Is Tom Hicks Going Broke?

Then came last year's meltdown of the Argentine economy, which hit three Hicks Muse investments-two of which are in default, the other in bankruptcy. On top of that, its $500 million investment (from its third fund) in Regal Cinema hit the wall when the company declared bankruptcy (it has since emerged).

For its fifth fund, Hicks Muse announced it would raise $4.5 billion. It bears mention that when a firm makes an announcement like that, the bar is always set low, with the firm expecting to clear it with lots of room to spare (thereby providing an opportunity to crow about the achievement). The fifth fund closed in January at $1.6 billion. And Hicks Muse's Latin American II fund similarly missed the bar, promising to raise $1.5 billion but only mustering $150 million.

Amid this poor performance, with his reputation in the investment world taking a real bruising, Hicks did something almost unprecedented. He and his partners made headlines when they guaranteed investors a 20 percent return on Hicks Muse's original Internet investments or they would make up the difference out of their own pockets. Some analysts believe these investments are now worth 30 cents on the dollar.

Back to Basics and the Ballpark

All of this is old news to Tom Hicks, who says his company is back to basics. The rest of Fund Vis being invested in good old-fashioned companies like Swanson Food, Vlasic Food, and Yell, the British yellow pages company (which the firm plans to take public soon). In late May, Hicks Muse, along with another group, bought ConAgra Meats for about $1.4 billion. But the past-and the running interest on the mistakes of the past-won't be easy for Hicks to forget.

Take that famous guarantee, for example, made late in 2000. "Covering that money wouldn't have been a big issue for them in the past," says Josh Kosman, a senior writer at the Daily Deal, a financial news publication. "Today it is a big issue."

The Hicks Muse partners made the guarantee by promising a portion of their future profits from past funds to cover it. Recently they hired an investment bank to help them find the most efficient way of coveting the guarantees while reducing the carrying costs. According to Kosman, the partners have already paid down $50 million on the $200 million principal. With compounded interest, the guarantee on the remaining $150 million will be worth $180 million next year and $373 million after four years.

"The problem for a buyout shop like Hicks Muse is that they have all of these telecom and Internet companies that have no breakup value," says Jesse Reyes, vice president of Venture Economics, a New York-based venture-capital research firm. "The market has dried up."

William Quinn, an investment advisor for AMR's pension fund, has put $55 million into the latest fund. "The pressure to get into telecom and Internet investment really hurt them," Quinn says. "Clearly they have made some missteps. But these funds have a long way to go, and you have to take the long view. They are back into what they do best, and they have done well with these type of companies in the past."