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  •   No Blank Checks for Forbes

    Presidential hopeful Steve Forbes with his wife, Sabina. (Reuters)
    By David S. Hilzenrath
    Washington Post Staff Writer
    Tuesday, August 17, 1999; Page A6

    The lush Pacific island that presidential candidate Steve Forbes and his siblings inherited from their father is for sale, its coral reefs and coconut palms pictured in an alluring promotional brochure. For the late Malcolm S. Forbes, this private haven in the Fiji archipelago was the ultimate image of outsized wealth, a favored retreat and final resting place.

    The island also symbolizes the mystery of Forbes's finances. As he deploys his personal wealth to seek the Republican nomination, many observers view him as the only candidate who can spend as much as Texas Gov. George W. Bush. The common assumption is that the heir to a famous publishing fortune has so much money he can just write a check, whatever it takes.

    Indeed, Forbes's staff said he spent somewhere near $2 million this summer competing in Saturday's Iowa Republican straw poll--much more than any other candidate and twice what the Bush campaign acknowledged spending to win the event.

    But a review of Forbes's holdings suggests that his checkbook candidacy isn't that simple--or painless.

    To match Bush's record $37 million haul, Forbes could have no choice but to sell part of the family business, liquidate real estate in his home town of Bedminster, N.J., or go heavily into debt.

    The last time he ran for president, Forbes resorted to selling shares of the business handed down by his father and founded by his grandfather in 1917, the candidate said in a recent interview.

    To be sure, Forbes has amply demonstrated his willingness to part with his inheritance. He spent $37.4 million of his own money on his last campaign, and this year he ponied up $6.6 million by the June 30 quarterly reporting deadline. That was before his extravagant final push toward a second-place finish in Saturday's Iowa straw poll. But for all his outward fortune, it is far from clear how much cash he can commit to the 2000 race.

    As the island called Laucala illustrates, it isn't always easy to turn private holdings into cash, and divining their true value can be a tricky proposition. The Forbes family has been trying to sell Laucala since 1997, and the asking price is $10 million--a fraction of the $70 million that Fortune magazine estimated it was worth in a 1996 assessment of the candidate's riches.

    "Obviously, I'm not going to tip my hand" to competitors, Forbes said when asked how much he would invest in his bid for the White House. "But I will say that we will have the resources to get the message out . . . I am willing to make that sacrifice."

    The Forbes campaign envisions a shared sacrifice. In the last race, Forbes took in $4.3 million in contributions. This time, he aims to raise between $15 million and $20 million, and has taken in $2.7 million.

    Much--perhaps most--of Forbes's wealth is tied up in the family firm, which isn't traded on any stock market and doesn't disclose its financial results. Far from being a cash cow, Forbes Family Holdings Inc. has not paid dividends to its owners in many years, choosing instead to plow profits back into the business, Forbes said.

    In recent years, the firm has liquidated some of Malcolm Forbes's cherished possessions. Gone is the corporate jet called the Capitalist Tool--too expensive to fuel and maintain, Forbes said in the interview--and Forbes is now flying commercial as he campaigns. The company retains such indulgences as a yacht for entertaining advertisers and a chateau in France. But a battalion of toy soldiers was sold at auction, and the palace in Morocco, scene of the late publisher's fabled 70th birthday bash, is also up for sale.

    The financial disclosures required by law describe Forbes's wealth in general terms, and they offer only snapshots in time--one in 1995 and another filed in May.

    In the more recent filing, the value of his stake in Forbes Family Holdings, which encompasses the Forbes business magazine and other corporate assets such as the island, is listed as "over $50,000,000."

    He owns property in Bedminster, N.J., including the family estate, valued at $11 million to $55 million. His thrift and retirement plans held in trust are valued at a total of $2 million to $10 million. But Forbes's real estate carries "a little over $7 million" of mortgages, the candidate said, and he has additional debts described as "investment loans," which total $500,002 to $1 million.

    Forbes's portfolio of publicly traded stocks, bonds, mutual funds and other relatively liquid assets--the things most easily converted into campaign cash--was worth $5.8 million to $14 million as of April 15, according to the May statement filed with the Federal Election Commission.

    Forbes's account of how he financed his last campaign left a number of questions unanswered, making it impossible to independently assess whether the sale of Forbes stock might have been a sweetheart deal. There's no reason to believe Forbes did anything wrong. But, as a general matter, sweetheart deals with candidates can amount to excessive campaign contributions.

    Forbes said the stock transactions "can hold up under scrutiny." As for the amount paid for the shares, he said: "There are various methods that you use to try to arrive at a fair figure. And since any transaction involves a willing buyer and seller, [it] obviously has to satisfy both parties."

    Responding through his campaign manager to written questions, Forbes would not say whether the sales were final, or whether he has options to buy back the shares. Such options can make transactions look like loans, lawyers and accountants said.

    Under federal election law, corporations are barred from making campaign contributions, individuals can give no more than $1,000 per candidate, and loans not from lending institutions are considered contributions.

    Asked to identify the buyers of his shares, making his campaign spending possible, Forbes would not answer. "Just say existing shareholders," he said. "What I own is revealed in public statements, but others wish to have their privacy protected."

    Forbes also would not say whether he retains a voting majority, describing himself only as "a major shareholder."

    But a longtime Forbes executive who has been involved in corporate matters, Leonard H. Yablon, said Steve Forbes controls the company and that he and his siblings are the only owners. "All I know is, there are no outside shareholders," Yablon said.

    Any income Forbes receives during the campaign would boost his spending ability. According to the latest financial disclosure, from the beginning of 1998 through April 15 of this year, Forbes's income totaled $3.9 million to $9.2 million, which included interest, dividends, capital gains, honoraria (often at a rate of $28,000 a speech), and $2.2 million in compensation for his employment at Forbes Family Holdings.

    But the candidate can't rely on his paycheck, because he has taken an unpaid leave of absence from the firm, leaving his brother Timothy in charge.

    The Forbes shares that Steve Forbes sold to pay for television ads and other political expenses were part of the estate his father spent years consolidating. Malcolm Forbes made it a priority to buy out all other Forbes shareholders, according to a biography by Christopher Winans.

    When Malcolm Forbes died in 1990, he left eldest son Steve Forbes 51.1 percent of the voting stock--a controlling stake--to prevent the business from being torn by any disagreement among the heirs. Counting nonvoting as well as voting shares, Malcolm Forbes's "Last Will and Testament" gave Steve Forbes 35 percent ownership. The rest of the shares were to be divided among Steve Forbes's four siblings in smaller percentages.

    Though Forbes magazine is famous for the annual "Forbes 400," which profiles and attempts to rank the richest Americans, editor in chief Steve Forbes resisted discussing his finances in detail. Forbes's brothers--Timothy, Christopher and Robert, all of whom work under him in the family business--did not grant interviews and did not answer questions about Forbes stock submitted in writing to the company's spokeswoman. Forbes's sister, Moira Mumma, declined to comment.

    Since Malcolm Forbes died in 1990, a chunk of the family change has gone toward estate taxes, which Forbes has chosen to pay on an installment plan.

    Forbes has not released his tax returns, which could shed more light on his finances. The returns also would enable voters to see how Forbes would be affected by his signature campaign proposal, a flat tax. He said he would reveal the amount of his tax payments before the first primary voting next year.

    In addition to Forbes magazine, Forbes Family Holdings owns, among other things, the publications American Heritage, Forbes ASAP, Forbes FYI, and an international version of Forbes magazine; extensive real estate; and an executive seminars business.

    The firm is "very profitable," Forbes said, and the flagship business magazine has consistently ranked ahead of rivals Fortune and Business Week in ad pages, a key performance measure. But some industry observers say the magazine has been losing its edge.

    Fortune has been adding ad pages faster than Forbes for five of the past six years and for the first half of 1999, according to Publishers Information Bureau.

    The Forbes wealth, though considerable, may be eclipsed by the techno-fortunes of the Internet age. That may help explain why, after guarding the privacy of its finances for so long, the family business is planning an initial public offering this year of stock in its site on the World Wide Web.

    Yet even a successful IPO might do little to increase the candidate's liquidity. The cash raised from investors would be used to "build whatever entity goes public," Forbes said, and the offering would generate "zero" money for the campaign.

    As Forbes digs deep to underwrite his political ambitions, his wife said she and their daughters support his use of the family fortune. "I think it's worth it," Sabina Forbes said in an interview. "We've always lived in a very simple way at home. . . . Our lifestyle is not going to change."

    Staff researcher Richard Drezen and database editor Sarah Cohen contributed to this report.

    © 1999 The Washington Post Company

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