Taking Down the Lion: The Rise And Fall of Tyco’s Kozlowski

Book Review: Taking Down the Lion by David Merkel, CFA of the Aleph Blog

Taking Down the Lion: The Triumphant Rise and Tragic Fall of Tyco’s Dennis Kozlowski is a tough book for me to review.  The credit distress of Tyco International Ltd. (NYSE:TYC) caused me considerable stress, and let me explain to you how that was.

I was the leading corporate bond manager at the fastest growing life insurance company 2001-2003.  We had a significant position in Tyco bonds, and as thy fell, we were concerned.  As a new corporate bond manager, I drew upon all of my analysts and portfolio managers, and asked them, “Who can give me the bear case here?”  I did my own analysis as well.  No one could come up with a way that Tyco could go broke.

So I asked the next question: Is there anyone on Wall who thinks Tyco International Ltd. (NYSE:TYC) could go broke?  We found one.  We read the analysis.  We thought the argument was ridiculous, and so we wanted to buy more.  We had a problem: our client was under pressure from the rating agencies to decrease our exposure to Tyco.

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We had a large block of two-year Tyco bonds that were trading near par, and I sold them, and reinvested into a smaller market value of 30-year Tyco bonds.  Problem solved, but we were now taking more risk in Tyco International Ltd. (NYSE:TYC) debt, a bet that we would win.

The Book

Taking Down the Lion takes the view that Kozlowski had a subpar legal team which made many blunders in representing him.  It also notes how the informal management culture played against Kozlowski as things that were formal at many other corporations, and thus could not be argued, were not so at Tyco International Ltd. (NYSE:TYC).

If the book is correct, this was a perfect storm for Kozlowski, leading to an unjust conviction and sentence.  Having worked at firms that were informal, I can believe that Kozlowski was framed during a witch-hunt era that produced the dreadful Sarbox law.  Few legislators think of what the side-effects will be from their legislation.

My Thoughts

Tyco International Ltd. (NYSE:TYC) as a corporation was not a fraud.  Yes, Kozlowski was tone-deaf regarding some conspicuous consumption that he did, or was done on his behalf.  There is no crime for being a vulgar consumer.  Supposedly Kozlowski paid for it all, but still he got judged for it in court.

Truth,  don’t know whether Kozlowski was guilty or not, but the company was well-run, and what company could you not find a few things that have some taint?

Summary

I think it is a good book, and I lean toward the idea that Kozlowski should not have been convicted,  If you want to, you can buy it here:

Taking Down the Lion: The Triumphant Rise and Tragic Fall of Tyco’s Dennis Kozlowski.

Full disclosure: The PR flack asked me if I would like a copy, and I said yes.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.