Return to Virginia Business - June 2001

Cover Story
Who cares about high-tech?
Blue Bloods and Old Economy jobs come back in vogue

by Peter Galuszka

Now that the Internet bubble has burst, Old Money has come out of hiding. A dramatic turn of events over the past year has put the spotlight back on the traditional rich in the Old Dominion, with their First Families, Old South demeanor and genteel ways. Out are the chrome and glass clubs in Tysons Corner where Internet powerbrokers scheme for their next round of venture funding. In are the horse farms of Fauquier County and Richmond’s Commonwealth Club where everything from mergers to marriages are brokered in cosseted seclusion.

William Schrader

Wildly overvalued technology stocks have gotten their comeuppance, putting a spike in the portfolios of the parvenus who started appearing on Virginia Business’ annual list of the 100 wealthiest Virginians in the mid-1990s. Drawn by Virginia’s telecommunications infrastructure, proximity to the nation’s capital and natural beauty, these newcomers were a swaggering bunch. They got their bucks by becoming buccaneers of high technology, notably the Web revolution. Accumulating wealth at extraordinary speed, they built Internet and telecom companies in just a few years rather than inheriting it or slogging away at more traditional ventures such as energy, railroads or banking. But the exuberance of the late 1990s put far more value on such companies than their intrinsic worth. In the past year, the Nasdaq stock crash has burned billions in paper dollars. Indeed, since last year’s Virginia 100 list, more than $3 billion has vanished among the rich in the state.

As technology takes its licks, the Old Economy has become resurgent, notably in sectors such as coal, natural gas, construction and hogs. Written off as dinosaurs not long ago, the people who control such enterprises are poised to benefit as the economy staggers towards a new footing. Today’s winners are coal barons such as E. Morgan Massey, Carl W. Smith and James B. Crawford, global power executives such as Dennis Bakke and Roger Sant, and food magnate Joseph W. Luter III, the king of pigs.

To be sure, although most techies lost a bundle in the past year, most are clinging to this year’s list. Either by racking up so much wealth or cashing out their stock options in time — they managed to make our cut this year of having a net worth of $60 million. Still, a number of high-profile technology shakers have tumbled spectacularly. One is Alex Mandl, who gave up a promising slot as AT&T’s heir apparent to take the helm of a start-up, Fairfax-based Teligent. Loaded with debt, the wireless company couldn’t work its way to profitability in time to please investors. Another is William L. Schrader, who built his company, PSINet, into a global Internet network by spending extravagantly. He agreed to pay a cool $150 million over 20 years to put the PSINet logo atop the Baltimore Orioles’ stadium. Today both men are not only off our list, they are out of jobs. Both companies are tottering towards insolvency.

While the pendulum is swinging back to Old Money, it doesn’t mean a return to boredom. Consider Ivor Massey Jr. who hails from an Old Richmond family. His father was a local aviation pioneer, and Massey is a swashbuckler in his own right. This former criminal defense lawyer sports a ZZ Top beard, rides a Harley and shuns coats and ties in the office. He has kept most of his family fortune in the stock market and has avoided pillage by making smart plays. Though enamored with the long-term potential of the Internet, he says he dumped his tech stocks three years ago, believing their fantastic gains had gotten out of control. "I believe in the New Economy and the Internet revolution," he says, "but that doesn’t dispense with the need to generate revenues and earnings." Noting that many believed that the Internet would "democratize access to capital," he puts his own wry twist on that slogan: "The Internet democratized the ability to lose a lot of money in a hurry."

Massey’s yin-yang prudence has largely kept him out of trouble. His investments, he says, have outperformed the S&P 500 by 18 points so far. He thinks that Old Economy companies have plenty of potential. When pondering an investment, he says he asks one key question: What is the firm’s information technology strategy? If management doesn’t have a coherent plan to leverage technology and beat competitors, Massey bails.

Morgan E. Massey

Or, consider Ivor’s cousin, Morgan Massey. Instead of riding a Harley, the 74-year-old Massey flies his own airplane. He hasn’t slowed down one bit since leaving A.T. Massey Coal Co. years ago. Operating out of a tiny office in Richmond, he puts together deals around the world — gas and pipeline deals in Kentucky and southwestern Virginia, coal deals in Venezuela, a massive coal-mining project in China and a generating plant in Ecuador, where he had to write off much of his investment. The Quito government reneged on the deal they’d struck. Any lessons learned? "Do your due diligence. Nobody’s reliable down there."

Despite a bump in Washington-Beijing relations, Massey is forging ahead with plans to raise $75 million in venture capital to continue development of two coal mines in Shanxi province. His goal is to combine American longwall mining technology with Chinese coal reserves and markets. The project would supply about 4.5 million tons a year to China’s rapacious economy and for export. Asian American Coal Inc., of which Massey is chairman, and its Chinese partners control roughly 2 billion tons of coal reserves.

Dennis W. Bakke

Another traditional-industry iconoclast is Dennis W. Bakke, who runs AES Corp. in Arlington with his partner Roger Sant. AES is the world’s largest independent power producer serving 120 million people in 36 countries, including Argentina, Chile, Colombia, Dominican Republic, El Salvador, Oman, Pakistan, Sri Lanka, Ukraine and Venezuela. A devout Christian, Bakke refuses to accept a salary although his stock holdings make up a net worth of $1.7 billion. Instead of aiming for stock price hikes, he sees a higher calling. "The deals that are the most defining is where the need is the greatest and you can make the greatest impact ... It’s more obvious in places like Nigeria." CEO Bakke lives by borrowing against his stock sales, and he gives much of his income to charity.

AES chairman Roger W. Sant, who also refuses a salary, is likewise dedicated to social causes — in his case environmentalism. It may sound odd coming from a head of one of the largest global power companies in the world, but Sant strongly opposes the Bush administration policy to greatly expand electric generation capacity in the U.S. by building more gas, coal-fired and nuclear plants. Sant’s strategy? Conservation. "People are remarkably creative when prices go up," he says.

Joseph W. Luter III

A traditionalist on our list who might not have the same views on the environment as Sant, but is highly successful nonetheless, is Joseph W. Luter III, chairman, CEO and president of Smithfield Foods Inc. Through aggressive expansions, Luter has doubled revenues since 1996 and upped his stock many times during the past 20 years. He’s become the largest hog producer in the world and may become just as big in beef. He has his eyes on IBP Inc., a Des Moines firm that is the largest beef producer in the U.S. Yet Luter’s tough-minded buying has come at a price. Smithfield, which was fined millions for polluting the Pagan River, faces similar charges for hog waste runoff into North Carolina’s Neuse River. In April, South Carolina, where Luter wants to expand, said the pork king is not welcome. Luter could not be reached for comment.

Will the techies make a comeback in Virginia? Most likely. Wireless and Internet technologies are so revolutionary that people are only beginning to figure out how to make money in them. Having learned from their mistakes, survivors will stand ready to find new capital after the downturn plays out. Doing so, however, will take a few years. Until then, they’ll have to make way for the old dogs of the Old Economy who have proved they can still learn new tricks.

With James A. Bacon and Paula C. Squires

Return to Virginia Business - June 2001