Sidebar: Dick Corbett's International Dream
Development deals can take a long time to work out. There's land acquisition, financing, permiting, sales and marketing. Not to mention 95 percent luck. Even so, Dick Corbett's International Plaza a 135-acre, mixed-use project planned at the intersection of Westshore Blvd. and Columbus Drive near Tampa International Airport has been a long time coming. First announced in 1983, the property received its DRI in 1985. Corbett has made little visible progress since, except for demolishing the Hall of Fame Inn, which was once on the site...With a no doubt impressive Rolodex of contacts and an equally impressive resume, Corbett found a position with Joseph P. Kennedy Enterprises in Manhattan. He spent a decade with the Kennedys, buying and selling real estate, making more contacts and setting up lucrative deals for himself on the side. During that time he hit the campaign trail with Robert F. Kennedy; "I was eight feet away from RFK when he was shot," says Corbett, pausing. "At that point, I left politics."
Corbett says he left Harvard in '64 with $5,000 in debt. Six years later, through shrewd real estate deals, his net worth was several million dollars. -- Bob Andelman
2. Very strange that Kemper Securities also ended up owning W.S. Farish's family's investment bank, Underwood Neuhaus, which was located in the Houston Club Bldg. for many years--the same building George Bush had his first Houston office in. This railroad runs through Mena, but I'm not sure how close it goes to Waco.
http://www.businessweek.com/2000/00_13/b3674024.htm Q&A with Kansas City Southern's Landon Rowland "Doing the same job better, and getting more people in the company involved"
Kansas City Southern is a company with a long and illustrious history. It was founded in 1890 by Arthur Stilwell, a New York State transplant who had worked at Travelers Insurance. As railroads' growth potential declined, the company invested heavily in financial services. In 1962, it bought TV Shares Management (later called SIS), a mutual-fund company, and merged it with Kemper Co. to become Kemper Financial Services, an independent company.
Kansas City Southern acquired Pioneer Western Reserve Life Insurance Co. in Denver in 1979. The company went on to acquire Janus Capital Corp. (l984), Berger Funds (1992), and Nelson Money Managers (1998), a retirement-planning consultancy. This month, Mutual Fund Magazine awarded the Janus Family of Funds its No. 1 ranking for fund families, with Berger Funds No. 2.
The railroad subsidiary is also innovative. When the Mexican government privatized railroads in 1997, KCSI bought a 49% interest in Transportacion Maritima Mexicana. Called "the NAFTA Railroad" by KCSI, the railroad links Mexico City and Laredo, Tex. According to analysts, this quarter the company should finally recoup its borrowing expense for the Mexican line, and the railroad will become profitable.
There are plans for KCSI's financial-services companies (Janus, Berger, DST, and Nelson) to be spun off into a new entity to be called Stilwell Financial Co. in a tax-free arrangement. The plan has been approved by the shareholders, the board, and the IRS, and is awaiting SEC approval.
Landon H. Rowland, 62, a former litigation attorney, joined KCSI 20 years ago. He became president in 1987, and chairman in 1997. He'll be chairman and CEO of Stilwell and nonexecutive chairman of KCSI. He spoke with Business Week's Ann Therese Palmer by phone on Mar. 2. Edited excerpts of their conversation follow:
Q: This is an unusual combination for a company -- a railroad and financial management. Why did Kansas City Southern originally acquire Janus and the other financial-management components? What did it do for you that other transportation companies don't have?
A: KCSI has been in the mutual-fund business since 1963. In the early l960s, Kansas City Southern concluded that the regulatory environment and capital returns in the railroad industry were very discouraging. There were better ways to create and realize shareholder value. The company invested in shares of a technology fund management company that had fallen on hard times. We changed the name to Supervised Investment Services and merged it with Kemper Insurance to create Kemper Financial Services, which we later sold.
Through our ownership of SIS, we realized that the mutual-funds industry had a critical technology deficiency and inadequate infrastructure to build and service shareholder accounts. We asked the data-processing people at the railroad, who'd just completed a complex accounting system, to create one for our mutual-fund customers. That team became DST, now the leading technology platform for mutual funds, which we sold to the public in 1985.
In 1984, we acquired Janus Capital Corp., the manager of Janus Funds. At that time, Janus was managing approximately $400 million. The principal attraction to us was its strength in down markets, as well as up markets.
Q: Why does Kansas City Southern want to now spin off its financial-management component? Why not the opposite -- spin off the railroad? A: It's important that we separate these operations to better realize the values created by the individual companies. Transportation and financial services have very different industry characteristics with different earnings and cash flow streams, and the need for very different equity compensation and capital programs.
We're spinning off financial services instead of the railroad because the railroad has regulatory and industry considerations that the financial-services side doesn't have. After much study, we concluded it would be easier to spin off the financial-services side.
Q: Why isn't Janus being spun off by itself, as some of the Janus employees want to do? A: The tax-free ruling by the IRS could only be secured if we had a clean separation between all financial services and all transportation businesses within KCSI. Such a separation would more nearly meet the emphasis on "fit and focus" needed to achieve the substantial financial advantages of the separation. We believed a spin off of Janus alone would have been more problematical.
Q: The financial services side of KCSI will be called Stilwell Management Company. It will comprised Janus, Berger Funds, and Nelson. What kind ofadditional value will Stilwell Management bring to the financial-asset-management side that isn't there now? A: First of all, the separation will deliver a lot of value for shareholders. Moreover, as a "pure play" Stilwell will be an attractive equity.
Once Stilwell is a stand-alone company, we will be able to focus on the opportunities open to a financial-services company free of the capital and regulatory risks of the railroad industry.
One of our objectives will be to support the continuing growth of Janus, Berger, and Nelson. Janus clearly has much more growth ahead of it. It's the global leader in asset management. The future of Janus is just beginning.
Q: What will the spin-off do for the railroad side? A: As a stand-alone, KCSI's transportation equity will clearly be seen as a unique railroad franchise with strong strategic placement as the core of the NAFTA rail network and exceptional, even unprecedented, opportunities in Mexico and Panama. The market volatility that often goes with financial services will no longer be a distraction to the railroad business.
Q: Janus is an equity-fund manager. When is it going to aggressively pursue bond management? A: That decision is up to the Janus management. Janus does have excellent fixed-income products. The difficulty with bonds is that bond funds generally don't do for investors what a direct investor in bonds can do better for themselves.
Q: Any idea when the spin-off will happen? A: SEC approval of Stilwell's filing is the last step needed to proceed with the transaction. Upon completion of SEC review, we expect to proceed expeditiously to complete the separation.
Q: In general, why has the company performed so well in the last three years? What's driving your growth? A: The company has been performing so well for [three] reasons. First, at the beginning of the early l990s, we sold off everything except ourfinancial-services and transportation segments to achieve focus on these core operations. Concentrating on just two segments has been easier than working with telecommunication franchises, TV stations, and fiber businesses.
Second, the management of our subsidiaries in financial services and transportation have positioned their operations extremely well to participate in current markets. These mangers are principally responsible for KCSI's outstanding results. Our management policy has been to focus on finding good people and letting them run their businesses. We're there to support them in growing these businesses.
Finally, the strong economy has helped.
Q: KCSI had the third-highest net-income growth over the last three years of all of the companies on Business Week's list. Why? A: It's the result of the extraordinary performance in these extraordinary markets of Janus and our other financial-services investments. The performance of our railroad investment in Mexico has also helped.
Q: What has KCSI done that distinguishes it from its other transportation-sector competitors? How has this impacted the revenues, earnings, and other key indexes -- return on equity, margins, and stock performance for the past three years? A: Kansas City Southern Railroad is the core of the new north/south NAFTA rail network. This strategic position makes our railroad a unique franchise.
TFM, the Mexican railroad investment, has experienced remarkable improvements in revenues, up 22% in 1999. In earnings, it's gone to a $4.1 million profit in 1999 from a $7.3 million loss in 1998, and in operating ratio improvement from 85.5% to 76.6%.
Q: Are you planning any acquisitions this year? A: In Panama, we were approached by the government to rebuild the railroad across the country and link the two sides of the isthmus from the Atlantic to the Pacific. We have a 50-year concession. This railroad will primarily service the booming transportation opportunity in Panama. Containerization of traffic has revolutionized the shipping business. Seventy percent of the cargo at the Canal's terminals is in containers that is unloaded from one ship and loaded on to another one.
We've also just acquired Gateway Western, which will provide us with access at St. Louis to eastern carriers without the congestion of the St. Louis Terminal. It's a major advantage and an enhancement of our strategic network.