JERRY TSAI LISTENS TO HIS MOTHER She nudged him to join Primerica. Now he's the boss. She liked the idea of buying Smith Barney. So he did. Best of all, she helped her proud son bury his has-been reputation.
By Colin Leinster REPORTER ASSOCIATE Julianne Slovak

(FORTUNE Magazine) – TAKE THE $15 a share,'' Ruth Tsai, then 79, told her son in 1982. ''The price isn't important. It's an opportunity for you. Think about what's important, what it can bring you in the future.'' As usual, Gerald Tsai Jr. followed her advice. He sold his insurance company to American Can Co., now Primerica Corp., for $2 a share less than he was hoping for -- and joined the payroll. His mission: to build from scratch a diversified financial services operation. That he did. By the end of 1986 his acquisitions in insurance, mortgage banking, and mutual funds accounted for 50% of Primerica's revenues and 70% of its profits. As for the opportunity his mother perceived, he clinched that last year when he became chief executive of the transformed company. This summer, Tsai, 58, made his most dramatic aquisition yet. He bought Smith Barney, the investment bank, thereby pushing Primerica into yet another financial territory. Ruth Tsai had liked that plan too. At $750 million it was a good buy, she counseled her son. ''I feel very good,'' says Tsai about all that he has achieved. If the Guinness Book of World Records had a category for understatements, these words surely would earn Tsai the championship. For the better part of two decades, his public image had been that of a has-been, the 1960s wizard of mutual funds - who had lost his golden touch. Yet through all those years Jerry Tsai continued to make money by the bushel -- and to spend it lavishly. The food, wine, and top-rated orchestras at his famous parties impress even the jaded. The guest lists -- ''one or two hundred,'' he says with a self-deprecating shrug of his elegantly tailored shoulders -- almost invariably begin with his mother, a short, elegant woman, usually clad in a cheongsam, the formal Chinese tunic dress. In addition, there is a pinch of top politicians -- ''a couple of governors, that sort of thing,'' says one regular -- and several boardrooms' worth of such financial and corporate heavies as John Gutfreund of Salomon, John Kluge of Metromedia, and Laurence Tisch of CBS, who is godfather to Tsai's middle child, his 17- year-old daughter. Representing the younger set at these parties is real estate rajah Donald Trump. Not surprisingly, the talk often turns to business. When Tsai was tapped as chairman of Primerica, says Donald Trump, ''I went out the same day and bought stock. I made a big bet on Jerry. Life is people, and Jerry's a champ.'' Tisch admires Tsai, too. ''He's a very serious fellow, analyzes everything. He's a decent, honorable guy.'' But Tisch didn't invest: ''I never buy into companies run by people I talk to socially. I'm always afraid I'll be an inside trader.'' The setting for these parties has become ever grander. Tsai admires landscapes more than brick and mortar. ''You can build houses,'' he says. ''You can't build trees or a view.'' Each time he has moved, he has either gutted or leveled the existing house and handed an architect his own drawings of what he wanted in its place. After buying the ten-acre waterfront estate in Greenwich, Connecticut, where Walter Teagle, former head of Standard Oil of New Jersey (now Exxon) once lived, Tsai pulled down the entire castlelike building, which he found ''very spooky.'' Starting from the ground up, he erected an ultramodern home complete with indoor swimming pool and a helipad, to which he piloted his own five-seater Bell, driving neighbors to complain about noise and danger. In 1980 a stalled rotor blade forced his chopper down into the Hudson, whereupon he was obliged to bob to the New Jersey shore. He kept flying two more years before he dropped the hobby. His Greenwich neighbors cheered. He has taken the same rip-and-build approach with Manhattan apartments. The one he lives in now on Fifth Avenue affords wonderful views of Central Park, but when he had it eviscerated a miscalculation opened up a less impressive vista, that of the kitchen downstairs. His own kitchen is rarely used. When he entertains in Manhattan he takes his guests to such favorite restaurants as Tse Yang on East 51st Street. The reconstructed apartment includes a room scaled to accommodate his white Steinway grand. Tsai is a skilled pianist. He also once played the saxophone, clarinet, and guitar, but these hobbies have gone the way of the helicopter. Tsai also has designed what he calls ''boats,'' the most recent of which was launched in July. Built in Italy and powered by two MTU-Mercedes engines that give it a speed of 31 knots, the 120-foot yacht provides a berth for a second white Steinway grand. He has named the vessel Longitude Zero, which is where Greenwich is, albeit the one in England, not Connecticut, where Primerica is headquartered. JERRY TSAI has never been a stranger to money. He was born in Shanghai in 1929, the Year of the Serpent. (Associated character traits: elegance, power, singlemindedness, and tactical superiority.) ''We had servants, cars, a chauffeur,'' he says, trappings that he allows were ''above average.'' Some of this economic comfort came from his father, who spent a year of high school in St. Louis and went on to the University of Michigan. Ford Motor Co. hired him and sent him back to Shanghai as a district manager. Tsai's grandfather had also come to the U.S. for an education, though Tsai professes not to know the whys or wherefores. It could be that the grandfather was shanghaied by missionaries. In any event, when he returned to China he became a Methodist minister. It probably was Tsai's mother, however, who contributed most of the family wealth. She made a fortune speculating on stocks, real estate, currencies, and gold. She infused her son with an interest in the stock market and seems to have passed along her skills, which included diplomacy. ''My father was kind of square,'' Tsai says. ''So she used to say, 'Daddy, why do you have to be a square table when you can be a round table?' I remember her saying that since I was 3 years old. Do you know why she said that? When you go around a round table, there's nothing to bump against your body.'' With this, Tsai jumps up from the round table where he is sitting and darts to his desk, slapping his hand against the sharp, square corner to demonstrate what might happen to the undiplomatic. Tsai came to the U.S. in 1947 at the age of 17, after finishing at the English schools in Shanghai. He sailed to San Francisco, flew to New York City, and enrolled at Wesleyan University, a Methodist establishment in Middletown, Connecticut. He has never returned to China and doesn't want to. (For one thing, he says, he's heard that hotel service in Shanghai is below par.) His parents, who had settled in Hong Kong, came to the U.S. in the 1970s. His father died a few years ago, and his mother and sister now live in an affluent New York suburb. He wasn't too impressed by small-town America. ''It was very disappointing. Middletown is a tiny little city, if you can call it a city. You stand at one end of Main Street and you can see the other. It had a J. C. Penney, a Montgomery Ward or Sears, and a movie theater. That's it.'' After his first semester, he transferred to Boston University and found a metropolis more to his liking. Tsai, who can still work 20-hour days, studied for the same long hours back then, earning his bachelor's degree in economics and, three months later, his master's. He started working as a statistician at Blue Cross, but quit that to return to Boston University, intending to get an MBA. He never completed the course. The call of the stock market proved irresistible, and he went to work as a security analyst at Bache. He soon began to make friends among those who later would make big names for themselves. These included Harold Geneen, then a vice president of Jones & Laughlin, the steel company, who went on to build ITT. He met Larry Tisch just after the Tisch brothers bought Loews Theatres, beginning their move beyond hotels. TSAI'S FRIENDSHIPS are by no means a one-way street. Says John Rosenwald Jr., managing director of the Bear Stearns investment bank, and a friend for 30 years: ''If I were in a very awkward situation and somebody said, 'You have a dime for one call,' Jerry is the person I'd use the dime for.'' Norman Alexander, chief executive of Sequa, once did. ''I called him in the middle of the night, and he came right over,'' says Alexander, declining to give any specifics. Not all of Tsai's early friendships have lasted quite as long. A Wall Street banker recalls meeting Tsai on several occasions in those early days, each time with a different starlet on his arm. Tsai has been married and divorced twice. In 1969 he obtained a divorce from his first wife in Juarez, Mexico, and remarried a month later. A U.S. judge subsequently declared the divorce invalid, and Tsai had to go through both ceremonies again. Just as the first had done, the second marriage lasted 17 years. In 1952 Tsai joined the Fidelity Fund and fast became a luminary in the investment community, a stock picker who could do no wrong. But in 1965 it became clear to Tsai that Edward C. Johnson II, the legendary head of Fidelity, would pick his son and not Tsai to be his successor. Tsai quit and the next year launched the Manhattan Fund, selling shares to an enthusiastic public. At first, the fund boomed. Investors saw the value of their stake zoom 60% the first year. In early 1968, Ira Harris of Salomon Brothers, now senior executive director of the investment bank, called Tsai from California, waking him at 3 A.M. to suggest that Tsai sell his company to CNA Financial Corp. Harris marvels at the speed with which Tsai reached a decision. Within a day, he called Harris back to say, ''Yes,'' impishly placing the call in the wee hours, it being his turn to wake somebody up. Tsai sold at the top. He got $30 million in CNA stock, but 1968 was not a good year for Manhattan Fund's shareholders. It ranked near the bottom among 300 publicly held mutual funds that year. Sales dried up and redemptions rose. To this day, Tsai insists that he has been judged too harshly for one disappointing year. For one thing, he says, critics who cite numbers invariably fail to include a fat dividend the fund paid. (In a ranking of funds that included the dividend, Tsai's fund was still a bummer.) Tsai defended his record forcefully during a recent interview in the dining room at the Ritz in Paris, raising his voice and once thumping the table to drive his argument home. Waiters gliding to and from the kitchen detoured past Tsai's table, doubtless curious as to what was going on. For its $30 million, CNA got Tsai as well as the Manhattan Fund. Part of his job was to help find acquisitions. Instead of providing growth, companies Tsai brought into CNA dragged earnings down sharply. In 1973 he resigned, sold his CNA stock, and set out on his own again. He bought a small brokerage house, renaming it G. Tsai & Co. It went nowhere. In 1978 he bought control of Associated Madison, a holding company that specialized in insurance. In 1980, as he began an ambitious program to expand Associated, Tsai bought Beneficial National, a mail-order insurer that he renamed National Benefit Life. By the ! end of 1981, Associated's earnings had shot up from 1980's $800,000 to more than $5 million. Then he saw a newspaper report that William S. Woodside, chairman and chief executive of American Can Co., planned to take the company out of its core manufacturing businesses and into something else. Tsai read the story avidly and spent a weekend composing a short letter to Woodside in which he proposed a joint venture between his mail-order insurance business and American Can's Fingerhut subsidiary, a mail-order enterprise with a huge list of names. Woodside was intrigued and agreed to the proposal. The joint venture never took off. The cultures of the two participants were ''oil and water,'' says Woodside, who had yet to decide where to take American Can. Before long, though, Woodside had identified what he did want: Tsai. He proposed that Tsai sell Associated Madison to American Can and join the corporate team. Tsai shared with his mother the belief that $17 a share was the right price. Woodside offered $15. ''It was a borderline company,'' he says of Associated. ''Jerry was wholly leveraged and thought he was playing with Monopoly money. He was discouraged by his growth plans. He was in trouble. He knew it. I knew it.'' The lure that hooked both Tsai and his mother was Woodside's vision of what Tsai would do next. ''Come on board and I'll give you $500 million to buy financial service companies.'' Tsai did, of course, and he soon spent the money. '' 'Well done,' I said,'' recalls Woodside, with a laugh. '' 'Here's another $500 million.' ''

Once Tsai was aboard, the company proceeded to divest itself of unwanted, stagnant businesses, and 25 of them have now gone, including the original can- making operation. Tsai proceeded to buy a clutch of financial companies and, as he did so, made it clear to everybody that he had taken his mother's round- table advice very much to heart. ''He never takes no for an answer,'' marvels Woodside. ''Whenever I turned down one idea, he came right back with four more.'' Tsai showed an interest in taking a big position in a brokerage house very early, and the company did, buying into several and moving out with a profit. BUT IT WAS Smith Barney that really attracted Tsai. He approached the firm in 1985, first with the idea of buying only part of it. During talks over the following months with two separate Smith Barney chairmen -- he insisted on a friendly deal -- Tsai retuned his plan and got an agreement to buy 100% of the firm. To make sure he wasn't buying any insider-trader scandals, Tsai commissioned a team of lawyers from Dewey Ballantine to dig into Smith Barney's records.

By the time Woodside retired, he had given new life to the old can company. It comprised a specialty retail sector that includes the Fingerhut mail-order operation and the Musicland record and video stores, and, of course, the thriving financial services business that Tsai built. In 1986, Woodside's last year, shareholders got a total return of 45.33% on their investment in the restructured company, more than double the market average for the period. The retirement party Tsai threw for Woodside put his hostmanship to the ultimate test. Held at the Pierre Hotel in Manhattan with 350 guests in attendance, it began with Dom Perignon and caviar. Before the dancing began, Tsai gave a speech praising the courageous changes Woodside had made. Tsai handed Woodside a Tiffany box, claiming that it contained a retirement watch. Inside, instead, was a miniature car and a set of car keys. Then curtains behind the stage parted and a projector displayed a photograph of a Ferrari, Woodside's real goodbye present. ''He earned it,'' says Tsai. As for his own performance, Tsai still has a few splinters in his round table that call for sanding. He can be brusque to the point of rudeness with subordinates and is reluctant to delegate, paying too much attention to details. More important, he is moving so quickly that some investors seem bewildered, and the stock price has recently been weak. Says Joan Goodman, security analyst with Pershing & Co.: ''They are in such a fast restructuring mode that investors can't keep up. It takes a certain knowledge to understand insurance earnings.'' The Smith Barney buy puzzles her. ''Other brokerage houses are taking hits in bond trading,'' she says. Despite her reservations, she is bullish on Primerica, as are other analysts. TSAI SWEARS he has divested personal quirks. ''It's not the job of a CEO to find out what the damn sales were yesterday,'' he says. ''The job is to identify major trends and to watch for turning points. The moment you see it, you change quicker than anybody else.'' He has already identified one such trend and plans to take Primerica into a third major industry, which he will not name publicly. As for the bottom line, he promises to double Primerica's earnings per share within five years. Tsai has made big promises before. When he joined Primerica, he pledged to bring in $100 million in earnings by Woodside's 65th birthday. He produced $300 million. If Tsai keeps his word this time around, his own goodbye party will be a humdinger.



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