The Billionaire Next Door
When John Calamos took his mutual-fund company public in 2004, not only did he join the ranks of the world's richest people; he also invited the kind of scrutiny and criticism he had never faced as a private businessman
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The experience of Calamos Asset Management offers a lesson in the advantages and drawbacks of going public. In 2004, the company floated an initial public offering to attract the capital it needed for expansion. But while he wanted to tap new investors, John Calamos didn't want to hand over the fate of the company, which he started in 1977, to a fickle stock market. And so Calamos released only a small percentage of the firm's total shares to the public. Because of that arrangement, John Calamos and his kin own about 77 percent of Calamos Asset Management's shares and control around 97 percent of the voting stock.
Despite the limited float, the Calamos IPO was a rousing success, raising $414 million and drawing an initial chorus of cheers from investment analysts. The stock began trading on the NASDAQ at $18 per share but within weeks hit the $25 range. As expected, Calamos used the proceeds to start new mutual funds, expand staff and research capabilities, and help pay for construction of a gleaming, state-of-the-art headquarters in Naperville, designed by the noted architect Dirk Lohan. By the end of 2006, Calamos Asset Management had nearly 23 million shares outstanding and a market capitalization of about $2.7 billion.
Even though John Calamos and his family prefer not to tout their wealth, the IPO has helped the outside world place an estimated value on their closely held shares. Most of the family's $2-billion net worth-which ranks them 160th on the Forbes 400-is attributed to their ownership of company stock, notes Jeffrey Ptak, an equity analyst who follows the Calamos company for the locally based Morningstar.
"Going public has made the Calamos family richer than the god of avarice," says John Bogle, a mutual fund watchdog and founder of the Vanguard Group, a mutual fund company. (Bogle has been outspoken in arguing that there's an inherent conflict of interest when a mutual fund company goes public and has to answer both to Wall Street and to investors in the funds.)
The flip side of all the money is greater scrutiny. The Corporate Library, a shareholder activist group based in Maine, argues that Calamos Asset Management should undertake some reforms, especially when it comes to CEO pay. In a March 2007 report, the group describes the compensation package for John Calamos as excessive and a "very high concern" for investors. Included in the $6.6 million the CEO made last year was a $4.6-million bonus, according to The Corporate Library. In 2005, Calamos took home $7.6 million in salary and bonus, according to company filings reviewed by The Corporate Library. The activist group claims that Calamos's pay is "among the very highest" for a company of the size of Calamos Asset Management and that it exceeds the median of its peer group by "more than 20 percent."
"Compensation at financial service companies tends to be higher, but still this is very high," says Ric Marshall, chief analyst for The Corporate Library.
The Corporate Library report also raises a warning flag about some "related party transactions" engaged in by the company. For example, the report says that the company entered into an agreement in 2005 to pay $777,000 "to lease an airplane from Dragon Leasing Inc. for business travel." Dragon Leasing is solely owned by John Calamos. In addition, a unit of Calamos Asset Management is paying approximately $250,000 a month on a 20-year lease to rent its corporate headquarters from a real-estate unit controlled by the Calamos family, according to The Corporate Library. The office building opened in 2005.
"When you're the controlling shareholder and in management, the number of ways to divert money into your own pocket is really very great," says Marshall, who adds that such insider transactions can set off alarm bells with institutional shareholders.
"If Calamos didn't want the spotlight, then the company shouldn't have gone public," says Bogle.
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