Capital Cities

"Buffett came to the CEO role without any relevant operating experience and consciously designed Berkshire to allow him to focus his time on capital allocation, while spending as little time as possible managing operations, where he felt he could add little value. As a result, the touchstone of the Berkshire system is extreme decentralization. If Teledyne, Capital Cities, and the other companies in this book had decentralized management styles and philosophies, Berkshire’s is positively anarchic by comparison."

"Capital Cities under Murphy was an extremely successful example of what we would now call a roll-up. In a typical roll-up, a company acquires a series of businesses, attempts to improve operations, and then keeps acquiring, benefiting over time from scale advantages and best management practices."

"as a capital allocator, the company’s extreme decentralization had important benefits: it allowed the company to operate more profitably than its peers (Capital Cities had the highest margins in each of its business lines), which in turn gave the company an advantage in acquisitions by allowing Murphy to buy properties and know that under Burke, they would quickly be made more profitable, lowering the effective price paid."

"He eschewed diversification, paid de minimis dividends, rarely issued stock, made active use of leverage, regularly repurchased shares, and between long periods of inactivity, made the occasional very large acquisition. The two primary sources of capital for Capital Cities were internal operating cash flow and debt."

"Sias and his young CFO, Alan Nichols, wasted no time in implementing the Capital Cities operating model, radically transforming the company’s operations. They immediately eliminated an entire layer of executives at corporate headquarters, instituted a rigorous budgeting process, and gave significant authority and autonomy to the general managers (many of whom, uncomfortable in the new, more demanding culture, left in the first year)."

"Transdigm: A Contemporary Doppelgänger A contemporary analog for Capital Cities can be found in Transdigm, a little-known, publicly traded aerospace components manufacturer. This remarkable company has grown its cash flow at a compound rate of over 25 percent since 1993 through a combination of internal growth and an exceptionally effective acquisition program."

"Chiseled into our heads every year at our management meeting was Murphy’s reminder that we could make honest mistakes, or miss our budgets, but if we put the company, or ourselves, in disrepute, there was no second chance at Capital Cities."

"When it came my time to speak, I conceded that after the Cable Act of 1984, cable companies had raised their rates, but instead of generating large profits, the increased cash flow was reinvested into the business, funding upgrades to cable systems and new programming. Based on our cash-flow metrics, the cable-TV industry had the lowest return on invested capital of any media or communications industry. “Years ago, we had some of the largest industrial companies in America in the business—General Electric, Westinghouse, American Express, Capital Cities—they all exited the industry over the last five or six years, and all of them cited low return on investment below their corporate objectives as their reason to exit.”"

"Tisch eventually became one of a group that joined Buffett every two years on a one-week trip for business leaders and investors. Oth- ers included the likes of Tom Murphy of newspaper publisher Capital Cities, Katharine Graham of The Washington Post, and William Ruane, whose investment fund focused on media stocks; they met in places such as Aspen, Colorado, or en route to Britain via the Queen Elizabeth II. “Half the time we discuss the media and media stocks and investments,” Tisch said of these trips. “Certain things in the investor world when you don’t have a working knowledge, you sort of shy away. When you get a familiarity with the subject, it makes it easier to take a position.”"