Simon’s Business Savvy Enlarged Family Wealth

Bill Simon Jr., a political novice and Republican gubernatorial hopeful, touts his experience and accomplishments in business as qualifications to run California, home to the fifth-largest economy in the world.

As he has campaigned, he has commiserated with small-business owners, spoken of his many corporate investments and boasted of being an “oil and gas man from way back.”

Simon is, in fact, a very rich man who has poured millions of dollars--his own and others’--into an array of businesses involving products from doorknobs and frozen pizzas to pay phones and storage cabinets.

His financial portfolio is so vast that he is not familiar with all his holdings. It took his campaign managers six months to complete the economic disclosure form that he was required to file for the governor’s race. The inch-thick packet details Simon’s assets, some of which could become political liabilities in his election bid.

Simon, 50, refuses to say precisely how rich he is, and some close to him say he tries to play down his wealth by dressing in khakis and driving a minivan. It’s safe to say he’s worth tens of millions of dollars.

He has helped tend to a family fortune that he and his six siblings inherited from their famous father, William E. Simon, the former U.S. Treasury secretary who was known as one of the innovators of the leveraged buyout craze of the 1980s. Along the way, Bill Jr. has racked up more financial winners than losers.

By far the most stinging financial defeat for the Simons was the $40 million they lost when the government took over Western Federal Savings and Loan in the early 1990s--a family investment that Bill Jr. was in charge of monitoring.

While the father was a daring businessman who experienced both colossal successes and hefty losses, the son’s approach to investing has largely mirrored his political philosophy: cautious and conservative.

Dad was a home run hitter, Simon says, but he also struck out a lot. “I hit more singles and doubles,” the candidate said.

Unlike most who would run for the highest elective office in the state, Simon has no governmental record to speak of. He spent three years as a federal prosecutor in New York under the tutelage of then-U.S. Atty. Rudolph Giuliani. Simon has never held an elective office other than president of his class at Williams College in Massachusetts.

And, although he spends considerable time and money supporting many charitable causes, he is a relative miser in the political arena, contributing less than $20,000 to a few candidates over the last 10 years, records show.

14 Years Running Family Firm

Simon’s most sustained endeavor has been his 14 years at the helm of the family’s investment firm, William E. Simon & Sons, which controls or has major interests in companies with sales exceeding $2 billion and real estate projects with a combined value of more than $1 billion.

Although the firm seeks to do business with institutional and private investors, much of the capital that is invested is part of the Simon family fortune, which one former associate of the firm said “is probably well north of $500 million.”

Interviews with current and former employees of the firm, those who have done business with it, and others paint a generally flattering portrait of Co-chairman William E. Simon Jr., better known as “Billy.”

More a caretaker of wealth than a creator of it, he has a knack for hiring talented people and then stepping out of their way. Schooled as a lawyer, he relies heavily on research, not instinct. More than anything else, he is admired for his work ethic and refusal to rest on his family’s laurels.

Conor T. Mullett, a former employee, said Simon was often up and on the phone before dawn in Los Angeles so he could catch colleagues on the East Coast first thing in the morning.

“He’s not just a guy playing on the golf course,” Mullet said.

As an investor, Simon seeks companies with solid management and business plans that want, for the most part, silent partners and an infusion of capital. He is a devotee of the Warren Buffett school of investing, looking for undervalued companies with growth potential.

Unlike his father, a mercurial presence who left a trail of bitter business partners, Simon appears to have few enemies. He has even tried to patch up relationships with people who feuded with his father.

Although one of Simon’s critics privately suggested that he tried to financially ruin a widow in order to collect on a debt owed his father, the widow said in an interview that nothing could be further from the truth.

Beverly Thrall said her late husband, Larry, had pledged some properties as collateral in his highly contentious partnership with William Simon Sr. After her husband’s death, Thrall said, Bill Simon filed a claim against the estate, as did other business associates.

“In the case of a couple of [the properties] being sold, Bill [Jr.] was nice enough to not make me give him his share--he could have demanded it,” Thrall said. “He couldn’t have been nicer, honestly.”

Thrall’s account was in keeping with an assessment of Simon given by his stepmother, Tonia Donnelly Simon. She said that Billy lacked the killer instinct of his father when it came to business, but that he made up for it.

“He reacts to need,” she said in a telephone interview from her home in Santa Barbara. “I don’t like to use the word ‘sweet’ for a man. But he is very sweet. He’s a wonderful, sensitive person.”

When people talk of Bill Jr., the contrasts between him and Bill Sr. inevitably come up. The senior Simon, who died in June 2000, had a reputation for being abrupt, sometimes downright nasty. It didn’t matter if they were business partners or secretaries, his temper was legendary.

“Billy is nothing like that,” said Sean Duffy, a former employee who works at another investment firm. “They were like night and day.”

Simon, in a recent interview, conceded that at times he was bothered by his father’s outbursts, from which neither he nor his brother was spared. He said it was a trait that he hoped he did not inherit.

“Dad’s been dead a year and a half,” he said, “so I guess if the lion in me was going to come out, it probably would have come out by now.”

Bill Simon and his younger brother, Peter, joined forces with their father to form William E. Simon & Sons in 1988.

From the outset, Peter Simon said, he and his brother were committed to providing some structure to the old man’s “gut feeling” school of investing.

“Dad was the classic entrepreneur who did everything exactly as he wished,” recalled Peter Simon. “He was just a guy that walked in in the morning and said, ‘You know what? I want to buy corn today.’ He’d call up three brokers and find out where it was and buy it.”

These days, Peter Simon said, “we don’t do stuff like that.”

He said he and his brother began their mission to institutionalize the business with the most basic of tasks.

“The first year we were here, we did such things as write our own policy manual for our company,” Peter Simon said. “We literally sat down and wrote it word for word ourselves.”

In the early years, both brothers agreed, the senior Simon dominated his two sons, who at the time had little experience in the direct investment business.

“The first couple years Dad put us through what he subsequently referred to as boot camp. He treated us just like everybody else,” said Bill Simon, during an interview wedged in between campaign appearances in Huntington Beach. “Believe me, there was no difference between us and the most junior person in the organization.”

As it exists today, William E. Simon & Sons is divided into three distinct areas:

* Private equity, which matches big-money investors with relatively low-risk projects in hopes of a return that beats the interest rate paid by a traditional bank.

* Real estate, which does essentially the same thing with properties.

* Special situations, launched just three years ago, which looks for “distressed” companies in which to invest on the bet that they’ll regain their footing and return to profitability. This is a far more volatile market, designed to attract investors willing to accept a higher risk in hopes of a higher return.

The firm, which employs about 80 people, maintains offices in Los Angeles and Morristown, N.J. Bill Simon moved to California about 12 years ago to open the Los Angeles office, while Peter Simon stayed in Morristown to run operations there.

The Boss Buys Lunch

Those in the Los Angeles office describe a very close-knit working environment where Simon pays to have lunch brought in every day for the staff. They see their boss as approachable, friendly and eager to hear about new investment proposals.

Henry Brandon, who has been at the firm seven years, said Bill Simon “works very hard at improving himself” and is “not the kind of guy who thinks he knows everything.”

“He’s willing to learn, willing to roll up his sleeves,” he said.

One painful--and costly--lesson was the government seizure of Western Federal in 1993. The federal takeover of the sick S&L; cost the Simons $40 million of their own money and the taxpayers more than twice that amount.

The Simons’ involvement in the thrift began in 1988 when the senior Simon led an investment group, comprising several business associates, in acquiring it. In the early 1990s, the thrift suffered millions of dollars in loan losses caused by Southern California’s prolonged real estate slump. Plagued by those losses, the institution became undercapitalized and ultimately was seized by federal regulators.

Although it has been nearly a decade since Western Federal went belly up, it’s a topic that has already been seized on by Gov. Gray Davis’ campaign.

“The only thing Bill Simon has ever led in California was a savings and loan into the ground,” Garry South, Davis’ campaign consultant, has told reporters.

Simon, who to this day cringes at the mere mention of Western Federal, acknowledges that it was “a really tough experience.”

But he played down his role in the thrift’s failure.

“I was not involved in the acquisition or negotiation of that one,” said Simon, who sat on the thrift’s board of directors. “I was definitely involved in monitoring it, though. No question about it. I even had an office there for awhile.”

Simon accused the federal government of prematurely taking over the S&L;, saying government officials reneged on the terms of the deal his father had worked out when it was purchased. Had the government not done so, he said, he believes Western Federal would have returned to profitability. The allegation is the subject of pending civil lawsuit by the investors against federal regulators.

The lesson he learned, Simon said, was “be very careful when you deal with the government.”

Hugh H. Evans Jr., the former president of Western Fed, refused to talk about the Simons’ involvement with the institution, citing the pending lawsuit. But he said that he bore them no ill will and that he got along with both father and son. Although the senior Simon was “tougher to get along with as a human being,” Billy was “congenial and collaborative,” he said.

Come election day, Evans said, “I’d sure pick him over Gray Davis.”

Not long after the Western Federal debacle, Simon Sr. began to ease out of the business, in part due to his deteriorating health and his desire to devote more time to charitable work.

So from that point forward, as never before, William E. Simon & Sons was much more about the sons than the father.

Pizza, PAX-TV Among Simon Interests

Though hardly a household name, the company has quietly bankrolled a number of things that are: The firm owns a stake in PAX-TV, the family-oriented network featuring “Touched by an Angel” and “Diagnosis Murder,” as well as the lesser-known 6:30 a.m. Sunday morning broadcast “Sunday With Simon,” starring--you guessed it--Bill Simon Jr.

The firm also has interests in Wolfgang Puck frozen pizzas, the P.F. Chang Chinese restaurant chain and Do-Able products, maker of organizational products that line the shelves of such places as Home Depot.

A foray into the doorknob biz was Billy’s idea, based on what he saw as a void in an industry closely linked to the rebounding mid- to late 1990s housing market. It made more than $20 million, according to a source outside the company who is familiar with the deal.

Bill Simon was also his firm’s head cheerleader on the PAX-TV venture. Besides thinking it was a good investment, he said, he felt strongly about seeing more family-based programs on TV.

“His involvement came right at the start-up,” said PAX President Jeff Sagansky, former president of CBS Entertainment. “It was crucial. He went out on the road, took two weeks of his life, put it on hold, and went around the country to help us raise [$275 million] to help us buy stations.”

Though it has yet to turn a profit for Simon, the network is well-positioned to do so in the future, he said.

Decidedly less impressive was the decision to invest in pay phones just as cell phones were on the brink of ubiquity.

“My wife said to me, ‘Why do you want to invest in a pay phone company? Nobody uses pay phones anymore,’ ” Bill Simon recalled. “I said, ‘No, no, no. You don’t understand. No matter how much mobile phones come in, there’s always going to be a need for pay phones.’ ”

Looking back on the conversation and shaking his head sheepishly, he said, “I feel so stupid.”

The technology and dot-com dive in recent years has taken a toll on some of the firm’s investments, with at least one--MValue.com--going out of business altogether.

Overall, however, Simon said, “the successes, the things I’m proud of, greatly outweigh the kind of things where I think, ‘Gee whiz, that’s too bad.’ ”

Asked about the accomplishments he’s most proud of, Simon talked about people he had hired rather than deals he had closed.

“It’s so important who you surround yourself with, whether it be in business or charity or politics,” he said. “People are so important. I learned that lesson early on.”

Of himself, he offered a somewhat modest assessment.

He rates an “A minus, B plus” as a businessman, he said. And “I won’t sit here and tell you I’m a genius, because I don’t think of myself in that way.”

He’s also aware of the criticism “that I started on third base and think I hit a triple,” Simon said, punctuating the statement with a hearty laugh.

He made no effort to diminish the fact that his father had earned a great deal of money by the time the brothers went into business with him.

But rather than squander the family fortune, he’s added to it, he said.

He has also followed in his father’s footsteps with his increasing involvement in charity work, which last year accounted for about half of his time, he said.

Simon said he sees an overlap between his business experience and volunteer work with charities that would serve him well in the governor’s office.

“The similarity between charity and business for me is that sometimes I see things and I say, ‘Boy, I tell you, we could make a difference there, or we could make money there,’ ” Simon said. “Business, of course, is: We could make money. And charity is: We could make a difference.”

In his bid for governor, some of Simon’s financial assets could become political liabilities.

For example, he owns stock in El Paso Natural Gas, which has been accused of taking advantage of California’s energy woes by creating an artificial supply shortage that sent prices soaring. El Paso Natural Gas officials deny the charges.

Hanover Compressor Co., another company in which Simon owns significant shares and on whose board he once sat, is now mired in controversy over its accounting practices and ties to energy giant Enron. Simon’s tenure on the board, however, predated the period now under scrutiny.

Should he become governor, Simon said, he would immediately take himself out of all investment decisions and business relationships that could be perceived as conflicts of interest.

Over the last year, as he has campaigned, Simon has taken a leave of absence from his firm.

In the event he is unsuccessful in his bid for the Republican nomination, he quipped, “I hope they’ll take me back.”

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Top Contributors to Bill Simon Campaign

City/State Contribution

William E. Simon Jr. Los Angeles $4 million

Peter J. Simon Green Village, N.J. $235,000

Frank Baxter Los Angeles $100,000

Foster Friess Jackson, Wyo. $100,000 William E. Oberndorf Mill Valley, Calif. $100,000 Edmund B. Ross Jr. Morristown, N.J. $100,000 Anschutz Corp. Denver $100,000 Catterton Partners IV Management Co. Greenwich, Conn. $75,000 Julie Simon Munro Sausalito $62,000 Robert J. Levitt Pacific Palisades $55,000 Lawrence E. Bathgate II Lakewood, N.J. $50,000 J. Katie Morris New Vernon, N.J. $50,000 Van Beuren Management Morristown, N.J. $50,000 William R. Grant New York $41,850 Donald W. J. Munro Ross, Calif. $35,552 John M. Angelo New York $35,000 Aimee S. Bloom Morristown, N.J. $35,000 Edwin L. Knetzger III Norwalk, Conn. $35,000 Leigh S. Porges Short Hills, N.J. $35,000 A.G. Spanos Stockton $35,000

Graphic reporting by MALOY MOORE / Los Angeles Times

Source: California Secretary of State