The glances are quick and admiring ones, between two friends, perhaps mentor and pupil, at the least two men who seem to know each other well.
They are W. Clement Stone, the Chicago insurance tycoon who built the $3 billion Combined International Corp., and his former son-in-law, Dr. LeRoy A. Pesch, who is trying to build a health-care empire through his Chicago-based Pesch and Co.
The relationship has come in for considerable speculation since Pesch announced Feb. 9 that he was offering $1.74 billion, since raised to $1.91 billion, for American Medical International Inc., one of the nation`s largest hospital chains. Especially there was speculation that Stone might be bankrolling the deal.
The two have offices in the same building in Lake Forest, Pesch on the third floor, Stone on the second. In a joint interview there, Stone said he had sat on the boards of Pesch`s companies but indicated that his contribution to his former son-in-law`s earlier ventures was limited to advice.
Pesch called Stone ”an investor” in his businesses, but Stone, asked how much money he had invested, said only, ”I`ve given advice when called upon by him in business and family matters.”
The pair share a bond based on the memory of the late Donna Stone Pesch, Stone`s only daughter and Pesch`s first wife. Though Pesch, 55, has remarried and has a week-old son, the bond seems strong and permanent. Two pictures of Donna stand in the bookcases in Pesch`s office.
Taking a short puff on his cigar, Stone, 84, remembers his daughter.
”We had a very close relationship. We spent a great deal of time together, and I always viewed Donna as my partner,” Stone said, glancing at his former son-in-law. Pesch, a huge but seemingly shy man, looked down and seemed to blush.
This special partnership lasted until Donna`s death in 1985 and now seems to have flowered into a strong friendship with Pesch.
Donna Stone made her mark in charitable causes. She founded the National Committee for Prevention of Child Abuse and headed the Stones` foundation, Endow a Dream.
Pesch`s introduction to the Stone family came in 1973.
”We`ve been associated with each other for about as long as I`ve been here in Chicago,” Pesch said. ”I had an opportunity to meet Mr. Stone and his son, Clement, while I was at Michael Reese (Hospital and Medical Center). I knew about his philosophy, his work with young people through the Boys Club and his work through his foundation. So I felt that I really knew him as part of the Chicago scene. I then met his beautiful daughter, fell in love and we were married. I`ve gotten to know him very well.”
Beyond family memories, Pesch and Stone share interests in business, similar childhoods and Stone`s favorite subject, ”Positive Mental Attitude
(PMA),” a philosophy based on the idea that a positive outlook can overcome life`s obstacles.
Pesch is a full foot taller than the 5-foot-4 Stone, but the two say they see a little of themselves in each other.
Like Stone, Pesch sold newspapers as a boy in his native Rowan, Ia., a town of 206 people. Stone hawked the Chicago Examiner at age 6 in Chicago before heading his own newsstand at 13.
As a boy, Pesch learned to practice positive mental from his father, who lightly preached this philosophy by reading on the subject to his son.
Stone spent his spare time reading Horatio Alger stories about impoverished boys who rise from rags to riches.
”I sold papers, like Mr. Stone,” Pesch said. ”I grew up in a very small town. My parents were both teachers. My mother was a music teacher. I had already begun practicing PMA before meeting Mr. Stone.”
Pesch said he had interests in music and science. He trained as an opera singer but decided to study medicine.
Pesch earned his medical degree (cum laude) from Washington University in St. Louis in 1956 and completed his training with a residency at the Yale-affiliated Grace New Haven Hospital in New Haven, Conn., in 1960.
The young doctor spent the next two decades holding professorships in medicine at the University of Chicago, Yale, Stanford and Northwestern University and was dean of the medical school at the State University of New York-Buffalo.
He also was president and chief executive of Michael Reese from 1971 to 1975. From 1975 to 1976, he served on a national health insurance advisory panel to the House Ways and Means Committee.
Pesch said he resigned from Reese to pursue the challenge of business.
”It`s clear that I began developing my own business interests after I left Michael Reese,” Pesch said. ”I talked with Mr. Stone about starting a business venture . . . the possibilities and difficulties of starting a business . . . and he encouraged me very much to start a health care business. ”He became a very close adviser and has served on all the boards (of Pesch`s businesses). He`s been an investor, a friend, close family member and a teacher about the principles of developing a business.”
Pesch married Donna Stone in 1979. By 1981, he was was ready for business and formed Health Resources Corp. of America, a health care consulting firm. He was its chairman and chief executive before merging it with Republic Health Corp.
Last year, Pesch surprised some health-care analysts by leading a $406.2 million leveraged buyout of Republic Health, based in Dallas.
This year he began courting one of the nation`s largest hospital chains, American Medical International, based in Beverly Hills, Calif. Pesch offered $22 a share in cash and securities for the purchase of AMI after first offering $20 in cash per share for the 86.9 million common shares outstanding. AMI has said it is not interested in selling, but Pesch seems persisent and believes AMI`s strategy fits with his on the delivery of health care.
”What we need are the knowledge and capabilities to transform the system so that those who need care can have it,” he said.
”I think of it as my magnificent obsession . . . to deliver health care in a way in which it`s available for everyone. We`d like to eliminate the problems of illness through the practice of PMA, and we feel it can be done. We have an aging population, and it`s important to stress preventive medicine.”
Stone, who often interrupted Pesch, interjected: ”It`s possible to implement the principles of PMA with the delivery of health care.”
Stone co-authored ”Success Through a Positive Mental Attitude,” wrote
”The Success System That Never Fails” and is working on another book.
The lounging annex of Stone`s office has pictures of Stone and Presidents Reagan and Nixon and group shots with his two sons, Clement and Norman.
Norman Stone is a psychologist in San Francisco. Clement Stone, who was president and chief executive of Combined from 1973 until he resigned in 1983, died last year of heart disease. There has been speculation that Stone now sees Pesch as much as a son as a former son-in-law.
”Well, I think our ideas coincide, and he certainly has adopted the PMA philosophy, and one of the principles–to use `OPM,` other people`s money. In other words, the bankers, those who can help . . . that`s really how great companies are built,” Stone said.
”He`s a man of outstanding character and a man who can get things done,” Stone said.
Before wrapping up his afternoon with Stone, Pesch hands Stone a photograph of Pesch`s new son.
”When I think about tomorrow, I`m happy I have an opportunity for another day,” Pesch said.
