A compilation..Big money and big politics – Can they go together?
Who is the largest individual shareholder of Citigroup? And Citigroup CEO Sanford Weill will tell you “I’ve never had an individual shareholder who is as big as he is,” The man Sanford Weil is referring to is Prince Alwaleed Bin Talal of Saudi Arabia, the ‘Warren Buffet’ of Saudi Arabia. As the Economist put it a couple of years ago, "Of the grandchildren of Ibn Saud, the warrior who united the Arabian Peninsula in the early years of this century, none enjoys greater prestige”.
The story of the acquisition of Citigroup is remarkable and demonstrates his keen foresight. A close Saudi source informs that Prince Waleed won a major defence contract after complaining to King Fahd that for minor royals there wasn’t much to do unless one was not a son of ruling royals. He consequently got the contract and invested the entire proceeds in Citigroup at 9$, when Citigroup was available at a deep discount as its very survival was at stake. Discount acquisitions and discount takeovers are his trademark.
He was recently at the heart of a major controversy when New York Mayor Rudy Giuliani turned down a 10 m$ contribution towards post-Sept. 11 relief efforts. Late last week, officials in New York City turned down a $10 million contribution from Prince Alwaleed Bin Talal of Saudi Arabia. This was because the prince also released a statement suggesting a fresh look at "some of the issues that led to" the attack, as well as "a more balanced stance toward the Palestinian cause." New York Mayor Rudy Giuliani countered that this attitude is "part of the problem"; the prince has reportedly counter-countered that his gift was refused "because there are Jewish pressures and they were afraid of them.
He loves the Arabian desert. The world’s fifth-richest man sits alone in a rare moment of tranquillity. Who is this man? What is he thinking? Why is he here? He says about his love of desert “Sometimes, I stay alone, sit alone there for one or two or three hours,” he said in an exclusive interview with CNBC. “I really feel serenity, at home, alone, middle desert, no lights, only the light of the fire.” “I feel very much comfortable in the desert,” he said. “Very much back to my roots. There’s a lot of serenity here and comfort. I am a desert man. You don’t have to be born in the desert to feel that you are from the desert.”
United States, until that donation controversy, had heard of Prince almost entirely in the financial press, on the strength of an investing record that has prompted some to refer to him as a "the Warren Buffet of Saudi Arabia." He is amongst the investor class of Rupert Murdoch and Ted Turner; he’s one of the world’s biggest media tycoons, with shares in AOL, News Corp. and Disney. Alongside the Pritzkers and the Hiltons, he is a leading hotelier, with big chunks of the Four Seasons, Movenpick and Fairmont chains, along with New York’s Plaza Hotel, and Paris’s George V.
His giant stake in banking in Citigroup alone totals a cool $10 billion. It's an understatement to say that Saudi elites are not generally admired for any kind of capitalistic prowess, but Alwaleed has been an exception. Certainly he's not in Warren Buffet’s league when it comes to analysing financial markets and securities. Nor does he possess the technological expertise of a Gates or a Dell. But give the man credit: The prince knew enough to buy 6.2 million shares of Apple in March of 1997, when it was trading for about $18 a share. Apple went up to $108. That was nearly $700 million of profit in some 36 months in a high-profile stock that was sitting right there in front of everyone, but when it dropped from 108$ to present level of 16$, it is still known that Prince owns the very shares. His exit strategy is a little doubtful. As Citigroup co-CEO Sandy Weill observes, 'You sure can't argue with results.'
In real estate, too, he is a powerhouse, whose empire stretches from London’s Canary Wharf to a gleaming skyscraper now nearing completion in Saudi Arabia’s capital. At 984 feet, it’s as tall as the Eiffel Tower, and taller than any other building in the Middle East or Europe. The Prince has got such a reputation for finding good investments that his poor investment decisions, like the wipeout of his entire internet stake, are rarely ever talked about.
In October of 1997, with the markets doing their usual fall swoon, the prince made two other big bets on tech, buying pieces of Netscape and Motorola. At first neither move looked particularly astute. Presently the issue that confronts many investment analysts is that, after this major controversy with the New York City Mayor, will this unwanted publicity help his holdings? Will the Prince continue to hold Citigroup? Or like Kuwaiti investments in BP, or Shah of Iran investments in Krupp, he may be eased out a little?
Going by precedent, whenever there are political disagreements or a visible contention, in strategic investment, there is a kind of an invisible hand that makes sure that those investments don’t continue. The analysts are wondering: with the kind of recent political sensitivity in the Middle East and the Prince’s position that at the heart of all recent world events, the Middle East divisions and their resolutions play a major role, the issue is that will these kinds of political views survive with somebody who holds huge holdings of Citigroup? Are the two positions tenable and go together? That is a doubt and a long-term implication, which the strategists would need to think about, considering that Prince Alwaleed’s exit strategy has been questionable, like Motorola, Apple. He should consider when is the right time to exit.
The political ramifications of this controversy may have some impact on his long-term holdings in Citigroup. The impacts of recent Saudi-US political disagreements are yet to be fully quantified. One cannot overlook the fact that New York is the financial capital of the world and is very sensitive to Middle Eastern politics. Price position on some of these issues may adversely impact his unique position.
Prince Alwaleed bought some six million shares of Motorola at around $76, and over the next 12 months the stock promptly fell all the way down to $38. Abracadabra! The prince is out some $228 million. The stocks then headed north: Motorola soaring to about $90 in early November, the prince’s stake was $538 million in Motorola, and abracadabra, he was up by $82 million. Price on that big move said 'Sure, that stock could have stayed down for three or four years, but when we analyse a company we really do it, so we knew that we had a plan, and thank God we were proven right.' But when the market tanked so did Motorola and other communication investments that nearly got wiped out, like his stake in most of the Internet start-ups; for a man of his size that may have been just some small change.
The overwhelming majority of his holdings are plunked down in three stock groups: media, technology, and banking (he owns about 150 million shares of Citigroup, or 4.4% of its stock, worth $8 billion, which is why he got the courtesy call from Collins). If you were to travel back to 1990 and pick three sectors of the world economy to invest in, you couldn't do much better than that. What makes this even more impressive is that Alwaleed is a value investor who bought what are really growth stocks when they were cheap. He didn't get suckered into metal producers, for instance--which have always looked cheap but have gone nowhere--or oil, about which the prince says he knows nothing. Did he zero in on tech, media, and banking by design? 'Yes and no,' says the prince. 'I really came to these groups because of the companies. I am always looking for the same thing: global companies with a brand name that are basically healthy but that have had a hiccup. That is what led me to these companies.'
What the prince really is, of course, a very successful portfolio manager. If you look at the world's richest men, they sort of fall into two camps. In one camp are the founders, like Gates and Dell, who have created their wealth from one great business. The prince falls into the second, which includes men like Buffett and Philip Anschutz, whose great skill is not managing businesses but deploying capital. This is what Prince says about deployment of the capital, 'I believe Citigroup is a $100 stock. The full potential of the merger has yet to take place. Also cost reduction. And when the markets begin accepting that Citigroup is a global bank not susceptible to small increases in interest rates, that it grows 15% to 20% every year, then the P/E multiple goes up from 15 to 20. I am patient. I have been hammered twice with Citibank, very badly. I'm a long-termer. I'm not a seller.' Remember, if the prince does hang on to all of his Citi stock, then for all practical purposes, where Citi's stock goes, so goes the prince's fortune. If Citi stock moves from $46 to $53, it would add about $1 billion to his net worth nearly wiping out the entire losses he made in his Internet investments. The Prince is not an insider and can therefore buy or sell anytime--which is partly why he chooses not to sit on any corporate boards-- The prince says he is delighted with Citi (interestingly, the bank has had strong ties to the Saudi royal family for decades).
One of the fictions of investing is that diversification is a key to attaining great wealth. Not true. Diversification can prevent you from losing money, but no one ever joined the billionaire's club through a great diversification strategy. Most often great wealth is created by making bold, concentrated bets. For instance, nearly half of the prince's $17 billion fortune sits in Citi stock. When a $1 billion chunk of Citi stock was traded, when Sandy Weill and his wife, Joan, had visited with Prince in Saudi Arabia, despite speculation of the Prince selling it was discovered that it was not Prince, as it would look very bad for Weill if the prince sold 18 million shares after a prolonged and private audience with Citi's co-chairman.
He is a shrewd investor but knows exactly how to spend his pennies. He is amongst the rarest of the rich who has broken the taboo of buying second hand luxury. Amongst the richest of the world, it is considered unethical to buy someone else’s second hand luxury but rich as he is, the Prince hates to pay retail. “I do not like to buy something that’s expensive,” the Prince explains. “Take my boat for example. I had this situation whereby this boat, this yacht was offered to me at a very inexpensive price. Basically at 20 percent of its value. And I wished to have a boat. And I was supposed to build a boat. So I aborted that concept and I just bought that boat.”
Like mostly everything the Prince owns, the planes, too, were bought at a deep discount. The Airbus from his pal, the Sultan of Brunei, who was in a cash crunch. The Boeing from Gulf Air, which was also in trouble.
Crowning the edifice: A dramatic opening 198 feet across, wide enough to accommodate the Prince’s Boeing 767, or even (by just a hair) his Airbus A340 — a jet airlines used to transport hundreds of passengers but that the prince uses only for himself and his family. The Prince doesn’t fly much — only about once a month, tops. But when he does, he does so in style. The Airbus, decorated by its previous owner, features wall-to-wall silk carpets and solid platinum trim, with custom-designed platinum cutlery to match. The Boeing’s interior is more subdued, accented in the Prince’s trademark colours, green and tan. Alwaleed himself approved its design, down to the flight attendants’ uniforms. And though he barely sleeps on land, much less in the air, the planes each feature a bedroom, just in case, along with a full-sized master bathroom, with shower.
Ah yes, the boat. Ocean liner is more like it. At 283 feet, it’s nearly as long as a football field and ranks as one of the world’s largest private pleasure crafts. It, too, came from the Sultan — by way of billionaire investors Adnan Kashoggi and Donald Trump. In the end, none of them could afford it —leaving the Prince to buy it at the fire sale price of just $19 million. Its replacement value now: $100 million.
From a nondescript, two-story building on the outskirts of Riyadh, Alwaleed runs his global empire. Staff of fewer than three-dozen professionals oversees his investments, his travel plans, and his image. Lest their mission ever be in doubt, reminders of the fruits of their labours — the logos of every brand in which the Prince has an investment — are everywhere; at his home, on the wall behind the Prince’s desk, on his boat and on his plane. Everywhere, also, are Television sets! An avid viewer, the Prince wants to know the moment the news breaks. It certainly seems reasonable to say that among members of the Saudi royal family, few have bought into America—literally—the way Alwaleed has. "You can quote me," Alwaleed says in a recent Newsweek interview responding to the returned-donation flap, "I am an ally of America." This is why it really was rather surprising to find him tacking onto his $10 million gift rhetoric that he must have known might spark a controversy.
Alwaleed is said to have favoured loosening things up a bit in his home country's famously closed and strict society, but at the moment he doesn't seem to be putting much emphasis on that as one of the "issues" in need of renewed scrutiny. It will be interesting to see how he proceeds from here. What Alwaleed has so far managed is the rare trick of being revered both as a prince of global investing and as an actual prince in the ruling Saudi family. If that was hard before, it looks like one royal challenge now.
Iqbal Latif
News 
Market Data 
Discover 
