Teledyne

"These tender offers were in almost every case oversubscribed. Singleton had done the analysis and knew these buybacks were compelling, and with the strength of his conviction always bought all shares offered. These repurchases were very large bets for Teledyne, ranging in size from 4 percent to an unbelievable 66 percent of the company’s book value at the time they were announced. In all, Singleton spent an incredible $2.5 billion on the buybacks."

"In early 1972, with his cash balance growing and acquisition multiples still high, Singleton placed a call from a midtown Manhattan phone booth to one of his board members, the legendary venture capitalist Arthur Rock (who would later back both Apple and Intel). Singleton began: “Arthur, I’ve been thinking about it and our stock is simply too cheap. I think we can earn a better return buying our shares at these levels than by doing almost anything else. I’d like to announce a tender—what do you think?” Rock reflected a moment and said, “I like it.”4 With those words, one of the seminal moments in the history of capital allocation was launched. Starting with that 1972 tender and continuing for the next twelve years, Singleton went on an unprecedented share repurchasing spree that had a galvanic effect on Teledyne’s stock price while also almost single-handedly overturning long-held Wall Street beliefs."

"“If anyone wants to follow Teledyne, they should get used to the fact that our quarterly earnings will jiggle. Our accounting is set to maximize cash flow, not reported earnings.”"

"The other approach, the one favored by the CEOs in this book and pioneered by Singleton, is quite a bit bolder. This approach features less frequent and much larger repurchases timed to coincide with low stock prices—typically made within very short periods of time, often via tender offers, and occasionally funded with debt. Singleton, who employed this approach no fewer than eight times, disdained the “straw,” preferring instead a “suction hose.” Singleton’s 1980 share buyback provides an excellent example of his capital allocation acumen. In May of that year, with Teledyne’s P/E multiple near an all-time low, Singleton initiated the company’s largest tender yet, which was oversubscribed by threefold. Singleton decided to buy all the tendered shares (over 20 percent of shares outstanding), and given the company’s strong free cash flow and a recent drop in interest rates, financed the entire repurchase with fixed-rate debt. After the repurchase, interest rates rose sharply, and the price of the newly issued bonds fell. Singleton did not believe interest rates were likely to continue to rise, so he initiated a buyback of the bonds. He retired the bonds, however, with cash from the company’s pension fund, which was not taxed on investment gains."

"It’s important, however, to recognize that this obsession with repurchases represented an evolution in thinking for Singleton, who, earlier in his career when he was building Teledyne, had been an active and highly effective issuer of stock. Great investors (and capital allocators) must be able to both sell high and buy low; the average price-to-earnings ratio for Teledyne’s stock issuances was over 25; in contrast, the average multiple for his repurchases was under 8."

"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."

"Singleton focused Teledyne’s capital on selective acquisitions and a series of large share repurchases. He was restrained in issuing shares, made frequent use of debt, and did not pay a dividend until the late 1980s."

"Jack Hamilton, who ran Teledyne’s specialty metals division, summarized his business to me, “We specialized in high-margin products that were sold by the ounce, not the ton.”"

"Singleton was a very disciplined buyer, never paying more than twelve times earnings and purchasing most companies at significantly lower multiples. This compares to the high P/E multiple on Teledyne’s stock, which ranged from a low of 20 to a high of 50 over this period."