Leadership is analyzed, discussed, argued about, and increasingly dissected in any number of methods. The reason why leadership is so important is because over time, the decisions a head of an organization makes directly affects the outcomes which ultimately become the end result. My area of interest is obviously business and the capital markets, but certainly in politics, sports, government organizations, non profits, and personal relationships, the same idea is applicable. Especially in business and financial markets, you have to think in 3, 5, or 10 year periods. One year in the business world is really too short of a time to evaluate any leader. So over a long periods, excellent leadership slowly but surely displays good decision making one transaction at a time, and these build up to enormous results which at any single point might not seem so significant.
I think in the corporate world, the ability to execute small deals, medium sized deals, and large blockbusters is something which is learned over time as experience is accumulated. Deal making matters in the corporate world because it can change the direction of a company, potentially positively and negatively. In addition, how a deal gets structured speaks to efficiency as far as what assets are acquired, the price which is paid, how they are financed, and the tax consequences for both the acquiring and selling company and their respective shareholders. In many situations, deals are done where if they were structured very differently, more flexibility for both parties would be the end result. Also, the tax benefits might be completely different with a different deal concept.
A few weeks ago, I wrote about the success of John Malone. A key feature about Malone is his track record of corporate transactions of every size imaginable, using a variety of different methods to be as tax efficient as possible. One of his major arguments with AT&T was how they structured their deals when they acquired large cable companies after they bought Malone's TCI Cable. The term I can recall is 'Killing the pig without using the blood and the guts.' I am seeing this a great deal in the most recent deals in the business world, especially with high tech companies.
For example, we have seen Yahoo buy Tumblr and pay for it using cash. I think Marissa Meyer is really trying to change that company, and this deal is a good example of it. However, I think she could have changed how the deal is structured and it would have been far superior from an efficiency point of view. Ultimately, how Yahoo integrates, grows, and builds Tumblr from a revenue and profit point of view is what is most important.
Malone is bidding for the one of the largest cable companies in Germany, and Vodaphone is considering a all cash offer for it as well. Malone will not offer cash, instead offering cash, debt, and stock in some combination. Cash is a very valuable asset, and with today's cheap interest rates, from my perspective it does not make a great deal of sense to use your cash when you could easily use some cash, and finance the rest with cheap debt.
The series of decisions Malone has made over the last 10 years have been made patiently and each one has led to the next result. When he hired Greg Maffei from Oracle, people in the investment world noticed, but to most it did not mean a great deal. For Liberty shareholders, it helped completely change the direction of the company. Maffei has been a driving force in focusing the Liberty portfolio into situations where Liberty has a greater influence. For example, the bridge financing Liberty used to help extend Sirius Satellite liquidity during the height of the 2009 crisis enabled Sirius to avoid bankruptcy, and Liberty is now in control of that company. Other individual transactions would be selling out of the IAC stake, swapping News Corp stock for DirectTV (with tremendous tax benefits), and the most recent Charter Communications investment.
If looked at one deal at a time, an investor might minimize their importance. As time passes and the results accumulate, the leadership and good decision making become very clear. The same holds true with Mr. Buffett. Leaders like Marissa Meyer are starting to try and make their footprint in the same way. Deal experience takes time, and the skills are acquired with practice, as is almost anything valuable and worthwhile.
The whole trend of digitization becomes more and more pertinent as technology evolves. Here is a great story in the NY Times about 'Big Data' and how it applies to the biggest industries-
http://bits.blogs.nytimes.com/2013/06/19/sizing-up-big-data-broadening-beyond-the-internet/?ref=business&_r=0
There are many investors who believe that Google is in much better position than Apple. Here is an article which might make them reconsider- http://allthingsd.com/20130623/is-ios-fragmenting-not-nearly-as-much-as-android/?mod=atd_homepage_carousel
Need evidence how digitization can affect a business?
http://seattletimes.com/html/businesstechnology/2020862483_starbuckssocialxml.html
Thank you for reading the blog post, and I hope you are having a great and cool summer!
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.
No comments:
Post a Comment