![]() ![]() The deal was worth more than 100% of Capital Cities' enterprise value. Murphy made the largest non-oil and gas transaction in business history when Capital Cities bought the ABC Network for an astounding $3.5 billion in 1986.Murphy used this cash flow to pay loans ahead of schedule and leveraged these assets again to buy new assets. Burke, with his operations and integration expertise, would quickly improve margins and profitability. Murphy used leverage to fund acquisitions. Murphy was very acquisitive and made the largest deal in the history of the broadcast industry thrice.Burke's job was to create the free cash flow, and Murphy's was to spend it. In the case of Capital Cities, Tom Murphy managed strategy, acquisitions, and capital allocation, while Dan Burke managed operations.To increase per-share value, they were even ready to shrink company size and share base. These CEOs waited for years to identify the right investment opportunity. They avoided the media spotlight and interacted little with Wall Street. The Outsiders shared personal traits like frugality, humility, independence, and an analytical approach.The Outsider CEOs share a worldview, which includes attention to capital allocation and per-share value, as well as emphasis on cash flows over reported earnings, and focus on highly decentralized operations, highly centralized capital allocation, investment in their stock, and discipline and patience when it comes to acquisitions.Despite its importance, most business schools don't have courses on capital allocation. However, two equally well-managed companies with different capital allocation strategies will have widely divergent long-term results. Most CEOS tend to focus more on operations. The two core tasks CEOs have are management of operations and deployment of capital.However, the Outsider CEOs profiled in this book outperformed the S&P 500 twenty times over. Jack Welch of General Motors, widely considered to be an all-time great, outperformed the S&P 500 by a factor of three. The best way to measure a CEO's performance is to measure the increase in per-share value during their tenure.Learn how their approach generated exceptional returns across industries and market conditions. They rarely paid dividends and emphasized cash flows over net revenue. On the contrary, they decentralized operations and centralized capital allocation. They were not charismatic visionaries who actively managed operations. The best CEOs are not managers, but capital allocators. A book that received high praise from Warren Buffett, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success chronicles the unconventional techniques that led eight CEOs to outperform the S&P 500 by an astounding twenty times. ![]()
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