2024-01-26

Katharine Graham and The Washington Post Company Pt.5

Katharine Graham had a very unusual way of taking the helm at the Washington Post. Her father, Eugene Graham, had founded the Washington Post, and in 1946, he asked his daughter's husband, Philip Graham, a Harvard-trained lawyer, to run the company. After his death by suicide in 1963, Katharine Graham assumed the role of CEO. Despite being shy, having never been fully employed for the last 29 years and four kids.

The Washington Post owned many companies, including the Post itself, Newsweek magazine, and television stations in Florida and Texas.

1

After several years of getting comfortable in her positions, she IPOed in 1971, where she raised $16 million. She also was not scared of publishing controversial articles, such as the internal Pentagon assessment of the war in Vietnam or the Watergate scandal.

She started to acquire the Trenton Times, which turned out to be a mediocre acquisition where she was not selective enough. In 1974, Warren Buffett started to acquire a 13% stake in the Washington Post and gained a seat on the board while advising her on strikes in her printing facilities and buying back stock (40% over the next years).

2

In the '80s, she further improved margins, while other competitors went out of business. She announced a compensation structure that emphasized competition and bonus payments. Additionally, she only made two acquisitions in that decade, which was contrary to her peers:

  • Stanley Kaplan ($29 million)
  • Capital Cities' cable television assets ($350 million)

    • In '88, she sold the company's telephone assets for $197 million due to a large capital expenditure required to further maintain this business. In the '90s bear market, when everybody had too much debt due to prior acquisitions, she started to take advantage of these low prices by buying more businesses. In 1993, she stepped down as CEO and gave this title to her son.

    Sources of Capital:

  • Selective usage of leverage
  • Rarely sold off operating businesses
  • Low levels of dividends
  • Capital expenditures (CapEx) were evaluated through an approval process and needed to have a high Return on Invested Capital (ROIC)

    • Alan Spoon stated, "The system was totally federalized, with all excess cash sent to corporate. Managers had to make the case for all capital projects. The key question was, 'Where's the next dollar best applied?' And the company was rigorous and skeptical in answering that question."

  • Waited for PPE Investments before costs dropped (unlike their peers).
  • Acquisitions → patience and diversification.
  • Acquisitions needed to earn a minimum 11 percent cash return without leverage over a ten-year holding period.
  • Very few deals passed through this screen. The company’s whole acquisition ethos was to wait for just the right deal.
  • Repurchases at single digits P/E.
  • All buybacks are not created equal—she purchased in big chunks and at the right time.
    • 3

    McKinsey advised to stop buybacks, which they overrode two years later – "most expensive consulting assignment ever!"

    Talent

  • Young new talent in managing and journalistic positions.
  • "Be gentle and not hurt my feelings." This is what got her Buffett on the board when he started to acquire Post stock, and the board was skeptical.
  • Demanding and not shy about making personnel changes.
  • Decentralization of operating divisions.
  • Identify the best people and leave them alone.
  • Tom Might (30) took responsibility for the largest capital project in the company’s history, a new printing plant in Springfield, Virginia, at age thirty (he would bring it in 30 percent under budget). Alan Spoon (39), Jonathan Grayer (29), Donald Graham (33).
  • Independent, comfortable being controversial, and making unconventional decisions. Not buckling under threats or strikers, ignoring other executives doubting her acquisitions or buybacks.

    • The new CEO, Donald Graham, made selected acquisitions, opportunistically repurchased stock (20%), and kept dividends low. Meanwhile, competitors like The New York Times overpaid for acquisitions, built a huge headquarters, and lost 90% of its stock value. Checkout the book The Outsiders for more Information

    Thanks,

    Finn