Thursday, September 5, 2013

The Turnaround Kid

I've said many times that I like to buy companies undergoing temporary problems, because that's when I can get a good price. Sometimes, I'm wrong in thinking that the problems are temporary. As a result, I've been an unwitting investor in a few turnarounds. Other times, I've invested because I believe assets to be worth more than market value. In these particular cases, I've been a willing investor in turnaround situations.

But whether I mean to or not, it's pretty clear to me that I'm going to be an investor in a few turnaround situations every now and then. So I thought I'd check out a book from a turnaround specialist, who might be able to impart some words of wisdom.

In The Turnaround Kid, Steve Miller discusses around ten turnaround situations in which he's been involved, in far-ranging industries from manufacturing (Chrysler, Delphi) to entertainment (Detroit's Symphony Orchestra).

I was expecting some kind of how-to in creating value. Maybe some advice on how to really understand the customer, and provide solutions that create value and pull a company out of a mess.

Instead, this book was more about transferring value than it was about creating it. In many of Miller's cases, the companies go bankrupt! Miller takes great pride in the fact that the surviving entities live on, but in many cases its owners came out with nothing, its debt holders come out with less, its employees are fewer, and its pension obligations have been severely reduced. So where's the value-add?

His role seemed to be more like that of a lobbyist than anything else. He would often lobby for government trade protection or government loans (all the while calling himself a free-market advocate...for other industries in which he is not employed, I guess!). He would also negotiate with stakeholders (shareholders, banks, unions etc) on how to divvy-up remaining assets.

I understand why guys like that are necessary, I just don't think it can be called a successful turnaround when that's how a company is made to survive. But Miller appears to believe he was helping society by keeping such companies going so they can keep employing people, which is a populist viewpoint, but a dubious means if raising living standards is his goal. For example, even after wiping out shareholders at MK, Miller considers the situation as having upped his batting average as a manager. To me, that's bewildering. But maybe that's my bias as a shareholder seeping through.

Still, many in financial roles will no doubt find the book useful. Miller offers his wisdom on dealing with creditors, managers, unions and stakeholders in order to get the most out of them. He is also not afraid to disparage a number of well-known individuals based on his contact with them, including Carl Icahn and Al Dunlop.

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