🔑 Company Profile: they bought $4 Billion of revenue for $100 Million

February 7, 2024

Welcome to The Business Academy. Today's piece is a favorite from our archives.

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I spend a lot of time researching holding companies...

The one below is particularly interesting. It's the story of how two brothers bought $4 Billion of revenue for $100 Million.

Loews Hotels was founded by Laurence (Larry) Tisch in 1946. Larry convinced his parents to help him buy a resort hotel in Lakewood New Jersey.

Shortly afterwards he opened a luxury hotel in Brooklyn called the Loews Kings Theather Hotel. The hotel had an Olympic-sized swimming pool, a rooftop garden, and a theater that could seat over 3,000 people.

Larry spent the next decade building a hospitality portfolio…, and then something incredible happened.

The Supreme Court came down with an antitrust ruling (United States V. Paramount Pictures Inc). Major movie studios were required to dispose of the movie theater chains they owned.

The Tisch brothers bought Loew’s Theathers from MGM in 1959, which had 102 locations. That same year they took the business public and listed it on the NYSE.

Loew's Jersey Theatre in Jersey City, NJ - Cinema Treasures

The theaters they bought over were old, and out of style…They had a choice:

Spend a lot of money remodeling their theaters, or sell the premium locations.

They decided to sell and used the cash they made to buy companies.

  • in 1968 they bought Lorillard Tobacco Company
  • in 1974 they bought CNA Financial
  • in 1979 they bought Bulova Watch Company

Fast forward to 2020, Loews Corporation revenues were $12.6 billion and EBITDA of $3.4 billion 🫣

But there were some struggles along the way...

Loews Biggest Losers:

In 2007 Loews Corporation bought HighMount Exploration LLC for $4Bn. High Mount was a natural gas exploration and production company.

The following year gas prices collapsed by 70%…

The CEO James Tisch decided that gas prices are not coming back, so he quickly sold the business at a loss..

Here are a few news snippets about the deal (James listing the business for sale)

The CEO of Loews moving on from the mistake:

James Tisch's prediction proved to be correct. Gas prices never recovered from their 2008 highs…

He did the right thing. Cut his losses and moved on…

This made me think of my favorite Warren Buffett line:

Should you find yourself in a chronically leaking boat,

energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks

Summary of Loews Corporation's performance over the years…

Loews Corporation went public in 1971.

If you bought $10,000 of stock in Loews at the IPO and all dividends were reinvested, the value of your investment today would be worth approximately $2,395,000 😧

Here's my favorite part of the Tisch story...

In 1974, Larry Tisch bought a struggling insurance company named CNA Financial Corporation. When he bought this business it was losing $135 Million per quarter!

The day after he buys the business, he tours the office. He walks up a private spiral staircase to the chairman's office. There he finds a marble room adjoined to a private dining room.

That room was never used again in a symbol of new found austerity for the company.

Larry and his brother turn the business around. It becomes profitable and eventually grows to become one of the largest insurance companies in the US.

Here’s a description of Larry

Larry gained a reputation as a tough questioner, an investor with a long-term perspective, and a manager willing to delegate day-to-day authority to a proven professional.

Another quote about Larry’s style

''One thing you should expect with Larry Tisch is that the elimination of non-essentials will be swift and relentless,'' said Edward J. Noha, whom the Tisches brought in to head CNA's insurance operations. ''But you won't see any precipitous actions in terms of the core.''

CNA Financial summary

  • In 1974 the business made $4Bn in revenue while losing $135 Million per quarter
  • At the end of 1974, the Tisch brothers buy the business for $100 million

The Tisch' brothers hired Edward J. Noha, then the No. 3 man at Allstate Insurance (a critical move).

Noha refocuses the business on its core strengths:

  • property casualty insurance and,
  • life insurance.

Lester Pollack, a Tisch associate, then leads the spin-out of CNA's non-insurance business:

55 nursing homes, a cable TV company, 40% of a dental supply group, and Larwin group, a homebuilder that had lost $125M the previous year.

Today CNA makes up more than 50% of Loew’s yearly profits 💰

Hope you enjoyed today's Company profile...

Have a great week!

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.