Naked City

Dallas multimillionaire investor Tom Hicks

Last week, Richard Suttle, a lawyer who represents Stratus Properties, wrote a letter admonishing the Chronicle to "check for accuracy" of information in our Dec. 1 issue about the "ownership and control" of Stratus Properties, a Freeport McMoRan spinoff which owns several large tracts of land in the Barton Springs watershed. The story stated that Olympus Real Estate Corporation, an affiliate of Dallas multimillionaire investor Tom Hicks' leveraged buyout firm Hicks, Muse, Tate & Furst, was apparently in control of the company.

Although Suttle claimed to be interested in truth and full disclosure, his letter shed no light on the questions of ownership and control. Instead, the letter underscores an ongoing question about the city's settlement negotiations with the company. That is: Who is the city really dealing with?

Suttle suggested we examine Stratus' filings with the Securities and Exchange Commission. We did. Alas, just like Suttle's letter, they are opaque. The largest stockholder in the company is Ingalls & Snyder, a New York City-based investment management firm which holds 19.6% of Stratus' equity. And for whom is the firm holding those shares? Thomas Boucher, the managing director of Ingalls & Snyder, said the firm holds the stock for individual investors, not institutions. But he would not name the individuals. Boucher said Ingalls & Snyder gets quarterly updates from the company's management about the latest issues, but it does not have voting authority over the shares. "There are some great assets here, but we are not involved in the day-to-day management or strategic management" of Stratus, he said.

Another 5.3% of the company is owned by Goldman, Sachs & Co.; again, presumably on behalf of other investors. The Guardian Life Insurance Company owns 6%. Robert A. Day, chairman of Trust Company of the West and a member of the board of Freeport-McMoRan Copper & Gold and McMoRan Exploration, owns 5.2% of Stratus' stock.

It's important to note, also, that owners of less than 5% of the company's stock do not have to file notices with the SEC. Therefore, Hicks, Olympus, Freeport CEO Jim Bob Moffett, or some other entity could each have blocks of stock consisting of 4.9% of the company; or they may own the stock at Ingalls & Snyder. If so, the public will never know about it.

Stratus' SEC filings show that the company's ties to Freeport are still significant. In addition to the ownership stake held by Day, Stratus has financial ties to Richard Adkerson, the president and chief operating officer of Freeport-McMoRan Copper & Gold. Until 1998, Adkerson was chairman and CEO of Stratus. In 1998, Stratus gave him stock options which, according to SEC filings, are worth over $300,000. Adkerson is the second largest holder of stock options. Stratus CEO Beau Armstrong is the largest. The options are exercisable only if the company's stock rises above $6.19 a share. On Monday, the company's stock closed at $4.50.

Suttle's letter seems to imply that we were wrong to say that Hicks has a say in what happens at Stratus. But the SEC documents seem to confirm our suspicion. In May of 1998, Hicks' affiliate Olympus Real Estate got into business with Stratus. According to the company's 1999 annual report, Stratus and Olympus created a "strategic alliance" to develop and market some of Stratus' holdings. They created three joint ventures, with Olympus owning 50.1% of each. As part of the deal, Olympus bought $10 million worth of Stratus' preferred stock, provided a $10 million debt financing arrangement, and agreed to provide up to $50 million in additional capital.

As we reported in our Dec. 1 issue, according to SEC documents, Stratus had net losses of $136.7 million between 1993 and 1999. Given that lackluster history, it's reasonable to assume that by agreeing to provide up to $70 million to Stratus -- a company whose current market capitalization is about $64 million -- Olympus and/or Hicks gained influence over the company. Indeed, Stratus' annual report spells that point out very clearly. As part of the deal, Olympus "has the right to nominate one member or up to 20% of STRS' Board of Directors, whichever is greater," says the 1999 annual report.

We aren't business experts or lawyers. Perhaps Suttle will help educate us with another letter defining what "ownership and control" means. Maybe he'll even tell us whom he's working for.

Text of Richard Suttle's Letter

Dear Editors:

Please check for accuracy the author's assertions about the ownership and control of Stratus Properties Inc. ["Stratus Flows Downhill," Dec. 1] (It is a public company and as such this information is readily discernible with a modest effort.) I suspect you will be surprised.

One accurate assertion in the article was that I did not return that reporter's call. The lack of accuracy in the article reinforces my unwillingness to cooperate with him.

Thank you,

Richard T. Suttle Jr.

P.S. I got the hint in Erica's article about Hyde Park ("Suttle's ability to throw his considerable weight around ...") ["Naked City: Nowhere to Hyde," Dec. 1] and am back on the Atkins Diet.

Thanks again.