BUSINESS

THE BILLIONAIRE PRINCE WHO OWNS CANADA’S TREASURES

For the man who runs most of our great hotels, it’s the next deal that matters

STEVE MAICH July 24 2006
BUSINESS

THE BILLIONAIRE PRINCE WHO OWNS CANADA’S TREASURES

For the man who runs most of our great hotels, it’s the next deal that matters

STEVE MAICH July 24 2006

THE BILLIONAIRE PRINCE WHO OWNS CANADA’S TREASURES

BUSINESS

For the man who runs most of our great hotels, it’s the next deal that matters

STEVE MAICH

There’s no preparing for the world Bill Fatt walked into when he touched down in Riyadh seven years ago, and came face to face with the prince for the first time. He was there to do his duty as CEO of Canada’s Fairmont Hotels and Resorts, paying an obligatory call on Saudi Arabia’s most prominent citizen—the world’s fifth richest man, with a personal fortune of US$24 billion—who also happened to be his company’s most important new shareholder.

Fatt was braced for the same old questions that big investors always ask of executives: costs? asset sales? strategy? Money men always want to know what the CEO is doing to make them even wealthier. For most executives, such encounters are like trips to the proctologist-uncomfortable, and often a bit degrading. But, as Fatt would soon discover, there’s nothing typical about Prince Alwaleed bin Talal bin Abdul Aziz Al-Saud.

Their first meeting took place over lunch at Alwaleed’s 317-room, 400,000 sq.-foot palace in the middle of the city. Those who’ve seen it say the 20-foot waterfall fountain is perhaps its most striking feature, or maybe it’s the opulent foyer with the 75-foot ceiling, or the marble, Olympic-sized indoor swimming pool, or the Astroturf soccer field. Hundreds of televisions and millions of dollars in furniture and artwork are kept spotless by a staff of more than 150. The spread cost US$130 million to build in 1999, but that was before the latest oil boom sent another wave of development sloshing through the kingdom.

Over lunch, Fatt quickly warmed to his host’s deep understanding of hotels in general and Fairmont in particular. He talked about branding, opportunities for growth around the world, and asked Fatt about his ideas for the future. When he tired of talking shop, the prince decided to show off some of his favourite toys. Out came a handler with about a dozen trained hunting falcons. Fatt

listened in amazement as the prince eagerly described his sleek raptors, and finally revealed their equally-astonishing price tag: about US$250,000 each, plus upkeep. “Clearly, this is not like having a business lunch at the Toronto Club,” Fatt deadpans now.

But if Fatt was impressed then, it wasn’t until just a few months ago that he came to

fully understand the power of his new ally. In May, Alwaleed pulled Fairmont from the clutches of corporate raiders intent on taking over and tearing apart the venerable hotelier. He completed a US$3.9-billion deal to acquire all outstanding shares of Fairmont and merge it with Colony Capital’s Raffles chain. Overnight, Alwaleed vaulted himself from passive investor to heavyweight status in the leisure and travel business, and in the process, he put Bill Fatt in control of a global powerhouse with 120 upscale properties in 23 countries, including London’s Savoy hotel and the George V in Paris, not to mention management of several of Canada’s most iconic

properties: the Banff Springs, Toronto’s Royal York and the Château Frontenac to name a few. On top of that, Alwaleed holds a 25 per cent stake in Canada’s other luxury hotel brand, Four Seasons.

But all that could be about to change yet again. Just a few months after cementing his position atop the Canadian hotel business,

the prince has put much of Fairmont’s real estate on the block. Sources say his plan is to turn the business upside down one more time, converting Fairmont into a pure hotel management company, turning the physical assets and land over to other investors in a bid to raise close to US$3 billion to pay off debts.

The whole dizzying dance has financiers around the world looking again for insights into the enigmatic prince. Billionaire, philanthropist, technophile, media baron and even amateur diplomat, he seems a perfect embodiment of his kingdom of contrasts—where devout faith and obscene wealth maintain an uneasy coexistence. Saudi Arabia is, after

all, a place where the professional classes cruise the streets in luxury cars and watch North American sitcoms downloaded from the Internet, but where women are still prohibited from getting behind the wheel and serious crimes are punishable by public beheading. Perhaps it’s only fitting that the face of the modern kingdom is a faithful Muslim, educated in the U.S., who prays to Allah five times a day, but is equally steeped in the gospel according to Warren Buffett.

He’s hardly the stereotypical Saudi sheik, in other words—he’s as activist and internationalist as most of his countrymen are conservative and insular. And he won’t be satisfied until he has not only conquered the world of business, but changed the perception of what it means to be wealthy and Arab.

RAMSEY MANKARIOUS is one of the rare few who have been admitted to the prince’s inner circle. His adventure began in 1995. He was 27, and already a successful hotel consultant in London, when he was summoned to Riyadh to meet with the prince.

He flew in the night before his meeting, and at six the next morning, he woke up, put on a suit and tie, ate breakfast and waited for a call. An hour went by. Then two. Then five more. Finally, at around dinnertime, the phone rang. It was Alwaleed’s assistant. The prince would meet him at 10 that night.

After 16 hours stewing in his hotel room, Mankarious was escorted into a darkened office where the prince sat behind a black

lacquered U-shaped desk with television screens inset, tuned to American news stations. The prince started firing questions. Every few minutes, one of his phone lines would ring and he would answer, signalling Mankarious to keep talking, as if he could keep up two conversations at once.

The interrogation went on for two hours. Finally, the prince declared that the young man would come and work for him, managing his hotel investments. It was less an offer than a statement of fact. “I asked what my salary would be and he just waived his hand, ‘we'll work that out later.’ ” Still, he took the job, agreeing to uproot his life and move to Riyadh. “Sometimes you just click with someone and you know immediately,” he remembers now. “He gives you a buzz, it’s

AT HIS DESERT CAMP, HIS GUESTS FEAST BEFORE LOG FIRES AS TRIBESMEN READ POETRY IN HIS HONOUR AND‘COURT JESTERS’TELL JOKES

hard to explain. Right away I knew he wasn’t the typical Gulf investor. Usually those guys are rich by birth or by oil, and they’re not the sharpest tools in the shed. The prince was very Western in his attitude. Aggressive but not at all condescending.”

With that, Mankarious took his first step into a new universe, with the prince at its centre. Alwaleed’s small team of about 40 advisers and managers lived by the peculiar rhythm of his schedule: work from noon to about 5 p.m., then home for a meal and a rest, and back to the office at 8 p.m. to work until sometime between midnight and 2 a.m. Not only did this accommodate the prince’s odd sleep schedule, it allowed the company to communicate directly and

easily with all major markets in the world— North America, Europe and Asia.

He soon learned that the prince was obsessed with details, and had little patience for mistakes. When properties were acquired and remodelled, he would get deeply involved, weighing in on such matters as the colour of toilet seats and the wallpaper patterns. When Mankarious would fax a memo or document to head office for a signature, he would frequently get a fax in return a few minutes later, with spelling and grammatical errors circled. “He expects perfection. He’s very demanding, but he never yells. He doesn’t have to. When he’s upset, you just know it. He also never told you ‘good job.’ He’d just find a way to let you know.”

If Alwaleed was a tough boss, however, the constant adrenalin rush of multi-milliondollar deals and the lavish lifestyle more than made up for it. On weekends, the prince and his closest associates would retreat to his desert encampment about an hour north of Riyadh. The dozens of mobile homes and air-conditioned tents were served by massive satellite dishes so the boss need never be without his ubiquitous televisions, telephones, and computer connections. In the evenings, courtiers built massive log fires so the prince and his guests could feast under the stars while listening to nomadic desert tribesmen read poetry in his honour, and beg for handouts.

When travelling with the prince, it was aboard his flying palace: a customized 767, which has since been upgraded to a plush 747In the summer, Alwaleed spends a few weeks moored off the coast of Cannes on his 283-foot yacht, complete with a crew of 34 and helicopter pad should the need arise for a quick trip to Paris. He bought it several years ago from Donald Trump, for US$19 million. It’s essentially a floating mansion, but he needs the room. Alwaleed generally travels with an entourage that includes a coterie of business associates, a secretary, a man in charge of communications, a photographer to record his every

move, bodyguards, and a couple of guys whose only responsibility is to tell jokes and keep the atmosphere light. “The court jesters we’d call them,” Mankarious says. “They were usually Bedouin guys, nice guys who could make the prince laugh. They wouldn’t be around when we were doing business, but at night when we’d relax they’d be there. That’s how he likes to unwind, with people around that he enjoys listening to.”

This is the life of a prince, but it wasn’t exactly the life Alwaleed was born into.

THE OFFICIAL VERSION of Prince Alwaleed’s ascent to billionaire status goes like this: clever young man returns to the kingdom in 1980, with an American education and his family’s connections, but not much else. His

father gives him US$30,000 and a house in Riyadh to get established. The young prince promptly mortgages the house for $300,000, and uses the money to set himself up as a real estate speculator and consultant to foreign investors who need help navigating the kingdom’s closed economy and complex local administration—all for a reasonable commission, of course.

Flash forward to 1990, when the young prince abruptly appears among the heavyweights of international finance. The giant U.S. bank Citicorp had run into tough times, and was in desperate need of a capital infusion when an unknown Saudi royal named

Alwaleed stepped forward with a life-saving investment of close to US$800 million. That one purchase has since grown to more than US$10 billion, not including dividends, and stands as the centrepiece of the prince’s US$24 billion fortune, as well as the key to his legend.

Others scoff at this official version. For one thing, Alwaleed is a relatively minor royal with a tenuous link to the upper reaches of power and wealth in the kingdom. He’s one of hundreds of grandsons of Abdul Aziz bin Abdul Rahman, the man who founded Saudi Arabia in 1932. That makes him more like a distant leaf on a royal family tree with more than 30,000 members. So how does Alwaleed, acting on his own, with no direct access to the kingdom’s massive oil riches, go from a

borrowed $300,000 nest egg in 198O to a billion dollars in cash on hand to invest in Citicorp ll years later? Whispers persist that he is merely the respectable public face of a much larger group of Saudi investors eager to avoid the scrutiny of prying Western eyes.

The prince denies this, and insists that his fortune was made through savvy investments. He is fond of telling reporters that his is a “Warren Buffett-type operation,” a reference to the legendary U.S. investor. He and his advisers describe a strategy in which they seek out companies with strong global brands and good management, which have fallen on hard times and can be bought on

the cheap. It’s a strategy that made him billions on Citigroup, and provided huge scores on Apple Computer (in which he invested in 1997), Rupert Murdoch’s NewsCorp., and the Reichmann family’s Canary Wharf development in London.

But like everything with the prince, reality doesn’t always mesh with the rhetoric. Some who’ve worked for Alwaleed complain the master financier can be unreasonably tight-fisted, sometimes arguing for days over relatively minor expenditures like a few thousand dollars in salary or perks. More significant is the fact that Alwaleed has frequently strayed from his Buffettesque principles, to disastrous effect. He has taken wellpublicized beatings on multi-million-dollar investments in WorldCom, EuroDisney and

Planet Hollywood, among others. His most famous misstep came in the spring of 2000, when he loudly proclaimed his enthusiasm for Internet stocks, just as the dot-com craze was reaching its manic climax. Five months later, after pouring huge sums of cash into a slew of dot-coms, his losses were in the hundreds of millions and Bloomberg News dubbed him “the current reigning champ as the Greatest Fool” on Wall Street.

SO IS ALWALEED a business savant, or a guy who made a couple of lucky bets and has been living off them ever since? Either way, the fact remains the prince is a force to be reckoned with on world markets—a point driven emphatically home recently.

It was Nov. 7 when Bill Fatt picked up the phone and saw his life’s work begin to unravel. Carl Icahn, the infamous American investor known as one of the world’s most feared corporate raiders, was putting in a courtesy call to let Fatt know he’d set his sights on Fairmont. The stock had been lagging, management’s strategy seemed stalled, and Icahn had acquired about 10 per cent of the stock. He intended to use his investment to force Fairmont to sell to some other major hotel chain.

The next day, Icahn announced his investment, and the vultures immediately began to

`ONCE YOU HAVE $6 BILLION, HE SAID, THE MONEY DOESN'T MATTER. "WHAT AM I GOING TO DO, EAT FISH ENCRUSTED WITH DIAMONDS?"

circle over Fairmont’s Toronto headquarters. Icahn’s move had put the company “in play,” and a month later he made it official: he was offering $40 per share to gain control of the company. Fatt lashed out, calling Icahn one of the “least-attractive aspects of American capitalism” and dismissing his takeover bid as “coercive.” By late December, 17 other potential buyers had emerged, but only one had the money and inclination to save Fairmont from the predators who would rip it up for spare parts.

Fatt knew the prince had a soft spot for Fairmont, and had shown an unusual willingness to use his personal wealth to help it. Earlier in 2004, for example, he met Alwaleed in New York and confided that it would take the company years to build its franchise in

Europe, where it lacked brand recognition and faced soaring real estate values. “He said, ‘That’s something I think I can help you with,’ ” Fatt remembers. A few months later, Alwaleed bought London’s historic Savoy hotel for $467 million. Then came the purchase of the Monte Carlo Grand in Monaco. Fairmont took over management of both properties and suddenly had its muchneeded toehold in the European market.

But with Icahn threatening, Fatt would need a much bigger vote of confidence this time. In Riyadh, Alwaleed greeted the news of Icahn’s takeover bid with calm resolve. Sources close to the prince say he quickly

decided he had no intention of selling, nor would he sit back while others fought over a company he regarded as his own. On Jan. 9, Alwaleed and his partners Colony Capital notified Fairmont they would be bidding $45 a share, about $3.9 billion in cash, for the entire company. Game over.

The whole encounter stands as a demonstration of the immutable law of nature in big business: he who holds the biggest bankroll calls the shots. Icahn was crushed, but there were no hard feelings. Conservative estimates suggest that two months of sabre-rattling, stock trading and lawyers’ letters yielded Icahn close to US$70 million in profit. “I happen to know Mr. Icahn was extremely pleased with how things turned out,” Fatt says. “In fact he offered to buy me dinner at his favourite

New York restaurant to celebrate.”

Did Alwaleed overpay for Fairmont? Did his exuberance and his belief in Fatt overwhelm investment discipline? Maybe—before the prince came along with his bid, the company was struggling with weak results at several of its hotels. Slow progress on asset sales had resulted in a sharp drop in earnings, and a tepid outlook for international travel had investors fleeing the industry. But the prince isn’t one to trouble himself with the petty sniping of his critics. He regards the hotel business as his entré into high society in the world’s major cities. These are places where people meet,

dine, get married. They are homes away from home for the international jet set.

And so, Fairmont remains a work in progress—an ever-evolving project to feed the prince’s obsessive love of the deal. To that end, Alwaleed’s Kingdom Floldings recently signalled plans to sell many, if not all, of Fairmont’s real estate, to focus exclusively on hotel management. Last week, he took a first step, selling the Fairmont Scottsdale Princess resort and adjacent land for US$360 million, maintaining branding rights and a management contract.

All this constant wheeling and dealing has led some to dismiss Alwaleed as nothing more than a dilettante, living out a real-life game of Monopoly. But his friends insist the prince is driven by more substantial desires. “He

WHAT’S NEXT? WORLD PEACE. HIS BIGGEST MISTAKE? CRITICIZING THE U.S. AFTER 9/11. SUDDENLY, HE WAS JUST ANOTHER ARAB WITH A BIG BANK ACCOUNT.

told me once that it wasn’t really about the money,” Mankarious recalls. “He said, ‘Once you have $6 billion, the money doesn’t matter anymore. What am I going to do, eat fish encrusted with diamonds?’ ” How he arrived at the $6-billion figure is anyone’s guess, but in recent years Alwaleed has finally begun to explain that grander vision. While Bill Gates and Warren Buffett pledge billions to eradicate malaria and put more computers in schools, Alwaleed has set for himself a rather loftier objective: World Peace.

ONE MONTH AFTER the 9/ll terrorist attacks levelled the World Trade Center, Prince Alwaleed travelled to New York carrying a US$10million cheque for the Twin Towers Fund for

victims’ families. He accompanied mayor Rudy Giuliani to Ground Zero, looked out across the still smouldering ruins, and offered his condolences and his donation. By that night, the gesture would turn into the biggest embarrassment of his life.

Never one to pass up an opportunity for publicity, Alwaleed issued a press release expressing his sadness and announcing his gift. But rather than opt for a safe statement of mourning, he veered horribly off course, into an ill-conceived lecture on American foreign policy. “At times like this one, we must address some of the issues that led to such a criminal attack,” the release said. “I believe the government of the United States of America should re-examine its policies in the Mid-

dle East and adopt a more balanced stance towards the Palestinian cause.”

For a man who prides himself on his Western sensibility and keen diplomatic instincts, it was an astonishing miscalculation. Giuliani angrily and publicly rejected the donation, and the prince was cast on nightly news shows as just another Arab with a big bank account and a hate-on for America. The commotion faded soon enough, but if anything, the humiliation of 2001 only hardened the prince’s determination to wade into politics and international relations—a compulsion that seems etched into his genetic code.

Alwaleed’s father, Prince Talal, is the maverick reformer of the royal family. Back in the 1950s, Talal campaigned for greater civil liberties, even going so far as to help draft a constitution and call for the devolution of powers to an elected body. His efforts

earned him the nickname “Red Prince” and two years of exile in Egypt.

Though he is careful never to directly antagonize the ruling clique, Alwaleed has taken up many of the themes that his father championed decades ago. In public, he lauds the kingdom’s baby steps toward greater democratization, including last year’s first-ever municipal elections. Last year, he also hired a woman to be his personal pilot. Gestures like that are barely noteworthy in the West, but in a country where women have virtually no standing, the prince’s declaration that he is “in full support of Saudi ladies working in all fields” was astonishing.

More recently, Alwaleed has dedicated himself to a high-profile campaign to mend

relations between Saudis and Westerners. In 2005, he gave US$20 million to Georgetown University to support its Center for MuslimChristian Understanding, the second-biggest donation ever received by the university. He followed up with another US$20 million to Harvard, for its Islamic Studies department. He also gave US$15 million to establish departments of American studies at universities in Cairo and Beirut. Weeks later, the Louvre received a US$20-million cheque, the biggest single private donation in the museum’s his-

tory, to help establish a new gallery to display its collection of Islamic art.

All this, the prince says, is part of his mission to promote cross-cultural peace, love and understanding, and to promote the true meaning of Islam, “a religion of humanity, forgiveness and acceptance of other cultures.” As always, there are plenty of skeptics. To them, his insensitivity in the wake of Sept. 11, and his promotion of virulent anti-Americanism on his cable news channel al-Resalah, are proof that beneath the artifice of friendship, Alwaleed is just another Saudi ideologue whose support of the West begins and ends with his interest in the almighty dollar.

But even in today’s polarized world, US$24 billion can buy a lot of goodwill, and Alwaleed remains in the market. And there is certainly no shortage of distractions to feed his obsessive pursuit of the next deal, while he waits for his investments in peace and understanding to take hold. For one thing, there is hotel real estate to sell, lots of it. Perhaps some worth buying, too. He’s still planning to issue shares in his company on the Saudi stock exchange. He recently bought a US$390-million stake in the Bank of China, spreading the reach of his international empire even further. And there has been talk that his good friend Rupert Murdoch may be ready to buy a stake in Alwaleed’s Arabic media giant Rotana. He has even mused about an English-language cable station aimed at better representing the Islamic world to Americans.

Will it ever be enough? Those who know him best aren’t betting on it. “I remember calling him once and telling him, ‘Congratulations, you own the Monte Carlo Grand hotel,’ ” Mankarious remembers. “This was a huge, important deal. And we’d been working hard on it for weeks. All he said was, ‘Good, where are you going now? What’s next?’ ” In the prince’s world, that is always the question. M