Corporate Sponsorship Mick Jagger and the Rolling Stones have never been shy about corporate sponsorships. In the early years, the band made little money from its touring activities because there really was no proven model of how to generate profits. The structure consisted of a hired tour manager, who would contact local promoters in each tour city to plan each show, then collect varying amounts of money from them afterward. Jagger got firsthand experience with this side of the business, personally negotiating with some of the local promoters in specific markets and countries.

Canadian rock promoter Michael Cohl began managing the band’s shows with Steel Wheels and created the structure that would allow the band to recognize the real money making potential of this side of the business. The Rolling Stone’s tour model would consist of Cohl working directly with local venues and booking the entire tour without the use of local promoters. He generated additional revenue with skyboxes, bus tours, television appearances, and expanded merchandising efforts. Corporate sponsors-from Volkswagen and Tommy Hilfiger to Anheuser Busch and E*Trade-were added to the formula along with a heavy dose of cross promotion between all of the elements to integrate all of the marketing activities. The Steel Wheels tour earned $260 million worldwide, which was a record at the time for any rock concert tour.

Since Steel Wheels, the band has grossed over $1 billion on the road with the same basic formula-although it continues to tweak the operations side of the equation. It is the biggest revenue generator of the Rolling Stones organization.

• Graham would have been disappointed, though surely not surprised, to

see that commercial banks have chronically kept supporting “unsound expansions.” Enron and WorldCom, two of the biggest collapses in corporate history, were aided and abetted by billions of dollars in bank loans.which had $43 million of long term debt, $101 million of stock capital, $219 million of sales, and $2,929,000 of net earnings. The company it wished to acquire was thus seven times the size of NVF. In early 1969 it made an offer for all the shares of Sharon. The terms per share were $70 face amount of NVF junior 5% bonds, due 1994, plus warrants to buy ?2 shares of NVF stock at $22 per share of NVF. The management of Sharon strenuously resisted this takeover attempt, but in vain. NVF acquired 88% of the Sharon stock under the offer, issuing therefore $102 million of its 5% bonds and warrants for 2,197,000 of its shares. Had the offer been 100% operative the consolidated enterprise would, for the year 1968, have had $163 million in debt, only $2.2 million in tangible stock capital, $250 million of sales. The net earnings question would have been a bit complicated, but the company subsequently stated them as a net loss of 50 cents per share of NVF stocks, before an extraordinary credit, and net earnings of 3 cents per share after such credit.* First Comment: Among all the takeovers effected in the year 1969 this was no doubt the most extreme in its financial disproportions. The acquiring company had assumed responsibility for a new and top heavy debt obligation, and it had changed its calculated 1968 earnings from a profit to a loss into the bargain. A measure of the impairment of the company’s financial position by this 430 The Intelligent Investor

• In June 1972 (just after Graham finished this chapter), a Federal judge

found that NVF’s chairman, Victor Posner, had improperly diverted the pension assets of Sharon Steel “to assist affiliated companies in their takeovers of other corporations.” In 1977, the U.S. Securities and Exchange Commission secured a permanent injunction against Posner, NVF, and Sharon Steel to prevent them from future violations of Federal laws against securities fraud. The Commission alleged that Posner and his family had improperly obtained $1.7 million in personal perks from NVF and Sharon, overstated Sharon’s pretax earnings by $13.9 million, misrecorded inventory, and “shifted income and expenses from one year to another.” Sharon Steel, which Graham had singled out with his cold and skeptical eye, became known among Wall Street wags as “Share and Steal.” Posner was later a central force in the wave of leveraged buyouts and hostile takeovers that swept the United States in the 1980s, as he became a major customer for the junk bonds underwritten by Drexel Burnham Lambert.step is found in the fact that the new 5% bonds did not sell higher than 42 cents on the dollar during the year of issuance. This would have indicated grave doubt of the safety of the bonds and of the company’s future; however, the management actually exploited the bond price in a way to save the company annual income taxes of about $1,000,000 as will be shown.

• The “bond discount asset” appears to mean that LTV had purchased

some bonds below their par value and was treating that discount as an asset, on the grounds that the bonds could eventually be sold at par. Graham scoffs at this, since there is rarely any way to know what a bond’s market price will be on a given date in the future. If the bonds could be sold only at values below par, this “asset” would in fact be a liability.

• We can only imagine what Graham would have thought of the investment

banking firms that brought InfoSpace, Inc. public in December 1998. The stock (adjusted for later splits) opened for trading at $31.25, peaked at4. At the end of 1967 the bank loans had reached $161 million, and a year later they stood at $414 million-which should have been a frightening figure. In addition, the long term debt amounted to $1,237 million. By 1969 combined debt reached a total of $1,869 million. This may have been the largest combined debt figure of any industrial company anywhere and at any time, with the single exception of the impregnable Standard Oil of N.J.

5. The losses in 1969 and 1970 far exceeded the total profits since the formation of the company.

Moral: The primary question raised in our mind by the LingTemco Vought story is how the commercial bankers could have been persuaded to lend the company such huge amounts of money during its expansion period. In 1966 and earlier the company’s coverage of interest charges did not meet conservative standards, and the same was true of the ratio of current assets to current liabilities and of stock equity to total debt. But in the next two years the banks advanced the enterprise nearly $400 million additional for further “diversification.” This was not good business for them, and it was worse in its implications for the company’s shareholders. If the Ling Temco Vought case will serve to keep commercial banks from aiding and abetting unsound expansions of this type in the future, some good may come of it at last.* The NVF Takeover of Sharon Steel (A Collector’s Item) At the end of 1968 NVF Company was a company with $4.6 million of long term debt, $17.4 million of stock capital, $31 million of sales, and $502,000 of net income (before a special credit of $374,000). Its business was described as “vulcanized fiber and plastics.” The management decided to take over the Sharon Steel Corp., Four Extremely Instructive Case Histories $1305.32 per share in March 2000, and finished 2002 at a princely $8. per share.