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Oriel Capital | Investing Behind Leaders As Discerning As We Are
Reckitt Benckiser vs. FTSE 100 (Colin Day & Bart Be...
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HFs: Don't Blow Off That CFO Meeting Just Yet!


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Why your CFO may provide more insight into operations than your CEO

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HFs: Don't Blow Off That CFO Meeting Just Yet!

  1. 1. Oriel Capital | Investing Behind Leaders As Discerning As We Are 1   Reckitt Benckiser vs. FTSE 100 (Colin Day & Bart Becht) (Sept 2000 – April 2011) Hedge Funds: Why the highly coveted CEO meeting is overrated The Mentor vs. The Apprentice 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. The Dream Team In September 2000, Colin Day joined RB, a consumer products conglomerate2, and together with Bart Becht racked up an enviable track record of capital allocation and a rousing share price appreciation3. For Bart (The Mentor), this meant- For Colin (The Apprentice), 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 • 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 ~£7M4 despite quarterbacking the majority of RB’s M&A activity • Limited recognition & Awkwardly worded exit statement5. 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 future6. The Break-Up 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, Bart7 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. 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 private8 and up until the point he was able to speak fluently in public9.                                                                                                                           1  Aided  by  leveraging  equity  options   2  Includes  the  likes  of  Durex  condoms,  cleaning  agensts  Harpix  &  Dettol  along  with  various  OTC  drugs   3  During  Colin’s  intial  month  shares  traded  at  low  ~800p  to  £34.39   4  Aggregates  £1.7M  (base  salary  and  fees,  bonus,  benefits  in  kind,  +  pension  contributions)  and  residual  as  stock-­‐‑based  comp  –  2009  annual  report   5  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.”     6  Analyst  reactions  remained  mixed  followed  by  a  muted  share  price  depreciation  (164p)   7  "ʺI  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,"ʺ  Becht  said.  Analysts  criticized  Reckitt  for  not  giving   any  indication  in  recent  months  that  Becht  might  be  moving  on.   8  Under  both  the  aegis  of  Bart  at  RB,  subsequently  while  being  underfollowed  by  markets     9  In  the  words  of  a  prominent  venture  capitalist