In the competitive environments of business, politics, and sports, the most applicable saying is- "To the Victor Goes the Spoils." If you are a participant in the business or investment world, in many industries there are typically one or two large companies which control the vast majority of market share, and the remaining entrants are left to scrap for the crumbs. As a result, the largest valuations and premiums in the market are given to the biggest winners. Taking this reality even a step further, companies are in a competition to acquire as many customers as possible and fight as hard as they can to maintain, keep, and grow their bases. The natural conclusion is every public company has to strive to create the perception in the public eye that they have the best offering in market.
As an investor, I think you have to try and identify situations where leaders realize they have to be bold and make big bets which are rational and have good risk reward potential. In addition, it is not enough to take swings, companies have to execute on the leaderships vision. For example, JC Penney thought they had a trans formative leader in Ron Johnson and tried to change the company. It failed because of an inability to implement his plans in an organized, coherent, and predictable manner. So, it is not enough to have grand plans, the ability to "Bring it to life," is the name of the game.
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When it comes to grand leadership, John Malone and Greg Maffei at Liberty Media stand out in a universe of, shall we say, mediocrity. Malone's latest plan is to buy the rest of Sirius XM Satellite and exchange it for a new class of non voting Liberty Media shares. Naturally, the Sirius-XM shareholders don't like the price being offered. The noted consumer advocate and long time want to be serious presidential candidate Ralph Nader even weighed in on the supposedly ridiculous offer, even commenting that Carl Icahn should get involved. Law firms from all over the country have announced they are looking at the proposal for fear the Sirius shareholders are being taken advantage of. As a shareholder of Liberty's for well over 15 years now, the plan is classic Malone, and if Sirius shareholder don't think they are getting a fair price, they can vote no on the offer. However, I would just note that this is not Malone's first rodeo and I suspect eventually Liberty will buy in the rest of Sirius and move on to the main event, which, for those of you following the saga, is Time Warner Cable. If you are a Sirius shareholder, just a thought, you might want to stick with the Malone guy.
Turning to the next large wager, Apple has decided to place their retail stores in the hands of ex-Burberry CEO Angela Ahrendts (here is a nice article exploring her background even further-http://www.macrumors.com/2014/01/06/how-angela-ahrendts-burberry-experience-could-drive-the-future-of-apple-retail/). She is very familiar to me as a Burberry shareholder and did a great job of positioning the company perfectly for the future. I was sorry to see her leave and go to Apple. She will have a large task ahead as the Apple retail opportunity is currently about $20 billion in size, compared to $6 billion or so at Burberry. In time, I suspect she will make a big impact on Apple and it is a great example of how human capital and strong leadership skills could potentially have a major impact on an already important industry leader.
Another lady who is not afraid to make massive wagers is Marissa Meyer, the CEO of Yahoo. She spoke this week at the CES show in Las Vegas while announcing an acquisition. Yahoo investors essentially get a call option on her big bets as their existing position is almost based entirely on the their ownership stake of the Chinese giant Alibaba, which will have an IPO later this year. If managements investments in human capital, a change in the corporate culture, and a overhaul of their mobile platform begin to work, shareholders potentially could have a reason to "Yahoo."
On the audacious leadership front, T-Mobile CEO John Legere certainly does not lack for chutzpah. He decided to crash an AT&T presentation at CES and the publicity he received from the stunt has been through the roof, which won't hurt the business. In fact, Legere has been very innovative in going after Verizon and AT&T customers and during the recent quarter, a record 1.6 million consumers became subscribers. Just last week, T Mobile began an offer to pay hundreds of dollars as an incentive to get AT&T customers to jump to T Mobile. Do you think that had anything to do with why Legere was thrown out of the AT&T presentation?
Finally, it appears the markets is starting to reprice assets which probably needed to be adjusted. Last week, a very good friend of mine commented on Twitter's valuation and how it was probably a very easy short. I dismissively thought otherwise, for any number of reasons, but the bottom line is the stock is now down 17% since that time. No, we don't own shares and I think Twitter has a bright future, however, in many cases, market prices in no way reflect business reality, and this may have been one of those situations.
Thank you for reading the blog and if you have any comments, opinions, or questions about the blog, please feel free to email them to me at information@y-hc.com!
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.
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