Anders

"Anders had a very clear and specific strategic vision that called not only for selling weaker divisions but for building up larger ones. After making early progress on the sales front, he turned his attention to acquisition, and the military aircraft unit, the company’s largest business, was a logical place to start. On top of the economic logic of growing this sizable business unit, Anders, a former fighter pilot and an aviation buff, loved it. So when Lockheed’s CEO surprised him by offering $1.5 billion, a mind-bogglingly high price for the division, Anders was faced with a moment of truth. What he did is very revealing—he agreed to sell the business on the spot without hesitation (although not without some regret). Anders made the rational business decision, the one that was consistent with growing per share value, even though it shrank his company to less than half its former size and robbed him of his favorite perk as CEO: the opportunity to fly the company’s cutting-edge jets."

"This single decision underscores a key point across the CEOs in this book: as a group, they were, at their core, rational and pragmatic, agnostic and clear-eyed. They did not have ideology. When offered the right price, Anders might not have sold his mother, but he didn’t hesitate to sell his favorite business unit."

"First, Kapnick initiated a series of three special dividends to shareholders totaling just under 50 percent of the company’s equity value. Because of the large percentage of General Dynamics’ overall business that had been divested by Anders, these dividends were deemed “return of capital” and were, remarkably, subject to neither capital gains nor ordinary income taxes. As a next step, Anders and Kapnick announced a gigantic $1 billion tender to repurchase 30 percent of the company’s shares (as we’ve seen, share repurchases are highly tax efficient versus traditional dividends, which are taxed at both the corporate and the individual levels)."

"It is very, very rare to see a public company systematically shrink itself; as Anders summarized it to me, “Most CEOs grade themselves on size and growth . . . very few really focus on shareholder returns.” It is similarly rare (outside of the CEOs in this book) to see a company systematically return proceeds to shareholders in the form of special dividends or share repurchases. The combination of the two was virtually unheard of, particularly in the tradition-bound defense industry. . . ."

"The key to these phenomenal returns was the company’s highly effective (if unusual by defense industry standards) approach to allocating its human and capital resources. In the area of operations, Anders and his successors focused on two primary priorities: decentralizing the organization and aligning management compensation with shareholders’ interests."

"The Anders years (only three in total) can be divided into two basic phases: the generating of cash and its deployment. In each phase, the company’s approach was highly idiosyncratic. Let’s start with cash generation. When Anders and Mellor began to implement their plan, General Dynamics was overleveraged and had negative cash flow. Over the ensuing three years, the company would generate $5 billion of cash. There were two basic sources of this astonishing influx: a remarkable tightening of operations and the sale of businesses deemed noncore by Anders’s strategic framework."

"His turnaround strategy for General Dynamics was rooted in a central strategic insight: the defense industry had significant excess capacity following the end of the Cold War. As a result, Anders believed industry players needed to move aggressively to either shrink their businesses or grow through acquisition. In this new environment, there would be consolidators and consolidatees, and companies needed to figure out quickly which camp they belonged in. Anders outlined his strategy in his initial annual and quarterly reports and proceeded to aggressively implement it."

"Which brings us to the other larger-than-expected source of cash at the company: asset sales. While Mellor was wringing excess cash from the operations, Anders set out to divest noncore businesses and grow his largest business units through acquisition. Interestingly, as Anders met with his industry peers, he found that, as a group, they were more interested in buying than selling. He also found that they were often willing to pay premium prices. The result was a dramatic shrinking of the company through a series of highly accretive divestitures."