NEW YORK (AP) — Theodore J. Forstmann, a longtime Wall Street financier who was a major player during the wave of corporate takeovers in the 1980s, including the battle for RJR Nabisco in 1988, died Sunday at the age of 71.
The cause was brain cancer, according to a statement from sports marketing giant IMG, where Forstmann served as chairman and CEO after acquiring the company in 2004.
A pioneer of the leveraged buyout business, celebrity bachelor and free market proselytizer, Forstmann cut the figure of a swashbuckling risk taker. But in buying companies, he tended to be more careful and conservative than did rivals. Famously, he backed down from buying RJR Nabisco when the price got too high. His instincts turned out right. The winner, Kohlberg Kravis Roberts, struggled for years to wring profits from the company.
Forstmann was the senior founding partner of investment firm Forstmann Little & Co., one of Wall Street's most successful specialists in leveraged buyouts, deals financed mostly with debt. The company completed dozens of such deals to purchase a wide array of companies, including Dr. Pepper, baseball card maker Topps, Gulfstream Aerospace and Ziff-Davis Publishing.
Forstmann Little's leveraged buyouts generated lofty returns for its partners and outside investors, which included many corporate pension funds.
In a 1996 interview with The Associated Press, Forstmann said his interest in deal-making was sparked in childhood, while reading a biography of Howard Hughes. "This guy loved doing deals," Forstmann said of Hughes.
Forstmann earned his undergraduate degree from Yale University, and his law degree from Columbia University. He spent some time as an attorney before establishing Forstmann Little in 1978, with his brother Nicholas and then-partner Brian Little.
Forstmann's first takeovers were small ones, as he only had so much money to spend. Things picked up as the 1980s unfolded and the firm's successes brought in more investors.
"I never went to business school. I was basically never in an investment banking firm worthy of mentioning," Forstmann told the AP. "I've always been a guy who had ideas."
He was often seen with celebrities, and dated a few, too, although he never married. Two names romantically linked to him: Elizabeth Hurley, the model and actress, and Padma Lakshmi, the TV host and cookbook author. He was also a big Republican party supporter. He wanted free markets to help reform education. To help bring market-based solutions in government, he helped fund the education of "Forstmann Scholars" at the Pepperdine School of Public Policy.
Forstmann was a complex, brilliant person who was the quintessential entrepreneur, said Michael Dolan, IMG's president and chief operating officer.
He would remember numbers for years and had the ability to spot a company's potential, no matter whether it marketed athletes or made aircraft or soft drinks, Dolan said Sunday in an interview with the AP.
"He had no problem jumping into an opportunity," Dolan said. "That's what makes an entrepreneur, someone who sees something that other people don't see and says 'I'm going to go after this.'"
Forstmann eventually became a big critic of the industry he helped create. In the late 1980s, he lit into rivals for the risky way they financed their acquisitions. They would borrow money from investors in junk bonds. Those bonds are IOUs issued by the riskiest companies.
Later, he complained that there were simply too many people in the takeover business. The result: Buyout firms were paying sky-high prices for their targets to beat competitors, and so might have trouble wringing profits out of the deals.
He turned out right again — but maybe not in the way he imagined. In the tech mania of the late 1990s, Forstmann himself ended up overpaying for two firms — XO Communications and McLeodUSA. Both eventually filed for bankruptcy.
In 1988, Forstmann made clear his distaste for dealmaking greased by junk bonds. The AP quoted him as saying, "Today's financial age has become a period of unbridled excess with accepted risk soaring out of proportion to possible reward.
"Every week, with ever-increasing levels of irresponsibility, many billions of dollars in American assets are being saddled with debt that has virtually no chance of being repaid," he said.
During the furious bidding for RJR Nabisco Inc. in the fall of 1988, Forstmann's protestations about the rampant use of expensive junk bonds — which carried interest rates sometimes as high as 18 percent — were ignored. Rival takeover firm Kohlberg Kravis Roberts ended up buying RJR in what was then the biggest takeover in U.S. history.
KKR's $24.5 billion purchase of the food and tobacco giant was announced in November of that year after a bidding brawl that some considered a symbol of corporate gluttony. That deal saddled RJR with enormous debt.
For all of 1988, the dollar amount of mergers and acquisitions financed largely with borrowed money totaled more than $200 billion.
International Management Group (IMG), a sports and celebrity management and marketing firm that has represented Tiger Woods, Joe Montana and Derek Jeter, was sold to Forstmann Little in a cash deal valued at more than $700 million.
When Forstmann bought it, the company was mostly representing professional athletes. But Forstmann saw the potential of college sports, diversifying IMG into licensing college athletic programs for apparel and other uses.
Forstmann also saw growth potential in China, India and Brazil, forming joint ventures to set up a basketball league in India and motor sports and soccer competition in China.
Forstmann, who cited Nelson Mandela and Abraham Lincoln as his heroes, was a philanthropist and co-founder of the Children's Scholarship Fund in 1998, which focuses on helping parents send their children to schools of their choice.
He was also a director of the International Rescue Committee and helped establish a medical program for war-injured children in Bosnia. He was a trustee of the Nelson Mandela Children's Fund and also served on the board of directors at Freedom House, Empower America, the Robin Hood Foundation, the CATO Institute, and the Preventative Medicine Research Institute.
He signed "The Giving Pledge" earlier this year, in which America's wealthiest people pledge to give away at least half of their fortunes. Forbes estimated Forstmann's net worth at $1.8 billion as of September 2011.
He is survived by his adopted sons Siya and Everest, and his siblings: J. Anthony Forstmann, John Forstmann, Marina Forstmann Day and Elissa Forstmann Moran.