From Tedium, August 4:
How the aggressive machinations of investor interests and corporate culture can significantly reshape a company’s focus. Just ask the company behind Frogger.
Every MBA knows the tale. Warren Buffett got so upset that he was being undercut on one of his investments, a textiles company, that he decided to screw over the guy who messed up his big payday. He bought so many shares of Berkshire Hathaway, the firm that did him wrong, that he became a majority shareholder—and his first task as majority owner was to fire the guy that tried to screw him over. (He calls the move “a monumentally stupid decision,” because he stuck himself with a declining textiles firm.) He gradually turned Berkshire Hathaway into a shell for his overall organization, one that does a bit of everything, including insurance, manufacturing, building supplies, even retail. It is the story of the great holding company, an organization that exists to manage a company’s larger operations. It’s slightly different from a shell company (a difference we’ll get into), but as that famous story implies, it doesn’t take much to divorce a company from its initial line of business. Today’s Tedium ponders the malleable nature of corporate ownership. A name is just a name. — Ernie @ TediumThe corporate shape-shifting that can cause “identity drift”
We’ve touched on the issue of morphing companies indirectly multiple times over the years. Back in 2022, we wrote about “hard pivots,” in which companies that started in one line of business ended up in another.
(The key example I used there was Regina, which came to success selling music boxes but was far more successful with vacuums.)
And then there are shell companies, which we covered way back in 2015, near the start of our little site. Back then, we focused on the fact that they were largely hiding a bunch of stuff under people’s noses, and they could do so easily. (Sheldon Adelson had just, at the time, bought the local newspaper in his home market of Las Vegas, but tried to hide the transaction from the journalists that covered him.)
Of course, just a few months later, the shell-company mother lode appeared in the form of the Panama Papers. That whole endeavor exposed a number of offshore entities that were hiding all sorts of businesses, good and bad, behind multiple layers of shell-company cruft. It was followed up by the Paradise Papers, which nailed a bunch of companies in the Mediterranean. (That leak came in handy when we were digging into Deadspin’s new owners a few months back.)
But shell companies have gotten much more interesting in recent years, in large part because businesses have gotten more daring and creative with what they’re willing to put inside a shell.
A good example of this is a kind of company that isn’t technically a shell company, but carries many of the outside traits of them. A special purpose acquisition company, or SPAC, has made it possible for companies to enter the stock market without needing to do the traditional dog-and-pony show of an IPO. SPACs have been around for a while, but they have not had a great run of late. (Just ask BuzzFeed, whose corporate failings have been exacerbated by their decision to enter the stock market using a SPAC in 2021.)
Then there are holding companies, firms that use the shell of a single corporate structure to bring increasingly diverse types of companies under one roof. These companies are usually related, but sometimes they may have no rhyme or reason other than that they have the potential to make money. These companies, which can be in the private equity realm or publicly traded, are common—Google’s corporate parent Alphabet is a holding company, for example. But Google, despite its dizzying array of services, does not actually push it very far....
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