General Instrument

"By 1970, two years after joining the firm, I knew I had to move. One of my last clients at McKinsey connected me to was someone who would change my thinking forever. A company called General Instrument had started as a sleepy electronics firm in New York in 1923 and had evolved into being the owner of assorted electronics businesses. GI had just bought a Philadelphia-based company called Jerrold Electronics; it was a massive acquisition for a company that size, roughly 40 percent of its value at the time."

"GI was one of the first companies to market with UHF tuners, introduced in the 1950s and ’60s to allow TVs to receive ultra high frequency (UHF) channels (13 through 48) beyond the original very high frequency (VHF) band (channels 1 through 13). GI had stock that was overvalued at the time, and the company wanted to use it to buy something. Jerrold, it was discovered later, had some financial irregularities, always to the upside, of course, since accounting “errors” rarely make a firm’s finances look worse rather than better. So GI had used inflated paper to buy an inflated business. Less than a year after the Jerrold acquisition, GI was in trouble. It had bought a series of businesses, which wasn’t working, and, worse, now General Instrument was struggling to stay current on its loan payments."

"An order that large would be unprecedented and would require enormous amounts of arm-twisting with each one of the big cable operators, and in a hurry. It would be easier to train monkeys to play chess. “I have an idea,” I said. “We can give you a bigger order than that. We just need to sweeten the pot.” “I’m listening,” Ed said. “Why don’t we do a deal where General Instrument gives warrants for GI stock for every box that a cable operator buys?” I explained that if GI got a big order, for say, millions of boxes, it was safe to assume the stock price of General Instrument would go up significantly, and that way, Wall Street would essentially pay for the upgrade. We figured this would motivate people to participate. And boy did it."