August 15, 2000
The Bush Family "Oiligarchy"
Part Two: The Third Generation
The first of three major bailouts occurred in 1982. That year, despite the millions already pumped into Arbusto, George W. faced a crisis. His balance sheet read $48,000 in the bank and $400,000 owed to banks and other creditors. George W. realized that he had to raise additional cash. He decided to take Arbusto public. [WP, July 30, 1999.]
With the company so deeply in debt, however, George W. would need a new infusion of money to clear the books. In stepped Philip Uzielli, a New York investor and friend of James Baker III from their Princeton days. According to George W., Uzielli was introduced by George Ohrstrom, one of the original Arbusto investors and Uzielli’s business partner.
Ohrstrom and Uzielli had, three years before in 1979, purchased a building products firm, Leigh Products Inc. by buying all common shares for $25 per share. At the time, Baker was a director of Leigh Products.
Uzielli worked out a deal with George W. to purchase a 10 percent stake in Arbusto for $1 million. The entire company was valued at less than $400,000. In a 1991 interview, Uzielli recalled the investment as a major money loser. “Things were terrible,” he said. [WP, July 30, 1999.]
As bad as Uzielli’s investment turned out, George W. now had enough money to take his company public. Not, however, before he made one more change. In April 1982, perhaps realizing the negative connotation of “bust,” George W. changed the name of his company to Bush Exploration. The name change also may have had something to do with the fact that George W.’s father at the time was the Vice President of the U.S. In June, George W. issued a prospectus.
George W. sought $6 million in the public offering, but only managed to raise $1.14 million. The shortfall was due in large part to the waning interest in the oil industry among investors. The price for a barrel of oil was falling and special tax breaks for losses incurred in oil investments had been slashed. [WP, July 30, 1999.]
Within two years, it was clear that Bush Exploration was in trouble again. Michael Conaway, George W.’s chief financial officer, told the Washington Post, “We didn’t find much oil and gas. We weren’t raising any money.” Something had to be done.
In walked bailout number two in the persons of Cincinnati investors, William DeWitt Jr. and Mercer Reynolds III. Heading up an oil exploration company called Spectrum 7, DeWitt and Mercer contacted George W. about a merger with Bush Exploration. For Bush and his struggling company, the decision wasn’t a hard one to make.
In February 1984, George W. agreed to a merger with Spectrum 7 in which Dewitt and Reynolds would each control 20.1 percent and George W. would own 16.3 percent. George W. was named chairman and CEO of Spectrum 7, which brought him an annual salary of $75,000. [Harper’s Magazine, February 2000.]
DeWitt, whose father had owned the St. Louis Browns baseball team and later the Cincinnati Reds, would become a useful partner for George W. a few years later when he made his move to pull a group of investors together to buy the Texas Rangers.
Even though the merged companies still failed to make any money, the pieces were finally starting to fall into place for George W. A chief asset was that George W. brought connections and name recognition to the enterprise. Paul Rea, president of Spectrum 7, remembers Bush’s name as a definite “drawing card” for investors. [WP, July 30, 1999.]
With oil prices collapsing in the mid-80s, however, it became clear that George W.’s name alone would not save the company. In a six-month period in 1986, Spectrum 7 lost $400,000 and owed more than $3 million with no hope of paying those debts off. Once more, the situation was growing desperate. [Harper’s Magazine, February 2000.]
In September 1986, George W. was given his third lifeline.
Harken Energy Corp. was a medium-sized, diversified corporation that had been purchased in 1983 by a New York lawyer, Alan Quasha. Quasha seemed interested in acquiring not just an oil company, but the son of the Vice President. Harken agreed to acquire Spectrum 7 in a deal that handed over one share of publicly traded stock for five shares of Spectrum, which at the time were practically worthless. [WP, July 30, 1999.]