Family
Business Magazine E-Newsletter
November
4, 2008
Contents
1.
Sumner Redstone sells $233 million in Viacom, CBS shares.
2.
Concerns about Ford family involvement prompted Kerkorian to cut his
stake.
3.
Modelo seeks to buy back Anheuser-Busch's stake.
4.
Kaplan generates half of Washington Post Co.'s profits.
5.
New York Times Co. to consider cutting dividend.
6.
Chris Galvin rues 'being excommunicated' from Motorola.
7.
Ensuring sound governance by family company boards.
8.
Creating a family charter.
1. Sumner Redstone sells $233 million
in Viacom, CBS shares. Sumner Redstone has sold $233
million of his holdings in Viacom Inc. and CBS Corp. to meet loan
terms, the Wall Street Journal
reported. He had used his stakes in the two media companies "to help
back a $1.6 billion loan to expand his family's movie theater chain,"
the article said. "According to people familiar with the situation, he
was caught off guard by the turn of events," the Journal reported. The loan
reportedly "was linked to the operating performance of National
Amusements as well as Viacom and CBS stock," the Journal explained. So far, Redstone
has sold only non-voting stock, thus remaining in control of the
companies, "but he could be forced to sell more stock if the companies'
share values fall," the article said. An analyst told the Journal, "If National Amusements is
subsequently forced to sell voting shares, this could put CBS and
Viacom in play." But Redstone asserted that he will not sell Viacom or
CBS, the Journal reported in
a later article. "Mr. Redstone's comments suggest he would turn to
other assets if National Amusements found itself in the situation of
having to repay a big chunk of its debt," the Journal noted. The $1.6 billion
loan "has raised questions among investors as to why National
Amusements needed so much money," the earlier article said. The loan
was used primarily to expand National Amusements' privately held movie
theater chain, run by Redstone's daughter Shari, who has been "building
the business aggressively," the Journal
reported. "Mr. Redstone and his daughter have been at odds over
the future of the theater business." Analyst Rich Greenfield of Pali
Research told Portfolio.com that another factor behind National
Amusements' debt is Sumner Redstone's 2002 divorce settlement. The
terms were never made public, but Greenfield speculated that Redstone's
ex-wife, Phyllis, may have received between $1.5 billion and $2.5
billion. And another divorce is in the works. Redstone and his second
wife, Paula Fortunato, have announced that they are ending their
marriage, Portfolio.com reported. According to the Los Angeles Times, the terms of
their prenuptial agreement stipulate that Fortunato will receive at
least $5 million, or $1 million for each year of marriage.
(Sources: Wall Street Journal,
Oct. 14, 2008, Oct. 23, 2008; Portfolio.com, Oct. 17, 2008, Oct. 22,
2008.)
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2. Concerns about Ford family
involvement prompted Kerkorian to cut his stake.
Billionaire investor Kirk Kerkorian, who cut his stake in Ford Motor
Co. from 6.43% to 6.09% and may sell all of his remaining shares, was
"disturbed by the abrupt departure of Ford Chief Financial Officer Don
Leclair and the immediate resignation of two board members" in October,
the Wall Street Journal reported.
Kerkorian and his financial adviser "worried the departures signaled
the Ford family was tightening its control of the company and could
impede its turnaround," the article said. "When he first began buying
Ford shares April 2, Mr. Kerkorian thought the company was headed for a
rebound that could double or triple his money," the Journal report noted. "Instead,
high gas prices, the sluggish economy and the credit crisis pushed the
car industry into a deeper downturn." The Journal's "Deal Journal" column
noted that Kerkorian's decision to reduce his stake in the company "is
a big no-confidence signal at a time when the stock is near historic
lows." (Source: Wall Street
Journal, Oct. 22, 2008.)
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3. Modelo seeks to buy back
Anheuser-Busch's stake. Mexican brewer Grupo Modelo SA is
seeking to buy back all or part of Anheuser-Busch's 50% stake in the
company, the Wall Street Journal
reported. "If struck, the deal would substantially alter InBev NV's
pending $52 billion purchase of Anheuser-Busch," the article said. The
report noted that Modelo "has been approached by a number of parties
including SABMiller PLC about jointly acquiring the Anheuser stake" but
that "Modelo has yet to decide whether to pursue a partnership." The Journal article said that
Anheuser's interest in Modelo "was part of Anheuser's allure for
InBev." Modelo has filed notice to begin arbitration on the matter but
is also conducting settlement talks with InBev, according to the
report. (Source: Wall Street
Journal, Oct. 17, 2008.)
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4. Kaplan generates half of
Washington Post Co.'s profits. The growth of the
Washington Post Co.'s Kaplan education division "has had a profound
impact on its parent," according to a profile in Fortune. "Behind the scenes and
with little fanfare, [Jonathan Grayer, who runs the division] has
quietly transformed Kaplan from a stodgy test-preparation provider into
one of the country's largest education companies, with one million
students, 70 companies, and an online law school," the article said.
"Sales in 2007 totaled $2 billion, compared with $80 million in 1994,
the year Grayer was named CEO." The report noted that Kaplan now
accounts for half of the Post Co.'s $4 billion in annual sales.
"Partially as a result, the Post's stock ... has fallen less than the
shares of other newspaper companies," Fortune
reported. But Kaplan faces tough challenges ahead, "including a
slowdown in the U.S., where -- because of the credit crunch -- student
loans have become harder to obtain," the report noted. "To make up for
that, Kaplan is undertaking a risky expansion overseas. The company is
also facing its share of legal tussles, part of a broader web of
student-loan scandals." Meanwhile, the Post Co. has acquired Foreign Policy Magazine, according
to Folio, a trade magazine
for the publishing industry. (Sources: Fortune, Sept. 15, 2008; Folio, Sept. 29, 2008.)
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5. New York Times Co. to consider
cutting dividend. The New York Times Co. will consider
cutting its dividend, Bloomberg.com reported. The company posted a
third-quarter loss from continuing operations of $2.08 million, or 1
cent per share, according to the report. The controlling
Ochs-Sulzberger family receives $25.1 million a year, the report noted.
According to Bloomberg, Times Co. CFO James Follo said in a conference
call, "On the dividend front, it's a fairly dynamic discussion." The
report added, "Last year, New York Times raised its quarterly dividend
by 31 percent to 23 cents a share, the biggest increase in a decade."
An analyst told Bloomberg that "A significant cut to the payout may
fracture family unity and lead to the sale of the company to outsiders
or a private-equity group that includes some family members." A lengthy
profile in New York magazine
noted that "Today there is greater possibility for division in the
Sulzberger family than there was a decade ago." The report said that in
the past ten years, "at least seventeen new family members have turned
25, the age at which they are allowed to join the trust's board or vote
for trustees.... In 2001, the family trust was quietly amended,
expanding the number of family trustees and allowing a less than
unanimous vote on 'extraordinary corporate transactions' -- leaving the
door open for a faction of family members to push for a sale." Citing
unnamed sources, the article said the family's trust is "surprisingly
undiversified, with a high proportion in Times stock." The New York report noted that there is
no obvious next-generation family successor. "One thing that would
cause the fifth generation to take a sudden interest in the family
business is a decrease in trust income" because most of the heirs
depend on it for living expenses, the article said. (Source:
Bloomberg.com, Oct. 23, 2008; New
York, Oct. 5, 2008.)
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6. Chris Galvin rues 'being
excommunicated' from Motorola. In a recent interview in Portfolio, Chris Galvin -- the
former CEO of Motorola and grandson of founder Paul Galvin -- discussed
the pain he felt on being ousted by the board in 2003 after dramatic
losses in 2001 and 2002. "My father's and my primary passion in life
was Motorola," Galvin told Portfolio.
"Being excommunicated from Motorola was so painful, it is beyond
words." Galvin's successor, Ed Zander, got credit for the success of
the Razr cell phone and a rise in the company stock price. In 2007 net
income fell, activist investor Carl Icahn bought a stake in the company
and the board fired Zander. Evidence shows that the Motorola's
successes in 2003 and 2004 can be attributed to the efforts of Galvin
rather than Zander, Portfolio reported,
yet Zander insisted on radical changes. "One of the things I
underestimated," Zander told Portfolio,
"is that this is a company that has 70, 80 years of culture." Galvin,
who after his ouster from Motorola founded private equity firm Chicago
Harrison Street Capital with his father and brother, "may have botched
his early years at [Motorola], but he pulled things together and
started a turnaround," the article said. "[M]aybe he didn't have a
chance; he may have started too young. Just as he figured out how to do
his job, the board ran out of patience." The report added that "much of
the blame falls on the company's board of 2003. While believing it was
doing its fiduciary duty, it caved to pressure from Wall Street and the
media to try to produce positive and predictable quarterly numbers. It
fired the wrong man at the wrong time and hired the wrong man at the
wrong time." (Source: Portfolio,
October 2008.)
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7. Ensuring sound governance by
family company boards. "Like their counterparts in
publicly traded companies, family company boards must adhere to
fundamental governance principles," notes Robert H. Rock -- president
of Family Business Publishing Company and MLR Holdings and chairman of
the editorial advisory board of Directors
& Boards -- in an article in The Family Business Shareholder's Handbook.
He offers the following advice:
- A board should not attempt to manage a
business. Independent directors must be careful not to usurp
management's responsibility to manage the company, and CEOs must
recognize the board's authority to oversee management.
- Boards must recruit directors who combine
intelligence and experience with character and judgment. Strong,
independent directors ask tough questions that challenge managers and
hold them accountable for results. In effective family business boards,
open dialogue and vigorous debate are encouraged, enabling directors to
freely express their views, whether or not the family agrees with
everything they say.
- The foremost accountability of a board is
to represent the interests of stockholders by ensuring there is a top
management team willing and able to pursue those interests. The
board must ensure that top management candidates from both within and
outside the family are being identified and developed.
For more advice
on effective governance of your family company, see The Family Business Shareholder's Handbook.
Learn more about the book and see the table of contents here.
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8. Creating a family charter.
"A family charter or constitution provides direction for your family,
especially when you move beyond a unilateral decision-maker," writes
family business adviser Ellen Frankenberg in the current issue of Family Business Magazine. "Once
owners multiply into the second and third generations, it becomes
critical to have clear, written statements about the family's core
values, goals, ethical principles, criteria for leadership and
structures for governance." To get started on creating a charter,
Frankenberg recommends that families ask each adult member to answer
questions like the following. "After you've shared your ideas within
the family circle," Frankenberg advises, "designate one or two members
to pull together the key concepts and distill them into a one-page
document."
- How do
you feel about your family business?
- How
important is it to you that this business remain in the family?
- What have
been the ingredients for success in our company, especially compared to
its competitors?
- What are
the requirements for hiring other family members, especially in the
successor generation?
- What
ethical principles or guidelines will you propose for family members
who work at the company?
- What
criteria will future leaders/managers be required to meet?
- How will
ownership be transmitted?
- How will
the company be governed in the future?
- Which
aspects of your family heritage do you wish to perpetuate?
- Does the
family share a vision for the future?
For advice on
the next steps, plus more family business tips and strategies, see the
Autumn 2008 issue of Family Business
Magazine. To learn how to subscribe to our award-winning print
edition, see here.
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