By JASON BOOTH
For over 20 years, Michael Tennenbaum was one of Wall Street's most important players in Los Angeles, running the West Coast investment banking operations of Bear Stearns & Co. out of its Century City offices.
In that capacity, he helped MGM Grand raise more than $1 billion for its Las Vegas development projects and advised the state of California on the privatization of Blue Cross of California. Tennenbaum also advised billionaire Kirk Kerkorian on various investments, including his purchase of a major stake in Chrysler Corp.
Two years ago, Tennenbaum left Bear Stearns to set up his own shop, Tennenbaum & Co. LLC, which specializes in seeking out and investing in financially troubled companies that can be restructured. So far, the firm has taken stakes in engineering firm ICF Kaiser International, San Diego real estate firm Mission West Properties (which it later liquidated) and more recently Whittaker Corp., a Simi Valley-based aerospace company.
Besides his investment activities, Tennenbaum has served as an advisor to Mayor Richard Riordan on the city's financial matters and is chairman of the recently re-formed California High-Speed Rail Authority, which is studying the potential of a high-speed rail link between Los Angeles and San Francisco.
Question: Your eyeglasses and hand-shaped office chair are not exactly typical for an investment banker. Are you considered eccentric?
Answer: My wife and I bought a coffee table that was supported by two carved hands from a sculptor in Malibu. I liked it a lot and asked if she could make me a chair like that. So she told me to hold up my left hand and she sketched it. I'm individualistic, I'm not eccentric. Eccentric people do crazy things. I just march to my own tune. I always have. If an advertising company has a giant pair of binoculars in front of their building, people say it is creative. I have a carved hand in my office. We also have to be creative in what we do, in the deals we structure.
Q: You've been working in the L.A. investment community for a long time. What's changed?
A: Only in the last 20 years do you have big transactions that are done entirely in L.A., with both the investment banker and the corporate attorney here.
When I moved out here 22 years ago, people thought I was crazy. They said I was leaving Wall Street for the hinterlands. Back then if someone had a proxy contest or a big takeover in Los Angeles, they would go to New York for counsel. They didn't feel they could use local lawyers, much less investment bankers.
Q: You have recently increased your firm's equity stake in Whittaker to 7 percent. What's the attraction?
A: Their most interesting business is that they make high-temperature valves for jet engines. Their valves are in most jet engines that are made. As long as jet engines are used, they have to replace those valves on some sort of a scheduled basis. So they have this fabulous business where they have this factory in Burbank which is in operation 24 hours a day with a huge inventory, and when someone needs something for their jet engine they sell it to them. It is very profitable.
Q: Considering your investment in Whittaker, are you optimistic about the health of aerospace in general?
A: I think the jet engine is one of the most remarkable achievements of modern technology. It should be ranked with the computer. It has shrunk the world.
And there are big parts of the world that do not have adequate air service. Asia has fundamental strengths and they are going to come back and buy lots of planes. And then there is all of Eastern Europe that needs to be re-equipped when they get their act together. And we haven't even talked about Latin America and Africa.
It's a big world out there, and there really aren't that many jet planes once you get out of the more mature economies.
Q: As far as Los Angeles' home-grown industries, anything you particularly like?
A: There are huge industries here that are going through a lot of change, like the aerospace and health care industries. That gives tremendous opportunities for people like us. We want to participate in businesses we understand. There are other industries such as apparel and filmmaking that we don't understand.
Q: As an investor, what do you think about the business climate in Los Angeles?
A: I chaired a committee for Mayor Riordan a few years ago looking at the city's finances. It was a distressing experience because of huge infrastructure needs that had been deferred for years. We have a high tax climate. We have a utility that charges more for industrial clients. There are all sorts of financial incentives for business to get outside the city limits. The mayor has changed the environment in some regards, but the numbers are still not encouraging.
The city has to change the way it is governed. Charter reform is very important. I think 40 different people report to the mayor. It is very hard being a manger with 40 different people reporting to you. And the really bad news is that these same 40 people report directly to the City Council. It's a mess.
Q: What else are you working on?
A: We are looking at investments in France. We think prices and financing over there are more favorable than in the U.S. So we have teamed up with some of the leading universities in France. We are looking for manufacturing companies that we feel could be managed better. We hope to use our university relationships to find management replacements. And we are going to give one-fourth of our profits to one of the universities over there.
That sort of thing is usually not done in France. People don't have tax deductions for charity and they tend to view the state as the ones who are supposed to provide this kind of thing.
Q: You were involved in a number of big deals with Kirk Kerkorian. What do you think is his greatest strength as an investor?
A: Far sightedness. He sees everything a couple of years early. He's amazing that way. Three different times he built the largest casino in Las Vegas. He was a pioneer in the jet transportation business. He understood the value of the movie companies before anyone else. His Chrysler investment is just amazing. In our little fashion here, we see some value and we buy it. But usually we see it going from 10 to 20 and we're pretty happy. Chrysler has been an open-ended play for Kerkorian. It just gets better every year he has it.
Q: What is the most exciting investment you were involved in?
A: We were trying to raise money for MGM Grand, but we were having trouble selling it to investors. And Kerkorian (who controlled MGM Grand) refused to help in the marketing effort. So I hired a film producer and made a movie out of Kerkorian's life and sent it out to potential investors as part of the marketing effort. Most people are not aware of his great business achievements. He wasn't happy with me after that one. He's really a very modest guy, but that's what we had to do to get the deal done.
Q: You yourself were an investor in MGM Grand. Do you still maintain that investment?
A: No. But I did invest in the company when we were trying to raise money for them. Most of the time, when we were trying to raise money for companies I would put my money in to show investors that I had confidence in the deal. People still tell me that when they heard that I had put my own money in, they had become more interested.
Q: Looking back, what do you consider the best investment you ever made?
A: Common stock of the airline PSA. After we took the company public in 1986, we couldn't get institutions to support it. So I bought the stock. I supported it because I believed the company could be sold. And only five months later, the company was sold and I made a 150 percent profit.
Q: What do you think is the most exciting industry in Los Angeles in terms of investment opportunities?
A: Health care. It is one of the largest industries in the area and it is going through a second revolution. The stocks of three of the biggest physician management companies are down 80 percent. Billions of dollars have been lost. This is exactly what we like. It is big and it is in trouble. If you can predict what will happen in the future you can make a lot of money.
Q: You were with Bear Stearns for 32 years in all. Has your lifestyle changed much since you set out on your own?
A: For 30 years at Bear Stearns it was a very complicated, demanding job. I worked long hours. But the last two years at Bear Stearns, I took it easy. I got stale. I didn't know what I wanted to do. I told the management the way I felt and they were very understanding. So I took time off to read, ski and scuba dive, but that made me bored. So when I started my own company, I started to work very hard again.
Q: But you still find time to serve on the boards of the Boy's and Girls Club of America and other charity groups.
A: Anyone who works at this company has to do community work of some kind. I think it is really important. I think the best explanation for this came from Warren Buffett, who said that some of us are born lucky, healthy and with decent skills. Others are unlucky. So we have to be considerate and share some of what we have.
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