Ron Perelman, one of the wealthiest men in America, sits down for his first ever Q&A.
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Shanken: Your father has never smoked cigars?
Shanken: Has he ever commented on your smoking cigars?
Shanken: Why do you think people like you and me and all the Cigar Aficionado readers out there have been drawn to cigars? What is the pleasure? What is the factor that makes us so passionate?
Perelman: I think it gives real pleasure. It gives me a sense of relaxation that almost nothing else does--except maybe a glass of wine. It gives me a real sense of being able to have a moment of luxury in the middle of whatever I'm doing.
Shanken: Tell me, because the people reading this magazine have the same frustrations as you do. Do you steer clear of restaurants that don't welcome your cigar? Or do restaurants accommodate you because you're Ron Perelman?
Perelman: No. I think I pretty much gravitate toward restaurants that allow cigar smoking, partly because it's so important to me to smoke, particularly after dinner. But from a purely financial point of view, if somebody is not going to support my business, I'm certainly not going to support their business. I think that today, most of the good restaurants, particularly in New York, do allow smoking.
Shanken: What are some of your favorites where you know you're welcome to smoke?
Perelman: '21' Club, Le Cirque, Coco Pazzo, Harry's. They're mostly restaurants that have an old New York flair, like '21,' or a heavy European clientele who have been and continue to be strong cigar smokers.
Shanken: I assume when you travel outside the United States it's a nonissue.
Perelman: It's a nonissue. The biggest problem is in California because there nobody smokes. No place.
Shanken: So what do you do?
Perelman: I don't smoke.
Shanken: Maybe it's time to buy a restaurant in California.
Perelman: The laws there are stronger for smoking sections and prohibition than anyplace else. There is a real animosity toward smokers amongst the patrons.
Shanken: The crime is that there are more serious and sophisticated and knowledgeable cigar aficionados in L.A. than maybe anywhere else in America. I mean they really love their cigars, and for these people to have so few places to go, has to be frustrating.
Perelman: There are cigar dinners. But it's probably the most health-conscious community in America.
Shanken: Let's move on. You've looked at many different industries, and by owning Revlon, among others, you must be an experienced judge of consumer advertising. Is the cigar industry's advertising of premium cigars up to par?
Perelman: No. I think it's very boring. I think it's much too laid back. I think that it's not of the new generation of smokers yet. I think that will come. Now with the resurgence of interest, I think just by definition you're going to get a better quality marketing program, including advertising. But that has not yet appeared.
Shanken: The big impetus for the cigar industry is young guys in their 20s and early 30s who've entered the market for the first time. They represent a huge opportunity. And on a much smaller scale, women. It doesn't seem like anyone has gone after those markets, each of which may represent a big marketing opportunity. Why is that?
Perelman: I think you're right. I think the younger smokers will start to be viewed much more seriously by the manufacturers. Women are still very rare. It's sometimes used today by a woman as a device to show that she's hip or liberated or a worldly person. The industry has tried for years to induce and entice women to smoke, and it hasn't worked.
Shanken: Let me move to a few other subjects. The recent creation of New World Communications attracted a significant investment from another significant media player, Rupert Murdoch. The deal has catapulted you into being a major player in the media world. How do you envision the television-broadcasting world changing? What do you see for the future? How did you create, almost overnight, this major television business?
Perelman: We were presented with a transaction a little over a year ago to buy the old SCI stations, which was our first station group. It was a very intriguing financial acquisition. There were seven stations, top 20 markets. It was Detroit, Atlanta, San Diego, Boston, Milwaukee, Cleveland and Tampa. Good markets. We were able to buy those at a price of slightly less than six times cash flow. It was a very good financial transaction. We had never put on our screen that one of our top industries to go into was TV broadcasting. But that transaction made such enormous sense that we entered the industry. We then decided once we were in it to be really in it. We contracted to buy two other station groups, the old GACC (Great American Communications Company) and Argyle Communications stations. On a parallel track, we had several years ago purchased a small television producer called New World Entertainment. And putting the two together made enormous financial sense to both companies, in that we had a captive market for the production of our product. Out of the blue comes Rupert, who wants to increase his affiliation base, and we were able to do a transaction that allows us a 10-year affiliation agreement with Fox.
Shanken: Fox had just gotten the NFL?
Perelman: Right. The fact that CBS lost the NFL, and the fact that Fox got the NFL were important to us. We got an investment of somewhere around $500 million and, at the same time and probably more important than either of those two, we got programming clearances--not commitments, clearances--on the Fox-owned-and-operated stations. So that we now have, between our o&o's [owned and operated] and the Fox o&o's, about a 45 percent carry of our product. We have a station base now that allows us to clear 45 percent of the country from day one, which was as important as any of the other two elements in the transaction.
Shanken: Murdoch came to you with this proposal?
Perelman: The proposal came about at a meeting between Bill Bevins, who runs New World, and Murdoch.
Shanken: You were able to get fresh capital so that on a market-value capitalized basis, it put the value of the business at a much higher level.
Perelman: It was a good move for everybody. And that's the best kind of deal: when both players leading the transaction are happy that it's a fair transaction.
Shanken: And how did it come about that you then acquired the production business of Brandon Tartikoff?
Perelman: I thought that he was a known talent--he is a brilliant TV programmer. He had left two corporate positions--one at NBC and one at Paramount--to set up his own entrepreneurial company. We came along at a crucial point for him when he was at a crossroads of whether to continue his own business or affiliate with a larger company. It was a perfect marriage of facilities and talent. And he's a fabulous guy.
Shanken: Of course there's the Marvel Comics situation, too. I can't imagine that when you bought Marvel you had any idea what a score that was going to be.
Perelman: That's correct.
Shanken: Having said that, you now have those comic-book characters who are available to you in terms of producing movies and other programming. You almost could be a mini-Disney.