Public company CEOs should download a photo of Time Warner CEO Jeff Bewkes and make it the wallpaper on their phones, a persistent reminder of what the chief’s job is and how to do it. Forgetting those fundamentals is perilously easy, but Bewkes has remembered them during nearly nine years as CEO.
The job isn’t empire building or score settling or even maximizing earnings per share. It certainly isn’t personal aggrandizement. It’s creating value for the owners, which Bewkes will have done in spectacular fashion if his deal with AT&T’s Randall Stephenson—approved unanimously by both boards over the weekend—goes through. Over his tenure he will have returned about 143% to shareholders, including dividends, versus the S&P’s 48% return. And he’s dong it at the helm of a giant old company that was formed through a merger that will live in legend as one of the all-time worst.
Bewkes is managing this feat with the aid of three insights that every business leader should remember:
—He understands what creates value. As the first corporate-finance wonk to run Time Warner, Bewkes knows that value arises from earning a return on all the capital in the business that exceeds the capital’s cost—something that’s blindingly obvious yet often forgotten. The company he was handed, the product of the AOL-Time Warner merger announced at the peak of the Internet bubble, carried so much capital that earning an acceptable return was impossible. So the first thing Bewkes did was spin off AOL. Then he spun off capital-intensive Time Warner Cable. Time Warner’s return on capital minus its capital cost—its economic profit—is still negative, according to calculations by the Stern Stewart consulting firm, but that’s not what investors really care about. They want to see economic profit increasing, which it has done every year since Bewkes off-loaded AOL.
—He knows that sometimes smaller is more valuable. Many CEOs equate size with success. For themselves personally, that view may be rational; many companies still base CEO pay partly on the company’s size. But as Bewkes demonstrated, a smaller company can be more valuable than a bigger one. He has avoided the ego disorder that prevents many CEOs from seeing that reality.
—He has no problem selling if the price is right. Many CEOs view a bid as an attack and respond instinctively by declaring war. Rational CEOs do what Bewkes did—they just evaluate the bid. When Rupert Murdoch’s News Corp. bid $85 a share for Time Warner in June 2014, Bewkes and the board decided that was too little. They were right; just over two years later, Stephenson is willing to pay $107.50. That’s an excellent deal for shareholders. Sold.
The media business is changing so dramatically that Time Warner is almost certainly more valuable to someone else than as a stand-alone entity. Bewkes has picked the right moment to sell. This assessment by BTIG analyst Richard Greenfield, published over the weekend, sounds right: “Bewkes and his senior management team can see where the entire legacy media world is headed: secular decline. We believe Bewkes will end up being remembered as the smartest CEO in sector—knowing when to sell and not overstaying his welcome, to maximize value for shareholders.”
You can share Power Sheet with friends and followers here.
What We're Reading Today
TD Ameritrade to buy Scottrade
Tim Hockey's company, along with Toronto-Dominion Bank, have secured Scottrade for $4 billion. TD Ameritrade will take over the discount brokerage arm of the company, while TD Bank's U.S. unit will buy the Scottrade Bank. Scottrade founder Rodger Riney will join the board at TD Ameritrade, once the deal is finalized. Fortune
AT&T's political fight ahead for Time Warner
Randall Stephenson's AT&T has already heard concerns from Senators and presidential candidates about its $85 billion merger with Jeff Bewkes's Time Warner. Donald Trump said if he's president, he wouldn't allow the deal to go through. Hillary Clinton's running mate Tim Kaine also had “concerns and questions” about how the merger could limit choices for consumers. The deal will undergo a thorough review by lawmakers and antitrust regulators. WSJ
FanDuel, DraftKings near deal with New York State
Attorney General Eric Schneiderman has discussed a deal with Nigel Eccles's FanDuel and Jason Robins's DraftKings over false advertisement claims. The deal would cost the companies between $8 million and $12 million, while they would have to agree to the findings in the investigation and potentially create stronger consumer protections. It's related to a nearly half billion dollar advertising blitz the companies ran last year. NYT
Spain prime minister set to secure a second term
In an agreement that could end 10 months of political deadlock in Spain, Socialist party leaders have agreed to abstain in a parliamentary vote over whether to allow Prime Minister Mariano Rajoy a second term. For Rajoy, the abstention will allow him to be sworn in again and will give him a try at running the country for four more years. He will lead via a minority government in a deeply divided parliament, but for Spain, it will —at least for now—end a standoff that has left the country in limbo since last December. Reuters
Building a Better Leader
The need for 'unsick' days
Health app business ZocDoc wants companies to provide employees a paid day off to take care of preventative health, like going to the dentist and annual doctor appointments. They say 60% of employees feel uncomfortable leaving the job to take care of these must-dos. CBS
If you have a desire to join a startup...
...make sure you're not joining too late. If it's past its Series C, then the risk might not be worth the reward. Fortune
Bringing pets into work...
...can have upsides, like boosting moral and reducing stress. But it can come with downsides as well, like liability problems. Associated Press
Clinton aides suggested joking about email server
According to John Podesta's hacked emails, published by WikiLeaks, the Hillary Clinton campaign wasn't sure how to react to her use of a private server while secretary of state. Some of the advisors suggested she should joke about the issue, which she did at one campaign event. But it underscores the campaign's slow response to the seriousness of the issue. CBS News
Clinton ally donated $467,500 to wife of FBI official
Virginia Gov. Terry McAuliffe's political action committee provided the money to help support Dr. Jill McCabe's state Senate campaign. McCabe is married to deputy director of the FBI Andrew McCabe, who helped manage the Clinton email investigation. The FBI says that during Jill McCabe's run, Andrew did not attend any events or campaign in any way. And it was only after Jill McCabe lost her election bid that Andrew was promoted and began overseeing the email investigation. WSJ
Dunkin' Donuts: The election is hurting sales
At last week's earning call, Dunkin' Brands CEO Nigel Travis said that the election has had a dampening effect on sales. He said that the uncertainty around the election has had a greater negative impact on lower income consumers. Fortune
Up or Out
Tata Sons has removed Cyrus Mistry as chairman. It's a surprise move by the holding company that owns Tata Group and no reason was cited for the change. Ratan Tata will serve as interim chairman until a replacement is found. BBC
Fortune Reads and Videos
Former Apple CEO tells financial firms...
...to embrace radical changes or prepare for obsolescence. John Sculley warned them that they're working in an era where big changes happen often and rapidly. Fortune
Alibaba staged an 8-hour fashion show
It's part of a run-up to Singles Day on November 11, which creates a shopping rush in the country that puts Black Friday to shame. Fortune
China now spends more than the U.S...
...in Apple's iOS app store. Chinese consumers spent $1.7 billion on Apple-approved mobile apps this last quarter, compared to $1.45 billion for Americans. Fortune
Target recalls 127,000 Halloween window decorations...
...because the LED gel “clings” can become choking hazards. Fortune
Wang Jianlin, chairman of China's Dalian Wanda Group, turns 62 today. China Daily
Russian billionaire and owner of the Chelsea football club Roman Abramovich turns 50. Biography
|Produced by Ryan Derousseau|
Share Today's Power Sheet: