I can’t help but feel that
over the years Bruce Flatt’s investing philosophy has been largely influenced
by his dealings with Third Avenue Management’s Marty Whitman. One of the
cornerstones of Whitman’s approach to the markets is the importance of ‘control
investing’. That is a major tenant of the thinking process that goes on behind Brookfield
Investing for control of a
company gives the acquiring company an edge over their investing competitors by
way of being able to finance transactions and processes on a highly attractive
basis (the ability to use other people’s money for their own purposes). It also
confers the ability to create advantageous tax situations (tax shelter).
In exploring investment
opportunities in which control situations exist, security buyers frequently have
the ability, the resources, and the time to conduct in depth due-diligence
investigations, which can be far more comprehensive than would be possible
relying solely on public records (a good example of wager value…exploiting
little known information).
Control investing allows
investors to obtain influence, control, or both over corporate processes,
operations, and investments. One of the things this gives the control
investor is opportunities to create value by changing the way assets are used
or owned by recapitalizing businesses they hold an interest in.
Control investing allows
investors to obtain control over the timing of investment tactics on a
long-term basis so that they can decide when to take advantage of
favourable market conditions. They could for example decide to consummate an
IPO, or maybe take a company private, a massive refinancing of debt or a merger
in which common stock is issued as all or part of the merger process.
Control investing allows
investors to protect themselves by financing projects using the corporate
treasury. It also allows them to exert their influence over other
financial professionals (investment bankers, attorneys, accountants), by
rewarding them or withholding those same rewards to gain advantageous treatment
from the people dealing with the corporation.
Resources
Value Investing,
Marty Whitman
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