THE PRINCE

Alwaleed is probably the most important financial kingpin that you've never heard of. Unlike a George Soros or Rupert Murdoch, publicity-shy Alwaleed mostly stays out of the limelight, preferring to work by telephone from his Riyadh office. But he has already made his mark on several premier deals of the 1990s. Alwaleed's 1991 debut on the world stage was in true grand style: $800 million to shore up Citicorp, making the Saudi prince its largest shareholder.

Since then, Alwaleed has been building an international portfolio of high-profile but undervalued assets--like a Warren Buffett on a global prowl. He has bought up chunks of Euro Disney, Saks Fifth Avenue, and the Four Seasons-Regent hotel group, the world's largest luxury chain. Last July, the prince made waves in Europe when an Alwaleed-led alliance bested Rupert Murdoch in bidding for a $1.2 billion stake in the Italian TV empire of media tycoon-turned-politician Silvio Berlusconi.

That move signaled a new direction for the prince. Now, he may become a player in the frenzied buying and selling of media properties. Recently, Ted Turner sounded him out-unsuccessfully-about helping finance a bid for CBS. ``We're going to go for a big one,'' predicts Alwaleed. ``With Murdoch attacking from the north, we're going to counter from the south.'' Offers to come in on other media megadeals routinely cross his desk.

The prince has taken advantage of Saudi Arabia's sudden wealth--and its less-than-sophisticated business environment--to make himself the kingdom's most powerful mogul. With a bank, a supermarket chain, vast real estate holdings, and a broadcasting operation, his reach in Saudi Arabia is unmatched. Throw in an operation that doles out $150 million a year to down-and-out Saudis and even needy princes, and Alwaleed is making himself a household name in the kingdom. Could a foray into Saudi politics be his next step--as it was for Italy's Berlusconi, whom Alwaleed admires? Alwaleed dismisses that: ``I like being a free man and talking openly. Who wants to be handcuffed?'' he says.

Right now, Alwaleed is more concerned with proving that he is very different from the glitzy sheikhs who squandered their petrodollars so fast in the 1970s and 1980s. Many of these would-be global tycoons turned out to be the world's biggest suckers instead. Some of Alwaleed's royal relations got lured into the Hunt brothers' bungled scheme to corner the world silver market in the 1970s. More recently, Abu Dhabi's ruler, Sheikh Zayed, was fleeced of billions of dollars by the scandal-ridden Bank of Credit & Commerce International. With his studied approach, Alwaleed is as different from those high rollers as Buffett is from Donald Trump, whose 283-foot yacht the prince bought at the knockdown price of $18 million from Trump's creditors in 1991. Even though not all of his investments have been home runs, the prince has an enviable track record. In the past 12 months alone, the prince has ratcheted up over $2 billion in paper profits on his Citicorp and Euro Disney holdings. And, as Alwaleed might himself remind you, at age 38 and with $10 billion in his pocket, this fitness fanatic, who doesn't drink or smoke, is just getting started.

Along with other big investors, Alwaleed and his small band of advisers get first crack at some of the biggest deals going. When Kirk Kerkorian went after Chrysler Corp. recently, the tycoon offered Alwaleed a stake. It was turned down flat. ``Kerkorian was using me for leverage. And anyway, buying in at $56 in hopes Chrysler would go to $100 wasn't interesting enough,'' says the prince. ``When it comes to deals outside Saudi Arabia, I don't go against management.'' Also receiving thumbs down recently: stakes in Britain's Saatchi & Saatchi and a global satellite telecommunications system.

In fact, perched behind Alwaleed's huge desk at his Riyadh headquarters is a three-foot-high pile of confidential prospectuses from Lehman Brothers, Merrill Lynch, Goldman Sachs, and Alwaleed's own consultants around the world. Looking at the printout of his global holdings, which aides prepare for him each week, he says he aims ``to go to $15 billion [in assets] in three or four years.''

Don't expect impetuous moves. Although his key aides number less than 10, potential deals are rigorously studied. Arthur Andersen & Co. is kept on retainer to evaluate every new investment lead, as is Hogan & Hartson, a tony Washington (D.C.) law firm. Citibank also chips in, from sizing up new projects to daily air shipments of U.S. and British newspapers for the prince to scan. Despite the glittering trappings of Alwaleed's great wealth--his yacht, a Boeing 727, and a fleet of 250 cars and motorized caravans--the prince is a workaholic. When he takes his regular late-night jog through the deserted streets of Riyadh, aides run behind carrying constantly ringing cellular phones. And Alwaleed's one vacation each year--a three-week stay on his yacht off the French Riviera--is crammed with meetings with potential partners. This last August, for example, Alwaleed sent his jet to fetch pop star Michael Jackson for an onboard lunch and discussion of a joint marketing operation. Days later, Monaco's Prince Albert was feted--to help swing approval for a new, multimillion-dollar Four Seasons hotel in Monte Carlo.

FIFTY SLAVES. How did this son of Arabia climb to such a lofty position so fast? Many have assumed the slim, 5-foot-8-inch, 140 pound Alwaleed is a one-man investment front for other, more publicity-shy Saudi princes. Some have whispered about contracts to build secret military bases in Saudi Arabia-or even fat commissions on oil shipments. Alwaleed himself hasn't done much to quell the rumors. The prince has put out an implausible story about starting out with a modest $35,000 from his father. Now, through dozens of interviews with the prince and associates, BUSINESS WEEK has pieced together the tale of how this determined investor built up his empire.

Of course, Alwaleed was never poor. But when the prince was born in 1957, Riyadh was still a forbidding desert town largely closed to foreigners. But, as the son of Prince Talal, the 21st son of Saudi Arabia's first king, Alwaleed enjoyed privileges unknown to most Saudis: running water, cars, and a ham radio that his father toyed with as a hobby. Until his father freed them when Alwaleed was 5, some 50 slaves helped keep order at home.

But the kingdom's wealth was nothing like it is today. The oil, which American companies were pumping some 350 miles eastward, fetched just pennies a barrel on world markets--and the Saudi government was in a constant financial bind. In fact, King Saud, whom Alwaleed's father briefly served as Finance Minister, was deposed by his brother Feisal in 1964, in part because his spendthrift ways threatened to throw the kingdom into bankruptcy.

That all changed in a flash. The oil-price explosion of the 1970s brought fabulous wealth, and the Alsaud clan--which now numbers around 6,000 princes--became collectively the richest and certainly the largest royal family on earth. The Alsaud maintain a tight grip on Arabia, as they have since Alwaleed's grandfather, the formidable Abdulaziz, unified most of the vast Arabian peninsula in the 1920s. Today, Alwaleed's uncles, sons of the founder, fill the top roles in the state: King, Crown Prince, Ministers of Defense and Interior. Not for nothing has Saudi Arabia been called ``the only family business with a seat at the U.N.''

But Alwaleed is an Alsaud with a difference: In 1962, his father and four of his brothers revolted against the rest of clan. Talal showed sympathy for an Alsaud enemy, Egyptian revolutionary Gamal Abdel Nasser, and publicly called for a more open political system. This affair was a serious, embarrassing rift within the family and led to exile for Talal in Egypt, where he was exploited by Nasser's propaganda. He was eventually allowed to come home. But ever since, an unspoken code among the Alsaud has barred Talal--and, by extension, his family--from an active role in government. ``Talal was free to make money,'' says a former U.S. Ambassador to Saudi Arabia. ``But he was never really forgiven.''

FRAMED TRANSCRIPT. This situation is the one subject the normally loquacious Alwaleed will not dwell on. But being something of an outsider goes far to explain his drive to succeed in business. From the age of 16, he says, ``I realized I wanted a plane and a boat and to make money.'' That was easy for princes at the top of the Saudi hierarchy--sons of the King and his full brothers--but more difficult for others.

As a grandson of Abdulaziz, Alwaleed gets a monthly $19,000 check from the royal court. With close to 400 people on his private payroll--ranging from the 160 employed at his Riyadh palace to his yacht's 40-man crew and the two gun-toting guards who follow him 24 hours a day--that stipend covers less than 2% of his household expenses. This is the grand style expected of a senior prince, not a minor royal.

Early on, this outsider prince says he saw himself on a mission--to make his mark through business. That was evident after Alwaleed landed in San Francisco in 1976 to begin undergraduate studies in business at Menlo College. Unlike many other rich Saudis who went to Menlo, Alwaleed applied himself with a concentration that is remembered even today. ``He was the hardest worker I have ever seen,'' recalls Carlos U. Lopez, Alwaleed's academic adviser.

After Alwaleed's first year, an anxious Talal dispatched an emissary to California to find out whether his son was studying enough. ``He said Alwaleed's father was worried that his son might not be doing well,'' remembers Lopez. ``I said: `My God, have you seen his grades?' They were straight As.'' A framed copy of Alwaleed's transcript from Menlo hangs on the wall of his palace today.

But Alwaleed acquired his financial skills on the job, not from textbooks. When the prince returned to Riyadh in late 1979, it was an auspicious moment to start out in business. Oil prices were breaking records, and the government was pumping billions of dollars into construction, from superhighways and new ministries to squadrons of the fanciest fighter planes ever built. It was a gold rush that transformed the kingdom and made overnight millionaires out of many Saudis. Under Saudi law, every foreign company with work in the kingdom must have a local sponsor--who pockets around 5% of any contract.

In 1982, after setting up a company called Kingdom Establishment in a tiny prefabricated office, Alwaleed landed his first deal: an $8 million job to build a bachelors' club at a military academy near Riyadh. He was representing a small South Korean contractor.

From then on, the prince's business grew rapidly and became more sophisticated. Instead of acting as mere agent, Alwaleed boosted his profits by setting up his own companies to form joint ventures with foreigners. With that, Alwaleed was bringing in up to $50 million in profits a year. ``He was very different from other princes and rich Saudis, who represented companies and just sat back,'' says Amr Khashoggi, CEO of Saudi Arabia's largest cement maker.

Alwaleed used this new stream of cash to play for high stakes in the white-hot Riyadh property market. Alwaleed's portfolio of 25 million square feet of prime Riyadh real estate and 14 square miles of property just outside the city makes him the largest private landowner in the Saudi capital today. The value: ``at least $2 billion,'' says Alwaleed.

For a property owner with a sharp eye, Saudi Arabia's poorly managed banks were a ripe target. In 1986, the Saudi establishment woke up to its first hostile takeover when Alwaleed announced he had secretly amassed a controlling stake in the loss-making United Saudi Commercial Bank. Appointing a new board and management, Alwaleed cut the bank's staff from 600 to 250. And in a country where imported labor is often treated poorly--and stock options are unknown--Alwaleed quickly instituted twice-yearly employee meetings, where he hands out cash and keys to new cars to top performers.

The formula worked. USCB was back in the black by 1988 and was Saudi Arabia's most profitable commercial bank by 1989. The bank also proved a gold mine of business intelligence. As USCB chairman, says Alwaleed, ``I got to know very well the strengths and weaknesses of local companies.'' Alwaleed's Kingdom now has majority stakes in companies ranging from Saudi Arabia's largest supermarket chain to fast food, livestock, and hospital management. With $1.5 billion in the form of minority stakes in large Saudi companies, Alwaleed is set to become even bigger.

Too big, maybe? The balance between royals and commoners in Saudi Arabia's business world is already an uneasy one, with many griping over senior princes' easy access to rich deals. Tempers flared recently when Al-Mawarid, a Riyadh conglomerate controlled by two Alsaud princes, strong-armed several local businessmen into handing over dealerships. Alwaleed claims he'll be immune to criticism: ``People know that when I take over a company, I fix it up, and it will be in safe hands. I'm Saudi. I'm dedicated to the nation, and I'm involved in charity.''

Although Alwaleed says he gives out of Islam's admonition to help those less fortunate, it's also a way of buying popularity and protection on a massive scale. Using a bank of Compaq personal computers, two full-time Muslim scholars direct a staff of 20 as they dole out one-time cash grants of $800 to $2,000 for up to 6,000 needy Saudis a month. His handouts to Bedouin tribesmen visiting Alwaleed's campsite are talked about across the country--as was his publicized gift of $8 million in July to help Bosnian Muslims. But all this has not kept him from being blasted by a London-based Saudi opposition group.

It is not surprising that Alwaleed would want to extend his reach outside Saudi Arabia, if only to diversify his holdings. Long before he made his first big move, he began working on his global bargain-hunting game plan. ``I got a call from Alwaleed in late 1987 asking me to collect as much information as possible about U.S. money-center banks,'' recalls one of Alwaleed's Swiss private bankers. ``He thinks of moves three or four years ahead.''

At the time, Citicorp was just one of several possible targets. By 1989, Alwaleed was snapping up shares of Citicorp, Chase Manhattan, Manufacturers Hanover, and Chemical, sometimes calling in buy orders from a cellular phone while horseback riding in the desert. Within months, he had spent close to $250 million--at one point holding a 2.3% stake in Chase. ``But then, I sold everything and concentrated on Citibank,'' remembers Alwaleed.

He says he decided that Chemical and Chase were too concentrated in New York and lacked the global brand presence of Citi. On the surface, it was a strange choice: Among the four banks, it was clearly the worst performer, because of a combination of New York real estate loans and exposure to Third World debt. In fact, by late 1990 it was widely feared that the bank might fail.

The crucial moment came in 1991, as the U.S. and its allies were on the verge of ousting the Iraqis from Kuwait. Since Alwaleed, as a Saudi prince, was duty bound to remain in the capital during the Gulf war, lengthy bull sessions on the Citi stake with his lawyers, Al Christianson and Mark Mezou, were interrupted several times by Iraqi attacks. Having already bought 4.9% of Citi's common stock at an average price of around $12, Alwaleed and Citi worked out a special convertible preferred issue in return for a capital injection of $590 million.

``I was the only one in the world willing to talk to Citi,'' Alwaleed claims today. Was he contacted by the Federal Reserve as part of a Citi bailout, as some have suggested? The prince says that's nonsense. ``The only time we had contact with the Fed was when we were going over 9% and needed their approval.''

The deal put a floor under Citi, and it has also turned out very well for Alwaleed: His 9.9% stake is convertible at just under $16 a share. With the bank in better shape and Citi common stock selling in mid-September at a 15-year high of $67, Alwaleed's stake has more than quadrupled in value, to $2.8 billion.

What does Alwaleed think of Citi now? If Chairman and CEO John Reed continues to cut costs, says the prince, Citi shares will continue their ascent, to $100 in the next two years. Returning a call from Citibank Vice-Chairman Paul Collins, Alwaleed gently admonishes the executive to move more quickly on paring overhead. Being a mere shareholder, he knows Reed and Collins needn't take his advice: ``But if I didn't trust them, I wouldn't put my money there,'' he says.

Although Alwaleed has been one of Citi's most important private clients since he started in business 15 years ago and took out a $300,000 loan, using his Riyadh palace as collateral, the prince had never met Reed before directly investing in the bank. That's changed. Now, the two have a long discussion at least once a year, most recently just hours after the mid-August announcement of the Chase-Chemical merger. In 1993, Reed and his son flew to Saudi Arabia and donned Bedouin robes for a late-night party at Alwaleed's high-tech camp 30 miles from Riyadh--complete with roast camel, Bedouin dancers, and some target practice with machine guns.

If Alwaleed is merely a passive--if important--investor in Citi, he's taking a more hands-on approach to hotels. ``It's a natural for him,'' says Chuck Henry, an ex-director of real estate investments at CS First Boston, who now serves as Alwaleed's full-time hotel-industry consultant in New York.

Alwaleed owns big stakes in New York's Plaza Hotel and San Francisco's Fairmont chain, but the centerpiece of this strategy is the holding he bought in Toronto's Four Seasons Hotels Inc. The price he paid for 26.6% of Four Seasons, $124 million, stunned the hotel industry.

Although the investment's value has fallen, Alwaleed is now busy laying plans with Sharp to expand the 40-hotel group to 60 properties within five years and 80 within a decade. Alwaleed doesn't bother to attend board meetings, but he and Sharp are regular phone pals. Sharp admits he approached their first meeting--on the prince's yacht--with some apprehension: Before the two got down to talking about a potential deal, Sharp says, ``I made it clear that I am Jewish and that I have significant ties to Israel. If that's a problem, we shouldn't even get started.'' Alwaleed immediately assured Sharp there was no problem.

Indeed, many of Alwaleed's closest partners are Jewish, from Sharp and Walt Disney CEO Michael D. Eisner to property czar Reichmann. Sometimes this leads to bruised feelings. Following Alwaleed's big move into Euro Disney in 1994, Eisner was stung by newspaper stories saying that he would not be able to visit Saudi Arabia because of his religion. He sent Alwaleed an angry fax. Alwaleed now says he has an open invitation. After Reichmann plotted business deals on Alwaleed's yacht last August, the prince says he was taken aback when an aide inquired if the Canadian's deep religious beliefs were an obstacle to working together. Alwaleed joked: ``I told him: `Reichmann's an Orthodox Jew, and I'm an orthodox Muslim. We're both orthodox, so where's the problem?'''

``He is traditional and religious, yet modern,'' Reichmann says. ``From others who have dealt with him, I know that when a transaction is completed, it conforms 100% to the initial formulation.''

The prince's biggest deal after Citi was his buy into Euro Disney, the $4 billion park near Paris. With $3 billion in debt, the park opened in 1992, just as recession set in. After looking at the numbers, Alwaleed was convinced the problems weren't permanent. Says the prince: ``It wasn't that people hated Paris, or the weather, or Disney. The problem was simple overleveraging. They just didn't have enough to cover the debt.''

Alwaleed and his top adviser, Riyadh businessman Mustufa Al-Hejeilan, say the buyout of a 24% stake June, 1994, was the most difficult and complicated deal yet. After 16 days of negotiations in Paris, Alwaleed squeezed the banks into forgoing interest payments until 1997--worth as much as $500 million. He also forced Walt Disney Co., which has a 39% stake in Euro Disney, to say au revoir to $70 million a year in management and royalty payments until 1999.

Even with that, many scoffed at Alwaleed's wisdom in investing in the loss-making park. But with attendance up sharply and the company turning its first profit in the June quarter, Alwaleed's $300 million has doubled in value.

The big hit at Euro Disney could, however, be a trap for Alwaleed. Like many an industrial baron before him, the prince seems to have an itch to get involved in media and showbiz--fields that have already proved treacherous for outsiders.

Over the past two years, the prince and another Saudi tycoon, Salah Kamel, have pumped more than $300 million into launching a five-station chain, Arab Television & Radio (ART). The somewhat starstruck Alwaleed personally runs ART's music channel and seems to relish hobnobbing with the top singers of the Arab world.

Alwaleed says his media operations and his foothold in European TV are the stepping stones to something much bigger. The prince hints he's tempted to enter the frantic bidding wars changing the face of U.S. broadcasting--but finds prices are high. But there's another aspect, one that also explains why Alwaleed has avoided any hostile takeovers in the U.S. ``I don't need people saying the damned Arabs are taking over.'' If he moves in media, he says, it will be with such partners as Italy's Berlusconi and Germany's Leo Kirch.

The prince's Hollywood bent has led to a budding relationship with recording star Michael Jackson. Last December, Alwaleed and Jackson MJJ Productions signed a confidential agreement to set up a joint company to develop movies, animation, resorts--everything but song recording. Gushes Jackson: ``We want to create a new multimedia empire. The prince is sweet and humble but at the same time very daring and wants to do incredible things. Just like I do.''

It sounds a little too ethereal, but with Alwaleed's track record, who can say he won't turn whatever he touches into gold? In the guest book on Alwaleed's yacht, in between flowery thank-yous from scores of guests, one message from a top Citibank executive stands out. ``I've worked with Your Highness for 15 years,'' he writes. ``Now, I look forward to the next 15 years, when you will become the most powerful and influential businessman on earth.'' Obsequious? Certainly. But he's probably not way off the mark.

A Fast Rise From Not-So-Humble Beginnings

1957
Born in Riyadh to Prince Talal bin Abdul Aziz and Mona al-Solh, the daughter of Lebanon's first Prime Minister

1960-8
Lives in Beirut with his mother after parents' divorce

1962
His father, Prince Talal, attacks the Saudi system, goes into exile

1979
Gets honors degree in business from Menlo College in California

1980
Sets up Kingdom Establishment, the foundation of his empire

1982
Wins the first of his many lucrative Saudi military construction contracts, representing a South Korean builder

1986
Shakes the Saudi business world by taking over troubled United Saudi Commercial Bank

1991
Comes to the rescue of Citicorp, his biggest deal

1994
Bails out shaky Euro Disney theme park

1995
Buys 50% of New York's Plaza Hotel for $160 million

1995
Negotiates for 10% of London's Canary Wharf with developer Paul Reichmann and others