Strategy (from Greek strat“gia, "art of troop leader; office of general, command, generalship") is a high level plan to achieve one or more goals under conditions of uncertainty.
Strategy is important because the resources available to achieve these goals are usually limited. Strategy generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions. A strategy describes how the ends (goals) will be achieved by the means (resources). The senior leadership of an organization is generally tasked with determining strategy. Strategy can be intended or can emerge as a pattern of activity as the organization adapts to its environment or competes. It involves activities such as strategic planning and strategic thinking. (wikipedia)
Over the course of the last year or so, the business world has seen an abundance of merger and acquisition activity. These transactions are driven by the necessity of corporate boards and management teams to think and act strategically. You see, when financing terms are this rock bottom, call it 2% on the 10 year treasury bond for a market comparison, astute leadership groups understand now is the time to be 'opportunistic.' Naturally, some deals are put together in a more efficient way, and others, well, are lacking in, shall we say, efficiency. These situations are important because they often transform an industry for many years to come. As an example, the purchase of Time Warner Cable by Comcast has massive implications, which is why it is being given such critical 'scrutiny' by the different regulatory bodies, namely the Justice Departmen and FCC.
During the last month, one sector which has seen transactions consolidating the competitive landscape is the travel area. Expedia has been the most aggressive entity. Two weeks ago they purchased Travelocity, and last week, Orbitz Worldwide Inc (NYSE:OWW) was added to the stable as well. Consequently, the on-line travel arena, what else is there really, is left with three large enities: Expedia Inc (NASDAQ:EXPE), Priceline.com Incorporated (NASDAQ:PCLN), and TripAdvisor. Interestingly, two of the groups are controlled by one enteprise, in one form or another, and that would be, yup, Liberty Media. Which is why we bring up transactions and strategy as you want to own leadership which understands the critical nature of these deals. If you are a company with the largest share of a growing industry, your economics are better because of scale. When your economics are better, the multiple for your stock is higher, rewarding shareholders, and also providing a currency for even more deals. The CEO of many different companies in the Liberty family is Greg Maffei. He also sits on the board of directors of Zillow Inc (NASDAQ:Z). Zillow acquired its largest competitor Trulia Inc (NYSE:TRLA), and the transaction will close next week. Is it possible Mr. Maffei encouraged Zillow to acquire Trulia? Ya think (I am only speculating)? In another interesting transaction in the Liberty family, John Malone exchanged some of his voting shares in Starz for a small stake in Lionsgate, a well regarded content producer. Could that be a precursor for more ownership by Liberty? Strategic considerations would certainly dictate the possibility.
It was an interesting week in the capital markets as well as there were all kinds of events and earning reports which were of note. In the big boy department, Cisco Systems Inc (NASDAQ:CSCO) and Pepsico Inc (NYSE:PEP) helped the markets cause by reporting better than expected top line numbers and increasing their dividends. Cisco was particularly impressive as Mr. Chambers seems optimistic about business for the first time in two decades. Nvidia produced a nice quarter and gave some sunshine to the semiconductor space. Sprint Corp (NYSE:S) decided to buy the remnants of Radioshack Corporation (NYSE:RSH) after the latter declared bankruptcy. Good leaders take advantage of others misfortune, and certainly Softbank Corp. (TOKYO:9984) has a history in Japan of understanding to strike while 'the iron is hot.'
On the other side of the equation, Tesla Motors Inc (NASDAQ:TSLA) reported a very poor quarter from a financial perspective, although deliveries of nearly 9,000 cars were more than what was anticipated. Still, having long written about Tesla, the comments from Elan Musk are worth a thought. We must give Mr. Musk credit for creating what are thought to be industry leading products. However, from an investment point of view, when you have a CEO telling you they will not be profitable for another five years, uh, well, not my cup of tea. When the CEO then incorrectly compares the company to Apple Inc (NASDAQ:AAPL), which has 180 billion dollars of net cash and has the largest value of any company, delusional is the word which comes to mind. Tesla may indeed a transformational company. At this point in time, however, with Bay.Motoren Werke AG ST (XETRA:BMWG), Toyota Motor Corp Ltd Ord (NYSE:TM), Honda Motor Company Ltd (NYSE:HMC), General Motors Company (NYSE:GM), and others entering the electric car derby, the cult of Tesla might start losing a few followers.
At the Harbor Investment Conference in New York, Bill Ackman (CEO of Pershing Square Capital and organizer of the charitable conference) interviewed Ray Dalio, leader of Bridgewater Associates, a $160 billion dollar money management firm. Both are considered leaders in the investment world. The most interesting exchange between the two centered around the discussion of Dalio's quantitative approach to nearly everything in his life, especially the investment process. Mr. Ackman then cooly asked Dalio how he chose his wife? Dalio did not include any numbers in his answer, and was clearly taken aback. Something to keep in mind when considering how important qualitative factors are when making choices, investment and otherwise.
In the joy that is the political world, Greece continues to negotiate with the ECB over its debt obligations. After over five years of contemplating the possibility of a Grexit, or Greek exit, from the euro, maybe at some point the world can move past this. Either stay or go, but as the old saying goes, bleep or get off the pot.
Finally, President Obama waded into an interesting situation by commenting on Staples Inc (NASDAQ:SPLS) hiring and health care policies. The largest supplier of office supply products, which made a shrewd move recently in buying competitor Office Depot Inc (NASDAQ:ODP), responded by defending its practices. Perphaps our leader could start thinking and acting strategically as well, instead of taking selfies for his ever dwindling followers. Thank you for reading the blog this week, and if you have any comments or questions regarding the blog or investing, please email me at information@y-hc.com
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