son Avram announced that the oil and gas company would buy its way into the food and restaurant business. Its first acquisitions, they would later disclose, were all companies owned largely by Malcolm Glazer.

In SEC documents, Zapata officials have said food and restaurant businesses simply show more promise than natural gas. They give no reason why other Glazer-owned companies are the best takeover candidates.

If switching from one line of business to an unrelated one seems strange, that's because it is. And it's incredibly risky.

Some of the business world's biggest blunders have involved companies that strayed from their primary businesses.

Mobil Corp.'s ownership of Montgomery Ward & Co. was a 14-year fiasco before the company finally sold the department store chain in 1988. Sears, Roebuck & Co. struggled with its Coldwell Banker real estate firm for eight years before it sold the company. Closer to home, St. Petersburg power company Florida Progress Corp. was stung badly by its recently abandoned forays into real estate and insurance.

What makes Zapata's sudden change in business even stranger than those at other companies, however, is that it is almost entirely abandoning its core business of 40 years. And on top of that, it is going about its repositioning by buying companies owned mainly by its chairman.

Glazer's changes were baffling to many at Zapata.

Three directors, including two longtime Glazer confidants, would later resign from the company's board. According to the lawsuits, they couldn't approve of Zapata's drastic shift and its purchases of Glazer's stock in other companies.

Undaunted, Zapata and Glazer set about their plans.

In August 1995, Zapata bought a 31 percent stake in Envirodyne Industries Inc., a money-losing Chicago company that makes sausage casings and plastic cutlery. The stake was purchased directly from Glazer for $18.7-million. Glazer had previously tried to sell the stock without success.

In May, Zapata announced its second takeover target: Houlihan's Restaurant Group, which operates about 80 restaurants under the Houlihan's and Darryl's names, mainly in the Midwest and Southeast. Glazer owns about 73 percent of Houlihan's stock.

Plans call for Zapata to buy Houlihan's for $80-million. A "special" committee of directors has already approved the deal. (See accompanying story.) If shareholders approve the transaction, Glazer will make almost $30-million in cash and garner an estimated $26-million more of Zapata stock.

Zapata has at least one other acquisition in the works, one that could be its biggest. According to SEC filings, Zapata is considering purchasing Specialty Equipment Co., a Chicago-area manufacturer of hamburger grills, yogurt machines and drink coolers for restaurants and stores.

Glazer is Specialty's biggest shareholder, with about 45 percent of its outstanding stock. If Zapata pays cash for Glazer's shares, he could make some $90-million, based on current prices.

In all, the three deals could put nearly $129-million in cash in Glazer's personal bank accounts _ cash that he could then use to pay his Bucs debt.

Despite detractors, some say the moves _ and Glazer's proven investment expertise _ will ultimately pay off for Zapata.

After all, they point out, Zapata didn't trade its cash for nothing. Glazer's other companies, while relatively poor performers in the food and restaurant industries, have potential. Zapata's recent financial history, meanwhile, has been anything but stellar.

Todd Grady is an assistant portfolio manager at Pioneer Group, a Boston mutual fund company that is Zapata's second-biggest shareholder behind Glazer.

Grady acknowledges Glazer's and Zapata's moves are strange but said he is confident they will improve the company's value.

If Glazer wasn't Zapata's biggest shareholder, but only the company's chairman, "I would be very, very concerned," Grady said. But "the fact that he does own such a large (part) of the company" is morecomforting, he said.

To date, the changes have meant little to Zapata's financial health.

Earnings have improved slightly, but only because of the asset sales. The company's stock currently is trading at about the same price as when Glazer started making changes. Most of Zapata's 1,100 or so employees can't be certain from one day to the next what they will be doing in the future.

Meanwhile, Zapata's only remaining tie to its past is a small natural gas operation in Bolivia, far from its roots in West Texas. The oil wells, the drilling platforms, the domestic natural gas projects are all gone or in the process of being sold.

People such as George Gaspar, the longtime stock analyst, look back at the changes Glazer made and is disgusted.

"What's happening to (Zapata)," Gaspar said, "shouldn't be happening to a dog."

Malcolm Glazer, Zapata Corp. and the Bucs: A look back

1992

Malcolm Glazer begins acquiring large stakes in Houston-based Zapata Corp.

November 1992

Zapata Corp. buys Cimarron Gas Cos., marking its first big step toward becoming a natural gas company.

July 1993

Zapata avoids a nasty proxy fight with Glazer by reluctantly agreeing to give him and son Avram seats on the company's board of directors. Eventually, Glazer replaces Zapata's entire board with friends and business acquaintances.

September-November 1993

Zapata increases its push into natural gas, buying two more compression businesses, Stellar Cos. and Energy Industries Inc.

July 1994

Glazer becomes Zapata's chairman.

August 1994

Tampa Bay Buccaneers owner Hugh Culverhouse dies. Three months later, team trustees confirm the team is for sale.

September 1994

Zapata announces it will sell its U.S. natural gas properties for nearly $13-million. In its annual report to shareholders, Glazer says Zapata will continue expanding into natural gas compression, however, calling it Zapata's "flagship" business.

January 1995

Glazer buys the Buccaneers, reportedly paying a record $192-million.

April 1995

Zapata suddenly and surprisingly announces all of its natural gas operations are for sale.

May 1995

Zapata president Avram Glazer, Malcolm's son, discloses the company is considering moving into the unrelated food and restaurant business. He mentions one potential takeover target: Envirodyne Industries Inc., a maker of sausage casings and plastic cutlery. Malcolm Glazer owns nearly a third of Envirodyne's stock.

August 1995

Zapata's board agrees to buy Malcolm Glazer's 31 percent stake in money-losing Envirodyne. The price: $18.7-million.

A Zapata shareholder named Elly Harwin sues the company and the Glazers, claiming the Envirodyne deal improperly benefited the Glazers while hurting Zapata. The lawsuit would become one of five claiming that Glazer is illegally raiding Zapata for its cash and using it for his personal benefit. Some lawsuits claim Glazer is using the money to pay debt incurred with the Buccaneers purchase.

September 1995

Zapata agrees to sell its Energy Industries natural gas compression business for $130-million, bringing more cash into the company.

In SEC documents, Zapata mentions two new potential food business takeover targets: Houlihan's Restaurant Group and Specialty Equipment Co. Malcolm Glazer is the biggest shareholder in both companies.

February 1996

In signs of financial problems, the Buccaneers finally pay the Detroit Lions their share of profits from a December football game. The Bucs also ask some players to defer signing bonuses.

April 1996

Zapata agrees to sell its Cimarron Gas unit for $24-million, raising more cash.

May 1996

Zapata announces it will buy Houlihan's for $80-million. Glazer stands to make almost $30-million in cash and gain millions more worth of Zapata stock.

June 1996

A committee of Zapata directors _ all longtime Glazer acquaintances or employees _ approve the Houlihan's purchase. A general shareholder vote is tentatively scheduled for August.

AT A GLANCE

Founded in 1953, Zapata Corp. was once one of Texas' best-known oil companies. Today, the only oil that Zapata Corp. deals in is cooking oil.

Under the direction of company chairman Malcolm Glazer and his son Avram, Zapata has sold off most of its oil and gas assets. With at least some of the proceeds, Zapata last year began transforming itself into a food and restaurant business _ oddly enough by buying other companies the Glazers have big stakes in.

Here's a glance at Zapata's history, and its plans for the future:

ZAPATA OF THE PAST

Founders:

Former President George Bush

Hugh and William Liedtke (later founded Pennzoil Co.)

The company in its early years:

- Drilled 127 wells in Coke County, Texas in the 1950s without hitting a single dry hole.

- One of the pioneers in the offshore drilling. Its claim to fame was the "Scorpion," a three-legged drilling platform considered revolutionary in its time.

ZAPATA OF THE FUTURE:

Chairman: Malcolm Glazer

President, CEO: Avram Glazer

The company in recent years:

- Sold off almost all of its oil businesses.

- Began a major push into the natural gas industry, but suddenly announced in April 1995 that it will exit the business.

- Began transforming itself into a food and restaurant company by buying or preparing to buy Malcolm Glazer's big stakes in existing companies, including:

Envirodyne Industries Inc., which makes sausage casings and plastic cutlery (Zapata agreed last August to buy Glazer's 31 percent stake in the company)

Houlihan's Restaurant Group, which primarily operates Houlihan's and Darryl's restaurants (Zapata plans to buy Glazer's 73 percent stake in the company)

Speciality Equipment Co., which makes drink refrigerators, hamburger grills and soft-serve yogurt and ice cream machines (Zapata is considering buying Glazer's and his family's 45 percent stake in the company)

Following the money

ZAPATA CORP.

1992-93: Glazer gains control of storied Houston oil and gas company Zapata. At first, he says he is interested in the company's natural gas business. Later, he says he will turn it into a food and restaurant company. Disgruntled Zapata shareholders claim he is channeling the company's cash to the Tampa Bay Buccaneers.

Natural gas property

September 1994: Zapata puts its natural gas properties up for sale. It ultimately gets $13-million for the land.

Energy Industries

September 1995: Zapata agrees to sell Energy Industries for $130-million, two years after it bought the company for $90-million.

Cimarron Gas Holding Co.

April 1996: Zapata agrees to sell Cimarron for $24-million. It paid $3.8-million for the company in 1992.

Cash in from sales: $167-million

ZAPATA CORPORATION

Cash out for Glazer companies: $99-million

Envirodyne Industries

(sausage casings, plastic cutlery)

August 1995: Zapata agrees to spend $18.7-million for Glazer's 31% stake in Envirodyne.

Houlihan's restaurant Group

(Darryl's and Houlihan's restaurants)

May 1996: Zapata agrees to buy Houlihan's for $80-million. Glazer will get $30-million in cash plus Zapata stock from the deal. He owns 73% of Houihan's.

Specialty Equipment Co.

(drink coolers, hamburger grills and yogurt machines)

Zapata is considering buying the company for an undisclosed price. Glazer and his family own 45% of Specialty's stock.

Malcolm Galzer

Tampa Bay Buccaneers bought in Jan. 1995

$192-million

_ Times staffers Jeff Testerman, Marty Rosen and Barbara Hijek contributed to this story, as did Times correspondent Juliana Lopes.

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