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Turmoil for Mr. Turnaround?

Profile: Deal-maker William P. Foley II has seen his reputation take a beating alongside companies' stocks.


Chasing deals earned William P. Foley II a fortune, and last year the Santa Barbara investor was at the top of his game.

Foley's fast-growing Fidelity National Financial Inc.--which he built into one of the nation's largest title insurers--hit record profits. The Wall Street Journal put Foley on its front page, profiling his burgeoning fast-food empire, which includes Carl's Jr. and Hardee's. Ever on the lookout for new deals, the hard-charging entrepreneur bought a stake in the Orange County investment banker, Cruttenden Roth Inc.

But as Foley is learning, the warmth of Wall Street's approval can turn chilly fast.

In just one year, most of Foley's best-known investments--ranging from title insurance to restaurants to information technology--have turned sour. Stock prices of seven Foley-run companies have lost, on average, half their value since July 1998. By comparison, the Standard & Poor's 500 index has risen about 20% over the same period, while the Russell 2000 index of smaller stocks is up 0.5%.

Irvine-based Fidelity National is down 47%. Anaheim-based CKE Restaurants, parent of Carl's Jr., lost 62%. Micro General Corp., a Tustin-based information technology firm controlled by Foley, fell from $6 a share last year to $3.25 as of Thursday.

Some Say Market, Not Foley, to Blame

Analysts say Foley shouldn't take the declines personally, but the negative trends have nevertheless bruised his hard-earned reputation as a builder of companies and a corporate turnaround specialist.

"When your stocks go up, you're a genius," said Allan Hickok, an analyst at U.S. Bancorp Piper Jaffray in Minneapolis. "When they go down, you're an idiot. I'd say the chorus from investors who are skeptical about Bill Foley's collection of companies is definitely getting louder."

Some question whether the energetic 54-year-old Foley is spreading himself too thin or chasing too many deals, causing investors to lose faith.

"Why can't Foley just focus on one company," asked one stock observer on a Yahoo message board this week.

There's more than just Foley's reputation at stake. The value of his personal stock holdings in several of those companies is down an estimated $88 million over the past year, primarily because of the declines in Fidelity National and CKE, according to company financial statements. Based on Thursday's market close, Foley's stake in the seven companies was worth more than $130 million, documents show.

Foley, who is traveling in Europe this week, did not make himself available for comment.

His supporters and colleagues say the stock drops are no reflection on Foley. Rather, they say, the declines represent an unfortunate convergence of unrelated market forces that have hurt his portfolio.

"Fundamentally, his companies are running strong," said Andrew Puzder, Foley's attorney and coinvestor in several of the stocks. "We just need the market to catch up and acknowledge that."

Fidelity National, he said, is suffering from the same cyclical declines of other title insurance companies, caused primarily by rising interest rates and a concern among investors that the refinancing boom is over. Fidelity National stock fell from an all-time high of $39.14 a share last July, to $20.19 on Thursday. Fidelity National's cross-town rival, Santa Ana-based First American Financial Inc., experienced a nearly identical 50% stock drop over the same period, Puzder noted.

Separately, investors in Foley's CKE Restaurants have grown frustrated by the company's slow progress in digesting its 1997 acquisition of Hardee's, where sales continue to fall. After missing its first-quarter earnings expectations, the company watched its stock fall to $15.13 as of Thursday, down from $40 a share last July.

And the stock slumps at Foley's other companies, including Santa Barbara Restaurant Group, Micro General, American National Financial Inc. and money-losing restaurant chains Checkers Drive-In and Rally's Hamburgers, are largely attributable to the stock market's current preference for large companies and Internet stocks, according to Byron Roth, chairman of Cruttenden Roth, the Irvine stock underwriting firm that is 18% owned by Foley's Fidelity National. That has hurt the kind of small companies and value stocks that Foley tends to buy.

"Small company stocks are out of favor right now," Roth said. "But it's a marathon. Bill is making investments for the long run."

Puzder also notes that despite the recent downturns, many of Foley's companies have outperformed the market during the 1990s. An investor who bought $100 of Fidelity National stock on Jan. 1, 1990, would have nearly $1,050 today, or almost triple the gains of the S&P 500. Even CKE stock is up 135% during the same period, despite the recent decline.

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