Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations

Chapter 6Trading in Glamour: The Conglomerate EraSpeculation, Investment, and Behavioral Finance

“Do you,” said I, looking at the shore, “call it ‘unsound method?’”

“Without doubt,” he exclaimed hotly. “Don’t you?”

“No method at all,” I murmured after a while.

—Joseph Conrad, Heart of Darkness (1899)

ergot \ (Ûrgt) \, noun:

A fungus (Claviceps purpurea) that infects rye and other cereal grasses fed to livestock. Ingestion produces convulsions and hallucinations. May have been responsible for outbreaks of mass hysteria in medieval Europe.

—Comes from French, from Old French argot, a rooster’s spur, suggested by the fungus’s shape.¹

Tex Thornton needed $750,000. He’d borrowed $300,000 from Wells Fargo Bank to make the down payment on Litton Industries, a San Carlos, California, manufacturer of magnetrons sold to military-oriented businesses, and had to provide a personal note as collateral to secure even that amount.² Now he needed another $750,000 to buy the company from its founder, Charles V. Litton, or the deposit would be lost. At a meeting with investment bankers from Lehman Brothers in New York, Thornton sketched out his plan for little Litton Industries, then earning just $3 million a year in revenues. Thornton believed Litton could become a $100 million-a-year corporation in five years by acquiring other businesses for paper—stock in Litton. Most small military electronics companies were outcompeted or taken over by larger competitors. Litton’s only chance was to ...