Beware the Ides of buying the chairman's brother's real estate business and the elevated thinking that comes with it.
The twenty analysts that followed the stock offered the critical equivalent of the wave. The fancy math of what to pay for imagined future earnings coined a new phrase, stabilized earnings, that raised curiosity in what the multiple might be for unstabilized earnings, thinking a lot because the variance would be greater, or no earnings rewarded with a $500 million blank check to an executive who covered up two plane crashes in six months.
In the end the buyer in 2018 admitted to using $500 million of shareholders money to pay 12 times stabilized 2021 earnings for management contracts from the executive chairman's brother without mentioning the relationship to, say, Melvin Capital Management, 9% shareholder, or any that may find the time to browse SEC 8k filings over coffee. The $500 million was one-third free cash flow supplemented by selling real estate and the other $1 billion went to buyback shares.
The acquisition came along with contracts to manage rooms, promised contracts to managed rooms that did not materialize, and no real estate. The cost of the integration would be $20 million with management plebes skilled at running escapes for conspicuous consumers to be elevated over company lifers. The $20 million was considered a bargain because management believed that the addition to earnings would be $25 million in the first year. Naturally.
The accounting for goodwill, paying too much and getting too little, started with the first quarterly reports. The brother who sold ended up with $500 million and promised to never to enter the hotel management business again getting legal advice from another relation who is paid $5 million a year for expertise that delivered the phrase stabilized earnings to financial dictionaries.
The CEO seems an affable alumnus of First Boston who has been caretaker of the founding families financial interests for seventeen years, shepherded the public offering ten years ago and appears to be planning a sojourn financed by the $10 million in stock that he has sold in the last quarter to Wellington and Blackrock.
The twenty analysts that followed the stock offered the critical equivalent of the wave. The fancy math of what to pay for imagined future earnings coined a new phrase, stabilized earnings, that raised curiosity in what the multiple might be for unstabilized earnings, thinking a lot because the variance would be greater, or no earnings rewarded with a $500 million blank check to an executive who covered up two plane crashes in six months.
In the end the buyer in 2018 admitted to using $500 million of shareholders money to pay 12 times stabilized 2021 earnings for management contracts from the executive chairman's brother without mentioning the relationship to, say, Melvin Capital Management, 9% shareholder, or any that may find the time to browse SEC 8k filings over coffee. The $500 million was one-third free cash flow supplemented by selling real estate and the other $1 billion went to buyback shares.
The acquisition came along with contracts to manage rooms, promised contracts to managed rooms that did not materialize, and no real estate. The cost of the integration would be $20 million with management plebes skilled at running escapes for conspicuous consumers to be elevated over company lifers. The $20 million was considered a bargain because management believed that the addition to earnings would be $25 million in the first year. Naturally.
The accounting for goodwill, paying too much and getting too little, started with the first quarterly reports. The brother who sold ended up with $500 million and promised to never to enter the hotel management business again getting legal advice from another relation who is paid $5 million a year for expertise that delivered the phrase stabilized earnings to financial dictionaries.
The CEO seems an affable alumnus of First Boston who has been caretaker of the founding families financial interests for seventeen years, shepherded the public offering ten years ago and appears to be planning a sojourn financed by the $10 million in stock that he has sold in the last quarter to Wellington and Blackrock.
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