The Best "Have your cake and eat it" Deals of All Time
With Brexit negotiations underway and Trump in power at the White House, Insights lists the six best deals ever negotiated.Jermaine Haughton
In one of the biggest negotiations in British history, the Government is under pressure to negotiate on a number of issues. These include access to the single market, immigration and new international agreements, with Prime Minister Theresa May seeking to make the UK’s separation from Brussels as painless and prosperous as possible.
No easy task, indeed. However, here are several fantastic examples of brinkmanship that the Prime Minister and her Government can take tips from on how to complete a great deal.
The Silna brothers’ NBA Deal
When the NBA decided to absorb the rival league ABA in the 1970s, and absorbed four of its teams - the New York (now Brooklyn) Nets, San Antonio Spurs, Indiana Pacers and Denver Nuggets - Ozzie and Daniel Silna turned disaster into fortune by striking one of the most famous deals in American sports history.
In 1976, the duo agreed the ABA team they owned - the St. Louis Spirits - would fold. The brothers struck a legal deal whereby the four ABA teams decamping to the NBA made a one-time payment to the brothers of $2.23 million (£1.79 million). In addition to this, the brothers received one-seventh of the teams’ national broadcast rights in perpetuity.
Until the NBA bought out the clause for a reported $500 million (£402 million) in 2014, the popularity and rise of the NBA and sports media saw the Silna brothers reportedly net up to $800 million (£644 million) from the deal.
Many analysts and commentators called the move risky, but in the winter of 1998, oil and energy giants Exxon and Mobil merged in a $75.3 billion (£60.5 billion) deal. Combining two different working cultures, more than $200 billion in revenue, 122,700 employees and energy reserves larger than Canada, the ExxonMobil deal was the biggest of its day.
After implementing a ruthless cost-cutting strategy initially, totalling some 14,000 job losses and $3.8 billion in annual pretax savings, ExxonMobil also survived the economic crash of the late 2000s and today stands as the world’s largest listed energy group.
Despite facing challenges on how best to grow its business further, ExxonMobil reportedly has a resource base of 92 billion barrels of oil and gas, enough to sustain its production for 63 years at present rates. Furthermore, the company has carved out a reputation for safety and delivering projects on time.
Michael Jackson and The Beatles’ Catalogue
While playing to stages around the world as the widely-acclaimed King of Pop, Michael Jackson also operated as one of the most astute businessmen in the music industry. Taking a keen interest in the money generated by publishing and royalties, his most shrewd deal occurred in 1985 when he bought the publishing rights to the Beatles’ catalogue. Jackson famously outbid Beatles singer and songwriter Sir Paul McCartney.
Ownership of much of the Beatles’ catalogue resided with Northern Songs – a company formed by McCartney and John Lennon, late Beatles manager Brian Epstein and publisher Dick James. James sold the Beatles’ catalogue to ATV, which then ended up in the hands of Australian billionaire Robert Holmes à Court.
Following long and protracted negotiations, Jackson finally had a $47.5 million (£38 million) offer accepted. Ten years later, Michael Jackson agreed to merge ATV with Sony’s music-publishing business, earning a whopping $95 million (£76 million).
Warren Buffett’s Goldman Sachs Investment
During the peak of the banking and credit crisis of 2008-10, the iconic Omaha investor made the gamble to pour $5 billion (£4 billion) into Goldman Sachs. This is now regarded as an inspired decision due to Buffett’s return of an estimated $3.1 billion (£2.5 billion).
Soon after the collapse of Lehman Brothers, when Goldman’s stock was falling sharply, the Berkshire Hathaway boss gave the investment bank a huge vote of confidence by buying £4 billion worth of “perpetual” preferred shares. Goldman agreed to pay a 10% dividend on these, which totalled about £400 million a year. Buffett also held “warrants” on Goldman Sachs, whereby Buffett was given the legal right to buy the bank’s stock at $115 per share. From the preferred shares alone, Goldman paid Buffett $5.64 billion to get these back in March 2011. Buffett made $640 million on his $5 billion investment, or about 13% over two-and-a-half years.
The U. S.-Cuba détente
After nearly fifty years of bitter arguments and standoffs, President Barack Obama and Cuban leader Raúl Castro, brother of revolutionary Fidel, agreed to normalise diplomatic relations between their nations in late 2014. Shocking the world, the secretive deal had reportedly undergone nearly two years of covert negotiations, and included Pope Francis, who served as a chief mediator in the process.
The improved relations have seen the U.S. lift some longstanding restrictions, allowing Cuban Americans to visit and send remittances to their families, and easing — but not removing — the 49-year-old economic embargo on the island nation. Several U.S. airlines have begun direct flights to Cuba, a U.S. firm have signed a contract to manage a hotel there, and industries from agriculture to technology are looking into opportunities involving the island, including Google.
Blackstone’s Revival of Hilton Hotels
Dated, unpopular and broke. The famous Hilton Hotels chain was seemingly on the downturn during the late 2000s, but private equity firm Blackstone transformed the company’s fortunes in one of the most successful financial deals in modern history. In 2007, Blackstone bought Hilton in a $26 billion leveraged buyout at the height of the real estate bubble, with big plans for revitalizing the chain.
The hit of the financial crisis looked almost deadly, with the investment losing up to 70% of its value, debts rocketing and cash flow dropping sharply. However, Blackstone rescued the deal by refocusing the firm’s brand worldwide, expanding its available rooms, and building a greater upmarket and luxurious reputation. At the time of the acquisition, the hotel chain had 116,000 rooms under construction, 19 percent of them in international properties. In 2014, it had 210,000 new rooms on the way, 60 percent of which were abroad. When Blackstone took the company public in December 2013, Blackstone recorded a paper profit of $12 billion.