THE FIXER, PART IV

[Note:  This is the last article in a four-part series about Charlie McCallum, a local attorney involved in the transactions that lead to the dissolution of four Grand Rapids institutions:  Autodie, Butterworth Hospital, Amway, and Old Kent Bank.]

PYRAMID DUST

Now we come to the final chapter in the Charlie McCallum story.  In the first chapter we saw how Charlie spared his client Joe Spruit, founder of Autodie, from bankruptcy while all the chumps who bought into Spruit’s dream lost their shirts.  In the second chapter we marveled at Charlie’s finesse as he operated on both sides of the Charlevoix Club transaction to serve the interests of two clients at the expense of a third client.  The third chapter illustrated how Charlie used Butterworth Hospital as his piggy bank and then helped Amway-founder Rich DeVos turn it into an even bigger piggy bank to solve Amway’s financial woes.

It’s now November 1997.  Charlie and DeVos have a big success to celebrate.  They merged the two largest hospitals in West Michigan into Spectrum Health Corporation.  Charlie’s law firm fended off the Federal Trade Commission’s bitter opposition to the merger in the federal courts.  When the FTC tried to resurrect its opposition through an administrative process, DeVos bought a favor from a powerful U.S. senator to shut that down.  They pulled out all the stops and won.

Just what did they win?  We’ll get to Charlie in a little bit.  Let’s first focus on DeVos.  As the founder of Spectrum and its ongoing guiding light he gained influence, if not complete control, over the new healthcare colossus.  We shouldn’t put too much stock into titles over at Spectrum so long as DeVos sits on its board.  His successor as chairman, Grand Rapids Press publisher Danny Gaydou, was his toady.  A “bootlicker”, as one prominent observer of the local hospital scene put it, who let DeVos operate as a “board of one”.

Financing the Work-Out

Thus, nearly a billion dollars in the merged hospital’s reserves were under DeVos’s thumb.  So began an era of piping Spectrum’s cash into projects owned or operated by his personal holding company, RDV Corporation, which carries on to the present with DeVos’s big Michigan Street medical towers project right next-door to Spectrum’s downtown campus.  Now you might be thinking:  Don’t billionaires typically donate money to public institutions like hospitals instead of trying to chisel deals with them?  Yes, that’s right.  However, there’s reason to believe DeVos was never a billionaire (click here for that story), and even if he had been, his multi-level marketing pyramid was collapsing.

We mentioned DeVos’s financial difficulties in the third chapter.  He faced two big problems.  First, the old Amway scam was no longer working its magic in North America and sales overseas weren’t going to offset the slide at home.  The governments of most of the big foreign markets where Amway tried to build new pyramids took a dim view of multi-level marketing.  So Amway was more or less operating like a traditional consumer goods manufacturer in those places.  Second, on top of this fundamental problem with the Amway business model, DeVos (along with his partner Jay Van Andel) were threatened with ruin in the wake of the stock price collapse of Amway’s Asian affiliates.

Now keep in mind that this is playing out in the early ‘90s only a few years after Amway escaped federal prosecution for the Canadian tax dodge scam, which in fact was a ruse set up to inflate Amway’s revenue.  The result of all this was that DeVos had to come clean on Amway’s bookkeeping.  So out goes the public notice that Amway had been overstating its revenues each year by 15-25%, and in comes the outsider demanded by Amway’s bankers to sit on its board.  The outsider’s job was to make sure that Amway made its payments to the bank as the company and its owners worked out their financial difficulties.  An outside board member was no small thing in DeVos’s closed corporate world.  It meant sharing real power, because his companies had been tightly controlled by two-man boards consisting of him and a close associate (for example, his partner Van Andel or a family member).

So, DeVos needed new streams of cash that his Amway empire was not providing to keep the bank off his back.  As noted above, Butterworth and Blodgett hospitals had piles of cash in their reserves.  So DeVos becomes chairman of Butterworth, and his banker David Wagner, then president of Old Kent Bank, becomes chairman of Blodgett.  Little wonder they were both anxious to merge the two hospital and make two piles of cash one big one under DeVos’s control.  That way the merged hospital, now called Spectrum, could either throw some cash into DeVos’s projects or buy land from him, who in turn could then send that cash to Wagner to help make Amway’s payments to the bank.  Great, except for …

… A Bump in the Road

A storm overwhelmed Spectrum Health after its creation.  The federal government cut back on Medicare payments to healthcare providers, and so the merged hospital’s finances soon became strained.  The plan to use Spectrum to help pay for Amway’s work-out was no longer as rosy as DeVos needed it to be.  That also meant trouble for Amway’s bank Old Kent, which had under Wagner’s reign overextended itself in many ways.  The dominoes that began to fall with the collapse of the Amway pyramid were now about to topple Old Kent Bank, River City’s most prestigious business institution.

But for Charlie this was just a bump in the road.  He had won himself after the merger a perch outside this financial whirlwind as chairman of Spectrum-owned Priority Health.  Indeed, the mess spelled opportunity for him and his law firm, Warner Norcross & Judd L.L.P.  It got him and his law firm two big assignments, the lawyering needed to:  [1] Restructure Amway into oblivion and re-finance the successor companies, and [2] bail out Old Kent from Wagner’s mistakes by selling it to Wagner’s previous employer, Fifth Third Bank.

With Charlie’s assistance, by 1999 Amway was broken up into a handful of pieces.  Under the new moniker of Alticor, the Ada-headquartered manufacturing operation was Amway’s primary successor, and the Quixtar subsidiary tried peddling the old multi-level marketing snake oil on the internet.  With the restructuring, the surviving pieces were easier to re-finance.  But this didn’t solve all of DeVos’s financial woes.  He was still pressed to liquidate assets to satisfy his lenders.  He continued to unload real estate in the Grand Rapids area, including the Plaza Towers trophy property in a still-murky deal with a Dutch real estate investment company called Eenhorn.  DeVos has had his share of the Orlando Magic for sale, but no takers yet.  Meanwhile, he and his family nickel-and-dimed their minor league football franchise, the Grand Rapids Rampage, by firing the team’s championship-winning coach and quarterback to save a whopping hundred grand or so in salaries.  Nevertheless, DeVos continues to put together deals here and there that keep his fortunes afloat.

For helping DeVos turn the corner, Charlie got a big plum at the new Alticor.  Because Alticor, like Amway before it, is a company managed by a two-man board of directors, Charlie didn’t get the usual seat on the board.  Instead his sinecure at Alticor is a corporate office specially designed for him called “assistant corporate secretary”.  All is happy again in Ada.

The Last Domino

The last domino to fall, Old Kent Bank, didn’t fare so well.  As many long-time customers of Old Kent know too well, nothing of it remains after its acquisition by Cincinnati-based Fifth Third Bank in April 2001.  To be fair to Charlie, he did not drive the deal that devoured Old Kent, transplanted its backroom operations to Ohio, eliminated 3,500 jobs in the area, allowed insiders to loot what was left of Old Kent on the eve of its sale to Fifth Third, and screwed Old Kent shareholders out of the premium they would have received for their shares if the bank had been available for sale to all comers.

All of this was set into motion by Wagner as president and chairman of Old Kent, who packaged up the bank for delivery to his old employer Fifth Third.  In exchange he received from Fifth Third more than $30 million and a do-nothing executive slot in Cincinnati that paid over a million bucks a year.  (That all changed, after Wagner’s ouster in April 2003 from Fifth Third and early retirement to Florida in the wake of a federal investigation that found irregularities in the pricing of Old Kent assets acquired by Fifth Third.)  Charlie and his law firm simply collected their check for doing the legal work needed to make the sale of Old Kent happen.

So, now you know the trail of wreckage left by Charlie and his clients as they helped one River City institution after another fall and eventually disappear over the past dozen years.  You also know at least some of what they salvaged for themselves from their demolition.  I certainly don’t think the way Charlie dipped his beak in the messes he helped to create served the interest of the general public, despite his use of privileged positions that impose ethical and professional duties upon him to act in that interest.  I suspect some of what transpired run afoul of the law.  Certainly the local U.S. Attorney and the FTC thought there were problems with Charlie’s conflicts of interests at Butterworth Hospital.

You, dear readers, can now draw your own conclusions about The Fixer.