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🔑 Company Profile: they bought $4 Billion of revenue for $100 Million
Welcome to the 218 new readers of The Business Academy.
I’m trying something new this week.
I spent hour researching an interesting Holding Company. I read dozens of articles on them, and summarized my learnings below.
Let me know if you enjoyed this, or if you’d rather I stick to my other format.
Today’s Business Academy takes 4 minutes and 35 seconds to read.
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I’ve become fascinated with Holding Companies…
As I learn about interesting holding companies, I’d like to share those with you.
Today’s pick is a company you’ve heard of, but I bet you don’t know their story.
Loews Hotels was founded by Laurence (Larry) Tisch in 1946.
Larry first convinced his parents to spend $125,000 on a resort hotel in Lakewood New Jersey.
Shortly afterwards he opened a luxury hotel in Brooklyn called the Loews Kings Theather Hotel. The hotel had an Olympic-sized swimming pool, a rooftop garden, and a theater that could seat over 3,000 people.
Larry spent the next decade building a hospitality portfolio…then something incredible happened.
The Supreme Court came down with an antitrust ruling (United States V. Paramount Pictures Inc)
Major movie studios were required to dispose of the movie theater chains they owned.
The Tisch brothers buy Loew’s Theathers from MGM 1959, which had 102 locations.
That same year they take the business public and list it on the NYSE.
The theaters they bought over were old, and out of style…
They had a choice:
Spend a lot of money remodeling their theaters, or sell the premium locations.
They decide to sell, and begin their diversification journey.
in 1968 they buy Lorillard Tobacco Company
in 1974 they buy CNA Financial
in 1979 they buy Bulova Watch Company
Fast forward to today, Loews Corporation had revenues in 2020 of $12.6 billion and EBITDA of $3.4 billion
But it hasn’t always been roses and butterflies.
I love to hear about struggles and mistakes these behemoths made along the way…
Loews Biggest Losers…
In 2007 Loews Corporation buys HighMount Exploration LLC for $4Bn.
It's a natural gas exploration and production company.
The following year gas prices collapse by 70%…
The CEO James Tisch decides that gas prices are not coming back, so he goes to sell it.
Here are a few media snippets about the deal…
Them looking to sell it…
The CEO of Loews moving on from the mistake:
James Tisch prediction proved to be correct.
Gas prices never recovered from their 2008 highs…
He did the right thing.
Cut their loses and moved on…
Which made me think of favorite Warren Buffett line:
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks
Summary of Loews Corporation performance over the years…
Loews Corporation went public in 1971.
If you bought $10,000 of stock in Loews at the IPO and all dividends were reinvested, the value of your investment today would be worth approximately $2,395,000 😮
Now lets learn about the Tisch family’s greatest feat...
After founding Loews Hotels, Larry Tisch diversified into insurance.
In 1974, he bought a struggling insurance company named CNA Financial Corporation.
The day after he buys the business, he tours the office.
He walk up a private spiral staircase to the chairmans office.
There he finds a marble room ajoined to a private dinning room.
That room was never used again in a symbol of new found austerity for the company.
Larry and his brother turn the business around. It becomes profitable, and eventually grows to become one the the largest insurance companies in the US.
Here’s a description of Larry
Larry gained a reputation as a tough questioner, an investor with a long-term perspective and a manager willing to delegate day-to-day authority to a proven professional.
Another quote about Larry’s style
''One thing you should expect with Larry Tisch is that the elimination of non-essentials will be swift and relentless,'' said Edward J. Noha, whom the Tisches brought in to head CNA's insurance operations. ''But you won't see any precipitous actions in terms of the core.''
Here’s the next level of the CNA Financial story:
In 1974 the business did $4Bn of revenue while losing $135 Million per quarter
End of 1974, the Tisch brothers buy the business for $100 million
The Tisches' hire Edward J. Noha, then the No. 3 man at Allstate Insurance (their smartest move yet).
Noha refocuses the business on its core strengths:
property casualty insurance and,
Lester Pollack, a Tisch associate, then leads the spin out of CNA's non-insurance business:
55 nursing homes, a cable TV company, 40% of a dental supply group, and Larwin group, a homebuilder that had lost $125M the previous year.
Today CNA makes up for more than 50% of Loew’s yearly profits 💰Put this one in the “Win” category.
One last hiccup in their journey I’d like to share with you…
In the 1990s, the company was embroiled in a high-profile legal battle with the US government. The allegations were that Loews' tobacco subsidiary, Lorillard, had mislead the public about the dangers of smoking.
The government ultimately won the case, and Lorillard was ordered to pay billions of dollars in damages. However, Loews managed to emerge unscathed from the incident, as the company had previously spun off Lorillard into a separate entity.
…there’s a lesson in there somewhere.
Have a great week,
ps: what did you think of this week’s story, 👍 or 👎?
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