One of the more interesting Texas billionaires is Ft. Worth’s Richard Rainwater. He cut his teeth in the big-time financial world by overseeing the tremendous increase in value of the Bass Brothers’ from 1970 through the mid-1980’s, including what turned out to be a very lucrative bet on the Disney Co. during that period. Rainwater then struck out on his own investing heavily in energy, real estate investment trusts, and health care and, as he put it several years ago, “I’m just a retired guy who made a couple billion by being in the right place at the right time.”
Maybe so, but Rainwater’s contrarian investment strategy has always been interesting to follow. Today, this Wall Street Journal ($) article reports on Rainwater’s latest investment — buying a 7.5% stake in battered telecommunications giant Global Crossing Ltd. in recent weeks as its share price plunged in response to new accounting troubles and possible delisting from Nasdaq.
News of Mr. Rainwater’s investment in Global Crossing along sent the company’s shares up $1.30 to $10.70 yesterday afternoon. The stock had lost almost 40% of its value in less than the past month after management announced that it might need to restate financial results for the past two years and that Nasdaq may delist the company.
Global Crossing was one the biggest stars of the telecom boom and its founders were big contributors to President Clinton’s second campaign. But the company slid into chapter 11 in 2002 amid the market downturn and questions about its accounting. It emerged from Chapter 11 in December 2003 with a cleaned up balance sheet, only to announce in late April that poor internal controls had led management to underestimate access costs by between $50 to &80 million for gaining access to other telecom networks. That led the company’s auditor — Grant Thornton LLP — to withdraw its audits and left the company in violation of the conditions for listing on Nasdaq. Inasmuch as such errors (particularly just after getting out of bankruptcy) do not exactly generate confidence in management, Global Crossing’s ability to obtain new financing is subject to serious question in the investor marketplace.
Nevertheless, that’s when Rainwater went to work, according to the WSJ article:

As some investors fled the stock, Mr. Rainwater turned a relatively modest investment into a large stake, according to filings with the Securities and Exchange Commission. Mexican magnate Carlos Slim Helu, already a major shareholder, added to his stake and now owns 9.9% of the company. Mr. Rainwater declined to comment on his purchases. The company’s other major stakeholder, Singapore Technologies Telemedia Pte. Ltd., has a 61.5% stake.

Mr. Rainwater owns three million shares, according to the filings. His holdings represent 13.6% of the company’s publicly traded shares. Between March 17 and May 11, Mr. Rainwater spent $24.4 million on Global Crossing stock, with the purchases accelerating in the past two weeks as the share price fell into the single digits.

The telecommunications industry has been one of the most perilous investments over the past decade. For a variety of reasons, the huge run up in value in most telecommunications companies during the late 1990’s has been followed by a plunge in value that appeared to have no bottom. Rainwater’s bet is the first positive sign for a battered industry in a very long time.