Kevin O'Leary: More Myth than Magic

Some months after posting my take on Kevin O'Leary, the Globe and Mail ran an O'Leary story. Here is a link: Kevin O'Leary: He's not a billionaire, he just plays one on TV.

For the O'Leary story, the Globe disabled comments. The editor explained:

Comments have been closed on this story because an overwhelming number of readers were making offensive statements about other commentators and/or the individual or individuals mentioned in the story. . . . and so the comment function has been turned off.

Time magazine also ran a piece on O'Leary. Here is a link: No business whiz.

Time said:

Over the years, O'Leary has often been an outspoken critic of fund managers who underperform the market. . . . (O'Leary has been quoted saying:) "There are a lot of idiot fund managers out there who add no value to the process at all." If O'Leary doesn't turn things around at his funds, he can add one more manager to his list.

And now for my take on the O'Leary story. 

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Is Kevin O'Leary a successful capitalist? The short answer is yes; Kevin O'Leary is a successful pulled-himself-up-by-the-bootstraps capitalist. But is he a successful capitalist by the standards O'Leary himself has set? The short answer here may also be yes; Google "StorageNow."

On the other hand, the long answer appears to be no. A Google search to confirm the no answer is more complex but is well worth doing.

Recently, O'Leary had an on-air altercation with a guest on his CBC program. He called an American journalist, Chris Hedges, a "nutbar." For this he had his wrists slapped by the CBC Ombudsman: "O’Leary . . . breached policy.” The Ombudsman, Kirk LaPointe, went on to reveal that CBC News issued a private apology to Mr. Hedges after the interview. LaPointe said it would have been better if the apology had been made publicly on-air.

During the interview Hedges tells O'Leary, "Corporations don't produce anything." O'Leary responds, "Oh really?" Hedges continues: "They are speculators. I'm talking about the financial institutions like Goldman Sachs. They don't manufacture. They don't make anything. They gamble. . . "

There are those who would argue that O'Leary, as bright and as successful as he is, has been at times more gambler than entrepreneur, more promoter than producer — and at times, a destroyer rather than creator of jobs. 

It's interesting where a Google inquiry leads when one starts asking the search engine about O'Leary. One quickly learns that there may be more myth than magic in the story of the self-made billionaire. For instance, he isn't a billionaire. And he may NOT have run a successful software business. It all depends on how you define successful.

According to a fine article in Canadian Business by Joe Castaldo on O'Leary, his SoftKey software business, renamed The Learning Company (TLC) after taking over of a competitor carrying that name, was a money losing concern at times.

While TLC grossed US$839 million in 1998, it lost $105 million. It recorded losses the two previous years as well. . . . "That's not true," O'Leary told Castaldo. "The company was profitable when sold to Mattel. Who said it wasn't profitable?" Castaldo read him the earnings taken from the company's annual reports, and O'Leary asked to see the reporter's notes. "You know, I gotta check. This doesn't look right to me," he said. After another moment of scrutiny, he tossed the notes back on the table. "Those were public numbers, so whatever they were, they were," he concluded.

O'Leary holds to his position that his company was a solid performer. According to Castaldo, long-time software executive Bernard Stolar, brought in by Mattel to turn around the new division, disagrees. "It [TLC] was in horrible condition." Stolar believes the acquisition spree was solely to add revenue. "They didn't even care if they were losing money or not."

Mattel's dismal bottom line was exacerbated by a shocking US$105-million loss in the TLC division. Mattel's stock crashed, wiping out US$3 billion of shareholder value in one day. Though O'Leary had signed a contract to stay with Mattel for three years, six months after the deal closed, he was gone. He left with more than US $5 million in severance.

During the interview for Canadian Business, the bravado left O'Leary's face just once. It was when he recounted how the outcome affected his employees. "I feel like I let them down," he said. "They'd worked so hard." But, the sentimental tone didn't last long, Castaldo writes: "That's the thing about business. It's very Darwinian," explains O'Leary.

It's survival of the fittest and O'Leary emerged very fit from the TLC fiasco. His fall was cushioned by a $5.2 million golden parachute. As I write this, O'Leary is serving on the executive board of the Richard Ivey School of Business at The University of Western Ontario and he is the chair of the investment committee of Boston’s 107-year old Hamilton Trust. Yes, he is surviving very well.

TLC Chairman Michael Perik, like O'Leary, also took home a U.S. $5.2 severance package. From a brief reading of my Google hits, it seems Perik has returned to the education software business and is now heading Princeton Review, a provider of test preparation and related education services. There are signs the same stresses that threatened SoftKey and TLC have also put Princeton Review under stress.

Jill Barad, the CEO at the helm of Mattel when the toy company completed one of the worst acquisitions in corporate history lost her job, that should come as no surprise, but she still did O.K. The following is from The Last Male Bastion by Douglas Routledge:

The Mattel board was generous to its fallen CEO. She would pay $1 for her limousine, office furnishings, and 52-doll Barbie collection. She would receive a $50 million severance, including a $598,000 yearly pension, and forgiveness of a $3 million loan. She left Mattel with shares worth $22 million selling at the time at all-time low levels.

There are lots of other names and connections that pop up when one googles the Kevin O'Leary SoftKey story. Although each story is different, there are a couple of common threads running through many of the stories. First, many would argue that these executives were grossly over-compensated when compared to historic rates and to remuneration available in other countries. Second, these executives were not always job creators; they often destroyed jobs, ruining lives.

For instance, after the take-over of Tyco by Mattel, Barad eliminated 2,700 jobs, nearly 10 percent of the combined workforce. A quiet, thoughtful discussion between O'Leary and Hedges on the matter of job creation and role played by large corporations could have made excellent television. Much better than the fiasco that was presented. 

I'd love to watch a rematch between Kevin O'Leary and Chris Hedges. I'm sure Hedges would be prepared. He'd do his research. He might confront O'Leary with some hard truths, and among those truths might be the fact that it is not only American bankers who bleed the capitalist system.

Let's leave this story with these paragraphs from The Last Male Bastion:

[The new Mattel] CEO Robert Eckert, former president of Kraft Foods, wasted no time. He closed Mattel’s Murray, Kentucky, manufacturing facility. Mattel then would manufacture every toy outside of the United States, in China, Indonesia, Malaysia, Thailand, and Mexico.

He quickly put TLC on the sales block, hoping to get as much as one-third of the $3.5 billion Mattel had invested. The divestiture proved to be as big a debacle as the acquisition. Mattel would sell The Learning Company to Gores Technology Group, a closely held Los Angeles “vulture” group specializing in fallen technology companies. Mattel would receive no cash, the purchase price being a share of future TLC earnings, if any. Moreover, Mattel would have to pay off TLC’s $500 million in debt, delivering a debt-free asset to Gores Technology. 

During its brief ownership of TLC, Mattel had absorbed a further $500 million in losses. With the announcement of the sale, Mattel cut its annual dividend from 36 to 5 cents a share, saving $130 million per year. Analysts agree that Mattel’s acquisition of TLC, which cost out of pocket $4.3 billion and resulted in the loss by Mattel of two-thirds of its market capitalization, may have been the biggest “dumb acquisition” of all time.