Hedge Funds: Why the highly coveted CEO meeting is overrated

The Mentor vs. The Apprentice

Sandy Weill & Jamie Dimon in better times (An American Parallel)

No one knows how to dig out jewels and reposition a business via accretive, bolt-on M&A like Colin Day who led strategic repositioning at Reckitt Benckiser (“RB”) as a hands-on CFO far more than most appreciate. Moreover, a high conviction investor could have accrued gains as large as 1000%[1] in RB during Colin’s tenure — under the aegis of Bart Becht. Today, Colin is the CEO of Essentra plc (fka Filtrona) and serves as a reminder of the dangers of subconsciously dismissing underlings, namely strategic CFOs.

Reckitt Benckiser vs. FTSE 100 (Colin Day & Bart Becht) (Sept 2000 — April 2011)

[1] Aided by leveraging equity options

The Dream Team

In September 2000, Colin Day joined RB, a consumer products conglomerate[1], and together with Bart Becht racked up an enviable track record of capital allocation and a rousing share price appreciation[2].

[1] Includes the likes of Durex condoms, cleaning agensts Harpix & Dettol along with various OTC drugs

[2] During Colin’s intial month shares traded at low ~800p to £34.39

For Bart (The Mentor), this meant-

- Market Support. Frequent mentions in the global business media, financial outperformance and the perception of cost-cutting & superior capital allocation garned analyst fanboys
- Remuneration. An astronomical ’09 all-in comp package (~£90M)
- Acclaim & Legendary Status. Epithets, such as “One of the most succesful businessmen of his generation” along with “The man who cleaned up Reckitt” proved enough for investors to doggedly follow Bart at RB and at subsequent endeavors forevermore

For Colin (The Apprentice), this meant-

- Frequent shots-on-goal & unparalleled development. Infrequent media mentions did no harm to a singular focus on capital allocation
- Fractional Remuneration vs Bart. In ’09, Colin Day’s comp was ~£7M[1] despite quarterbacking the majority of RB’s M&A activity
- Limited recognition & Awkwardly worded exit statement[2]. In contrast to the numerous Becht mentions, Colin’s media references were limited to ~100-worded bites where he was trivialized as “driving the integration of acquisitions made by his boss Bart Becht and increasing margins”. Furthermore, upon departure, a blatant PR snub from RB insinuated “Colin’s non-executive roles” left him insufficent time to focus on the day job. The reality, to most market participants, would remain unclear for the foreseable future[3].

[1] Aggregates £1.7M (base salary and fees, bonus, benefits in kind, + pension contributions) and residual as stock-based comp – 2009 annual report

[2] RB: “Colin wants to focus on his portfolio of non-executive positions and other career interests and the board has decided that now is a good time to appoint a successor.”

[3] Analyst reactions remained mixed followed by a muted share price depreciation (164p)

The Break-Up

Jamie Dimon & Sandy Weill present day

In August 2011, Reckitt Benckiser (“RB”) found itself in rare company, lacking both a standing CFO & CEO. For Colin, his departature was announced in Q3 2010 and he left March 2011. In contrast, Bart[1] abruptly announced his resignature 1 month after Day’s announcement and left 4 months later to pursure both corporate and charitable work. Unbeknowest to many, it was the ultimate face-off where mentor and protégé, split off into sectors orthagonal to one another. For Becht, the standing start he received from public market investors was derived from past successes (both operational and financially) at RB. For Day, an unassuming and introspective individual, his circumstances were muted fanfare and limited investor awareness. That said, many investors often realize (far too late), light eventually illuminates dark places.

[1] “I am honored to have been CEO of Reckitt Benckiser and to have had the opportunity to work with such an entrepreneurial, talented and innovative group of people who have created what I believe is the leading global home, health and personal care company. After 16 years in the role, I believe now is the right time to retire,” Becht said. Analysts criticized Reckitt for not giving any indication in recent months that Becht might be moving on.

That is, we believe Day’s sound outperformance vs Becht. en route to a > than 2-year-double should NOT have been a surprise. Becht’s feat of persuasion may have been more impressive than it seemed as the shares already priced-in an encore RB performance. Bereft of the enterprising lieutenant, and accompanying integration skillset to fall back on, Becht faced far stronger headwinds in replicating a fraction of the track record at RB. Above all, Day appeared to benefit from the dismissive analyst coverage early-on, instead focusing on effectively zero-based budgeting, by working out the allocations of each business lines and shielding his company from the scrutiny of competitors and investors. Said otherwise, Colin learned to “stutter” in private[1] and up until the point he was able to speak fluently in public[2].

Colin Day

[1] Under both the aegis of Bart at RB, subsequently while being underfollowed by markets

[2] In the words of a prominent venture capitalist

The Mentor
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