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A winning idea .

A Winning Idea

At first glance, Arkansas billionaire Jack Stephens appears an unlikely candidate for fabulous wealth. His voice is halting, shy, and his light-sensitive eyes are obscured by tinted lens mounted in thick black frames. Smoking cigarettes steadily, Stephens looks every bit of his 66 years dressed in a rumpled checkered sport coat he says makes him look like a "racehorse gambler.".

Despite his appearance, Stephens and his brother, W.R. "Witt" Stephens, have amassed an estimated $1.7 billion in wealth to become the 34th richest family in the country in the past 50 years through a combination of financial acumen and political smarts that is legendary. Both men credit Jack Stephens' management and financial contributions to the success of the company.

Last week, one Jack Stephens' idea - bank data processing company Systematics - merged with Alltel Corp. giving Systematics a market value of $500 million. Stephens started the world-class company in 1968 with an investment of $400,000 and an observation business executives were hungry for computing power and paying too much for it. Twenty-two years later, Stephens share of Systematics is worth nearly $242 million.

Recently in an interview in his Little Rock office, Stephens discussed the birth of Systematics, its early struggles and this May's merger with Alltel.

Wasted Computer Time

The genesis of Systematics began when Stephens was approached by Stephens Inc. managers at Union Life Insurance Co. seeking his blessing for the purchase of a larger data processing computer in the late 1960s. The computer boom was on and businesses wanted the latest development, Stephens says. He had first noticed the trend when a computer leasing company he owned, Randolph Computer, continually needed more capital to buy inventory because demand was so strong.

"It was keeping up with the Jones," Stephens says of the computer craving executives. In Union Life's case, the company's IBM 2400 series computer was only in use three to four hours a day. Yet, management wanted a new numbers cruncher that would have doubled the monthly lease payments to $32,000.

"That didn't seem right," Stephens says. "The question in my mind was, `Why are these people buying huge contracts?' "

Seizing the opportunity, Stephens invested $3 million in three computer data processing companies supplying service, not hardware, to businesses. Two of them, Dialog Computing in Connecticut and Remote Computing in California, both would fail and Stephens wouldn't recapitalize them.

"The reason Systematics was successful and the other two failed was the management," Stephens says. Capable management is a Stephens' buzzword for success. As Stephens right hand man, Jon Jacoby, 51, told Fortune magazine this year: "We look for three things - competent management, a good market that doesn't require a lot of marrket studies, and a solid business providing a useful product."

Near Collapse

Systematics was led by CEO Walter Smiley, a former University of Arkansas at Fayetteville professor, who Stephens hired away from academia. Focusing on Smiley's existing knowledge of bank data processing, Systematics' staff developed its operational skills, while Stephens personally sought new accounts for the young company.

"My job was to give them credibility with the bankers I knew," Stephens says. "All I ever did was tell the banker that these guys would do what they said they would."

Despite early successes, the company nearly went under in 1970. One night, Stephens and top Systematics officers waited in company offices until 8 p.m. for word from then-vice president Hunter Gammil who had gone to Mississippi to collect an account. Without the money, the company was broke.

Stephens says of the early days of long hours at the fledgling company: "I almost lived with those young fellows. I had a lot of confidence in them."

Ironically, the Little Rock market, perhaps fearing disclosure of banking records to the powerful Stephens family, was reluctant to embrace Systematics services. "In fact, the Little Rock market was the hardest market to crack," Stephens says. Systematics was well on its way to being a success before a contract was finally landed at Worthen Bank through the assistance of Gene Fortson.

In 1970 the company had revenues of $1.73 million. Eleven years later when the company went public with the help of underwriter L.F. Rothchild, Underberg & Tobin, revenues had reached $49.3 million. This year in February, the fast growing company's revenues over the previous 12 months totaled $230.1 million, with net income of $20.2 million.

Stephens says Systematics went public for two reasons: to add to its capital stock and attract top employees through stock options offered as bonuses. Options that an employee could track in a freely traded market.

"The best way to show them was the stock market," Stephens says. One drawback, however, was steady pressure to increase earnings, a common yardstick used in evaluating growth companies like Systematics. Or, as Stephens puts it, "exposure to the whims of the public and the stockholders."

Alltel Overtures

Early this yearr, Alltel President and CEO Joe T. Ford began making "aggressive" overtures to Stephens to combine the $1.2 billion telephone company with Systematics, creating a software and communications synergy. Alltel's revenues have grown 44 percent over the past five years and net income was $151.5 million in 1989. Its focus is on local telephone, cellular telephone, distribution and long distance service and the merger with Systematics moves it into information services.

"Joe made a very good case," Stephens says of the combined talents of the two companies. Although some news accounts have questioned how the two companies can benefit from each other's expertise, Stephens says Ford's vision is on track. "I think Joe Ford is years ahead," he says.

Ford says analysts just aren't reading the writing on the wall. "It's just a natural," Ford says, reeling off names of other regional telephone companies that have purchased Systematics' like companies in the past few years. Cinncinatti Bell generated the majority of their growth and all of their increased net income in 1989 from a computer subsidiary, Ford says. New York Telephone, Contel and U.S. West all have joined the communications/software bankwagon, he adds.

"It is not something brand new," Ford says. "We've been watching this for a number of years."

As an added sales perk, Stephens' stake in Systematics has risen in value 25 percent the first five months of the year as the stock has climbed steadily, closing at $44.25 a week ago. For Systematics stockholders whose stock has been traded over-the-counter, the move to Alltel means a listing on the prestigious New York Stock Exchange with its greater liquidity.

The Systematics/Alltel merger will probably go down as another shrewd move Jack Stephens has made. Moves like taking Wal-Mart and Tyson Foods public. Like buying Stephens Production Co. in 1953 for $5.4 million, a company whose natural gas holdings are estimated at nearly $1 billion today. To cap it off, Stephens $650 million in investment working capital now places it 13th in the country, just behind Kidder Peabody.

So what's the secret of this stunning accumulation of wealth? Can it be taught?

"I don't know. It comes from being observant. You encourage people to be observant," Stephens says. A person needs to have a sense of adventure and an ability to see opportunities and take them. You can't be in love with money, he adds.

What's so special about Jack Stephens? "Lucky," Stephens says at first with a smile. Realizing the questioner wants more, after a pause, he adds: "I've had the ability to hire a lot of smart people, and the ability to know the difference."

Or, another maxim: "My enjoyment comes not from making money, but from trying to do things. If you just set out to make money, as soon as you make enough, you're going to quit."

This keys-to-financial-success approach sounds absurdly simple and Stephens seems to realize it, knowing the answers to his Midas touch can't be contained in bland formulations. At one point, he gives up trying to answer the questions, like some math prodigy who doesn't fully understand an inherited instinct beyond words.

PHOTO : LETTING SYSTEMATICS GO: Jack Stephens cash his vote in favor last week of letting $230-million Systematics Inc. merge with Alltel Corp., relinquishing control of the 22-year-old company he started from scratch.
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Title Annotation:Jack Stephens' Systematics Co.
Author:Walker, Wythe, Jr.
Publication:Arkansas Business
Article Type:company profile
Date:Jun 4, 1990
Previous Article:Twice failed; dim prospects for revival of a South-oriented magazine with demise of Southern, Southpoint.
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