There are two value companies I have been eyeing for quite sometime Albertsons (ABS) and Disney (DIS).
(http://finance.yahoo.com/q/bc?s=ABS&t=5y&l=on&z=m&q=l&c=dis,%5EGSPC) Both companies have underperformed vs. the S&P over the past three years. I have been accumulating stock in one of them (ABS) and may begin to accumulate in the other (DIS). Both have excellent assets but have struggled in their industry recently. The BOD of each company has decided to bring in a new CEO. Will this help?
Albertsons hired Larry Johnson as their new CEO who came from GE several years ago. Here the BOD’s strategy was to bring over the “best of breed” managers (they paid him very well too) to restructure Albertsons. Larry was mentored by Jack Welch and seems to have the necessary skill set to run an operation like Albertsons. It’s been more than 36 month’s and I am still waiting for the company to regain their growth & profitability potential.
Disney on the other hand decided to promote from within and announced Robert Iger who will officially replace Eisner in 2006.
Disney: What Kind of Boss Will Bob Iger Be?
(http://www.mutualofamerica.com/articles/Fortune/March2005/Fortune.asp)
Each company has their own unique set of problems. The common thread with these two companies are that (1) they are very large, (2) were top performers in their industry but now are out of favor, (3) have under utilized or wasted assets that need to be polished and (4) their BOD’s have hired a new CEO to build an effective management team for the future.
Execution : The Discipline of Getting Things Done by Larry Bossidy and Ram Charan with Charles Burc summarizes many of the important skills that today’s CEOs must have. (Larry Bossidy was also a former GE manager mentored by Jack Welsh and went on to become CEO of Allied Signal in 1991. He successfully completed the merger of AlliedSignal and Honywell in June 1999.)
From the book “Execution”: “...The leader’s most important job—selecting and appraising people—is one that should never be delegated. With the right people in the right jobs, there’s a leadership gene pool that conceives and selects strategies that can be executed. People then work together to create a strategy building block by building block, a strategy in sync with the realities of the marketplace, the economy, and the competition. Once the right people and strategy are in place, they are then linked to an operating process that results in the implementation of specific programs and actions and that assigns accountability. This kind of effective operating process goes way beyond the typical budget exercise that looks into a rearview mirror to set its goals. It puts reality behind the numbers and is where the rubber meets the road....”
Steve Jobs comes to mind as someone who brings passion to his leadership role and has inspired a "new way" of corporate thinking that achieved excellent results.
Many of my most profitable investments have been where a new CEO was hired to “turn around” a beaten down value company. It usually takes 36 months for the new management to get all the changes made. Eventually if everything works right, sales growth returns and profit accelerate.
Bruwin noted another excellent long term turnaround with IBM. There are many. They key is to find the next one, and get lucky that the BOD finds the right CEO to make the necessary changes happen.
If anybody have some candidates for “value” companies that have recently brought in new management or need a new CEO to make changes, please share. Maybe there is a hidden diamond in the rough.
EKS |
