The End Of The Adler Era

The Age

Friday September 25, 1998

By ROD MYER and CHRISTOPHER WEBB

Many years ago Larry Adler was addressing an investment conference in New York. Reputedly he told the audience ``there are only two things I'd never sell - my wife and my FAI shares". At that point someone piped up with another question: ``What about Rodney?"

Quick as a flash, Larry Adler shot back: ``Make me an offer."

Now, more than a decade after Larry cracked that joke, his son Rodney, 39, has done what his father said he wouldn't; sold the family silver. By accepting the $290 million bid by HIH for his FAI Insurances group on Wednesday, Rodney Adler has brought to a close one of the most colorful chapters in the history of Australian family business life.

It was Mr Adler himself who started the ball rolling on the process that will see FAI pass from his control. ``I made a philosophical decision several months ago and encouraged (potential buyers) to come and talk to me," he said yesterday.

He now has money in his pocket but his decision to sell was not without regret. ``I have achieved my goal but it was an emotionally hard decision. It breaks my heart because (FAI's) been my whole life as I've been growing up and I devoted the whole of my "30s to it. It really is a very sad time but I think it's right for all the stake holders. I just felt my personal ambition had to come second to commercial reality," Mr Adler said.

The long, thrill-packed journey of the Adler family through the insurance industry had its beginnings when the late Larry Adler stepped ashore in Melbourne, officially a stateless person, back in 1950 with only one pound in his pocket.

Born into a business family in Budapest, Hungary, in 1931, Larry Adler had survived World War II, the Nazi Holocaust and the coming of communism to eastern Europe. For the 38 years following his arrival, he worked ceaselessly, driven by what his son Rodney once described as ``fear and a desire for security" born of the tumultuous times through which he lived. Starting out in Australia as a railway cleaner, petrol pump attendant and taxi driver, he soon went into business for himself, venturing into an electrical goods store in 1954. There, as he later put it, ``I lost my pants".

But that experience was just a minor setback for Larry Adler. Six years later he went into the insurance business (a world he knew as his father had operated the Anglo Hungarian Insurance Corporation) , and establishing FAI with 28,000 behind him. Just 17 years later, on the eve of the great market crash of 1987, the one-time insurance minnow was worth $2.8 billion and Adler's personal fortune was estimated at $400 million.

The Larry Adler formula for success rested on the pillars of hard work, judgment, risk taking, entrepreneurial aggression and a refusal to walk away from trouble if it arose. ``For me working hard comes easily," he once observed. `` Playing golf, on the other hand, is a real chore while playing cricket is both a physical impossibility and a contradiction in terms."

When Larry Adler died in December 1988 at only 57 his son Rodney, then 29, was left to pick up the family mantle. That legacy was to prove something of a poison chalice and Rodney Adler has spent most of the past 10 years battling to keep FAI afloat and healthy after his father's famed judgment was found to have been wanting in later days.

So wanting, in fact, that the Adler family will harvest only $67 million from the sale of their 30 per cent FAI stake; a tidy sum but small in comparison to Larry's $400 million fortune in 1987. The family's total worth was estimated at $96 million by BRW this year, only marginally up on the $90 million estimate of six years ago.

Rodney and Larry are very different men operating in very different times. Larry was hard and canny; a tough negotiator not afraid of audacious business moves and public posturing.

He once branded the then corporate regulator the National Companies and Securities Commission a ``corporate terrorist" that used ``vicious underhand tactics" in administering company law, and called for the sacking of the director, Ray Schoer. To a one-time business ally he is said to have remarked: ``I'd rather be a wealthy bastard than a charming bankrupt."

In business he mixed it with the 1980s entrepreneurs, backing Alan Bond, profiting hugely from plays in the British merchant bank Hill Samuel and Australian industrial Pioneer. He played a part in the merger of Coles and Myer, and even hatched a plan with Abe Goldberg to grab control of investment house AFP (the move was aborted).

But the entrepreneurs came back to haunt him and when the music stopped in 1987 he had exposures to some of Australia's largest corporate collapses.

Rodney, on the other hand, is quietly spoken, stylish, a family man and conciliatory and polite in his public statements. His business life has been about turning soured deals into viable arrangements, a task that has extracted its price over the years. But a price he says he was prepared to pay. ``We had difficult times. There were days that I hated ... God knows, there's been challenges ... but I never actually had the thought that that was time to chuck it in."

By the time Larry Adler died investment markets were turning nasty, souring many of the boom-time deals that had given FAI a second-half profit of $122 million in 1987. A few years later FAI was reporting losses built on negative investment returns, compounded by a rash of floods and earthquakes. Provisions for bad property loans totalled $1 billion and in one year $70 million was lost on underwriting.

The situation looked bleak but Rodney Adler was able to salvage it by turning problem loans into hard assets where he could. In reparation for exposures to Alan Bond, FAI took control of coal mines, land in Perth and New York's St Moritz Hotel. Loans to Christopher Skase became a North Queensland property development.

At first the markets thought Rodney Adler was out of his depth but some of the deals he did to get FAI out of impossible situations earned a new respect from the financial world.

``Poor Rodney, at the age of 29, inherited the empire and not only did he have all of these guys that owed money to FAI but he apparently did not have the knowledge of the transactions. His father had committed most of them to his head and not to paper," said a broker who knew both men.

``So Rodney had to clean up a hell of a mess ... it took the fellow 10 years but give him his due. That company could have gone to the wall but for the fact that the guy persevered and persevered.

``For example, while some say St Moritz was not a good deal ... in fact it was a great deal. He was owed by Bond something to the order of $150 million totally unsecured. So he said: `I'll take over your debts on the St Moritz but you give me the full 100 per cent security'. Instead of getting back his $150 million what he did then was lend them a couple of hundred million more and blew the loan out to about $400 million. But he got $450 million worth of hard assets," the broker said.

After the entrepreneurs were dealt with, FAI floated a life insurance offshoot, the merchant banking power broker Graeme Samuel was appointed to the board and investments were sold. A little of his father came out in Rodney Adler as he began to play the market in gold stocks.

Now, with most of its 1980s investment problems out of the way FAI has been concentrating more on the insurance market. But analysts say it is just too small to be an effective competitor and Rodney Adler agrees, saying that realisation led him to sell out.

© 1998 The Age

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