In 1995, the Walt Disney Company announced its acquisition of broadcasting powerhouse Capital Cities/ABC Inc. for $19 billion. This deal changed the American media industry forever. It also made history for being the second-largest corporate takeover at the time.
I watched the Murphy “gem” on Charlie Rose that Buffett mentioned in his letter this week. The interview was from 1995, weeks after Cap Cities/ABC agreed to its deal with Disney.
Nuggets I found interesting:
It was important to Murphy that his shareholders retained stock in the pro forma company; “we wanted stock because we always wanted a ticket in the horserace”
Clearly he liked the market structure, and while he liked ABC’s position, he did not want to compete with Disney + another network (i.e., CBS or NBC)
Did not fail to mention that he was selling Cap Cities stock tax-free (by converting into Disney stock)
Seems he genuinely liked the broadcast business because it came with a responsibility to keep the place a good place - a societal duty given the content that was being provided to the public
Introduced to Warren Buffett via Bill Ruane, who was a Columbia classmate of Buffett’s
On what he thinks he had in common with Buffet: “We thought the same way about businesses. If you ran a business, you had a responsibility to your shareholders.”
If there are ways to capture the essence of capital allocation in one sentence, this is one of them
At 37:30, Murphy gives his view on what makes Buffett’s genius
Murphy was competitive
“You can’t be in our business doing what we’re doing unless you like to win…and winning to me always was making the most money compared to the other two guys. Because that’s the way we kept the score.”
Like Buffett, laments the missed deals; the errors of omission
Talked about holding firm on price, missing a deal over the last 7% of purchase price (I think Thorndike also talks about this instance in The Outsiders)
Mentioned a third-party deal gone bad - this was MCA, owner of Universal, being bought by Matsushita; seemed to be inspired by Sony buying Columbia pictures about a year earlier
Potential Commoncog case study?
Murphy’s unsolicited theory of acquisitions:
In bad times: 2 out of 3 acquisitions go bad for the buyer, i.e., they don’t make money
In good times: 3 out of 4 acquisitions go bad for the buyer because they pay too much out of excitement and euphoria created in the good times…human nature
Principles of doing business
Stay in your area of expertise, which for them was advertising supported media (he says this multiple times in the interview); Buffett’s way of saying this is staying within the circle of competence
In reference to having the chance to buy a movie studio: “We didn’t bring anything to the movie business except money. I mean I do not know how to make movies.”
“I’ve always spent my entire life hiring the smartest people I could find”
Mentioned this a couple times
“We are decentralized, give people a lot of authority and responsibility, but we will not tolerate anyone who discredits the company or themselves by illegal or improper activity”
“We want to be fair to our employees and our audience out there and our stockholders”
Think about who you don’t want to compete with…these are usually great businesses and operators
Near the end of the interview, he jokes about looking around over his shoulders for Rupert Murdoch
It was a great joy to find this article: I have been reading some of Buffet’s writings and saw that he named Tom Murphy as “overall the best business manager I’ve ever met”. I looked up Tom Murphy and a huge smile came across my face when I saw that Commoncog was one of the top results.
The management style of “decentralized yet tight” is an awesome style when pulled off well but hard to execute. You need to have a lot of trust that your reports will push themselves and will be aligned with your intentions. I’m reminded of a section from Designing the Future where Jeffrey Liker talks about team dynamics as being like a wolf pack (originally from Kipling): “An organization must nurture a person’s growth, amplify a person’s abilities, and earn an individual’s contribution. At the same time, each person must contribute to the success of the group and the success of others in the group or risk losing his or her place in the group. Leaders must carefully select and develop people and find ways in which each individual can best contribute.” Much easier said than done. It takes a true master to nurture, amplify, and earn each individual’s contribution while giving them so much trust.
The term “roll-up” also reminded me of a recent Graham Weaver interview with My First Million where he mentioned that if he were to start a business with his current expertise he would start a services roll-up- like a wealth management firm and an accounting firm and estate planning and so on. The power of building customer trust and being able to refer them is a powerful force.
“The kind of steps they took almost seem laughably obvious: getting rid of unnecessary executive perks (no more limousine privileges or flying first class); laying off around 1,500 employees; consolidating offices and selling real estate (they got $175 million for the flashy ABC HQ in midtown Manhattan).” I’m not sure how laughably obvious they were at the time- identifying easy costs to cut after an acquisition can only get you so far. Pretty magical how he was consistently able to improve margins from acquired businesses so dramatically.
I can see why Warren Buffet respected Tom Murphy so much after reading this. Incredible mastery over the business triad.