While activist Mario Gabelli pushed Griffin REIT for share buybacks, its CEO pursued a transformational strategy. He sold mediocre land in Hartford to fund development of a modern warehouse portfolio in Lehigh Valley, ultimately leading to a buyout at double the price.
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Rainwater's method was to find a great business with poor management, acquire a stake, and then use his influence to install a world-class leader. He did this with Disney by bringing in Michael Eisner, believing the 'fix was just really easy. All he had to do was change the CEO.'
Buffett’s legendary Apple investment came only after activists like Carl Icahn had already pressured the company into large-scale buybacks. He patiently waited for others to fix the company’s capital allocation flaws, entering the investment only after it was "perfected." This strategy allowed him to win without engaging in the initial conflict.
In a REIT liquidation, management teams with little equity ownership may be incentivized to accept the first reasonable offer to ensure a quick wind-down. This contrasts with an owner-operator who would fight for every dollar, potentially leaving value on the table for shareholders.
Despite poor performance, CEO David Zaslav skillfully navigated a bidding war between Netflix and Paramount. By positioning Warner Bros. as a must-have asset in the streaming wars, he drove the acquisition price from $8 to $30 per share, securing a billionaire outcome for himself regardless of the winner.
Corporate leaders are incentivized and wired to pursue growth through acquisition, constantly getting bigger. However, they consistently fail at the strategically crucial, but less glamorous, task of divesting assets at the right time, often holding on until value has significantly eroded.
When Front Office Sports realized an investor was a "buyer, not a strategic partner," they didn't wait. They proactively found a new, more aligned investor (Jeff Zucker's Redbird IMI) and engineered a deal to buy out the previous firm, providing them a return while freeing the company to pursue a more aggressive growth strategy.
Rather than passively holding, Julian Robertson directly engaged with the management of his portfolio companies, such as Ford. He wrote letters challenging their capital allocation decisions, advocating for share buybacks over low-return acquisitions to unlock shareholder value.
Even with a clear valuation case, the reality of implementing change involves significant interpersonal wrangling and complexities not visible on a balance sheet. The 'brain pain' of execution far exceeds the initial analytical work, highlighting the difficulty of turning a thesis into reality.
When Joan Barnes pitched her retail pivot, a board member and retail veteran advised against it, citing the team's inexperience. However, the lead investor overruled him, providing the bridge loan that funded the successful test stores.
Two founders rejected a $20M acquisition offer they felt was too low. After successfully pivoting their business during the pandemic, they returned to the same buyer and received a doubled offer of $40M with better terms. This shows how patience and focusing on business performance can dramatically improve an exit outcome.
