Hidden Value Asset Play

"profit. That worked out to a paltry 2.5 percent return on assets, about what the money would earn in a passbook savings account, and 10 percentage points below what Tisch viewed as a minimum acceptable level. Loew’s had the perfect investment profile: lots of hidden value hampered by poor management. But a stock isn’t a lot- tery ticket; it’s a business. Once an investor like Tisch gets his foot in the door, he aims to see it run like a business and will happily do it himself, if necessary."

"It was right out of Graham and Dodd, as was the notion of evaluat' ing a company’s underlying assets. Tisch liked insurance companies and banks, for example, because their asset values—in the form of cash, stocks, bonds, mortgages, and real estate—were simple to assess and fairly easy to access. A steel company is different; its value depends"

"The Tisch investment strategy was to acquire bargain-priced stock of publicly traded companies that held assets far more valuable than the average investor perceived. Some companies’ stock was cheap de- spite potentially valuable assets, because management hadn’t figured out how to transform those assets into ever-rising profits. In those sit- uations, the Tisches weren’t shy. They became activists. CBS was no"

"On to Wall Street and New Investment Horizons 49 A Foothold at Loew’s By the end of 1958, Nathan Cummings’s group had acquired 235,000 shares from dissident Loew’s Inc. directors at $22 each. Buy' ing with him were his brother Maxwell Cummings, a reahestate op' erator and developer in Montreal, and Paul Nathanson, a Canadian film distributor. The move ended the threat of a proxy fight by a db rector, Louis A. Green, who had clashed with management over what he viewed as mismanagement of the MetrO'Goldwyn'Mayer movie'producing unit. Other sellers included two other dissident directors—Joseph Torm linson and Jerome A. Newman. Tomlinson, a year earlier, had threat' ened a proxy fight over management’s plan to spin off Loew’s Inc.’s Canadian and U.S. movie theaters and its WMGM radio station, leaving MGM as an independent studio—a plan the courts had ap- proved. Cummings’s aim was to ensure that the plan could be com' pleted. He wanted to end up with MGM after the spinoff. By 1959, the Tisches had accumulated $69 million in hotel profit. Buying Loew’s shares ultimately would require tapping about 15 pen cent of that cash. That March, Loew’s Theatres was formally sepa' rated from Loew’s Inc.—soon to be renamed MetrO'Goldwyn'Mayer. Existing shareholders got a half share in each of the two new com' panies for each preTreakup share held. Tisch called Cummings and said, “What do I do now?” Cummings offered to buy Tisch’s MGM shares. “So I sold him my MGM stock and I still owned the Loew’s Theatre stock, and at that time the price of the stock was $14. I knew enough to know that $14 for a company without debt and $10 or $12 [per share] in cash plus 100 theaters and a radio station was awfully reasonable—plus the of' fice building in New York and other office buildings. So I just kept buying the stock at $14. The stock was always $14.” Tisch wasn’t playing the market. Loew’s was an asset play made at' tractive by a persistently low, stable stock price."