The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

by William N. Thorndike Jr.

That exception, however, helps make an important point about capital allocation. The central event of Chabraja’s tenure was the Gulfstream acquisition. So, how exactly did he pay for this massive deal? His approach was opportunistic and unusual—in a radical departure from the Anders playbook, Chabraja sold stock. A lot of stock. This was a seemingly dilutive move. Closer examination, however, reveals its sophistication (and kinship with Anders’s principles). As figure 3-2 shows, the equity offering coincided with an all-time high trading multiple for General Dynamics’ stock (not unlike Buffett’s large purchase of Gen Re, also done with a stock currency then trading at a record premium). As Chabraja described it to me, “What drove me was the realization that the stock was trading at a significant premium to our historic norm: twenty-three times next year’s projected earnings versus an historic average of sixteen times. So what do you do with a high-priced stock? Use it to acquire a premium asset in a related field at a lower multiple and benefit from the arbitrage.”11 As Ray Lewis summarized, “Nick sold shares equaling one-third of the company to acquire a business that provided half of our consolidated operating cash flow.”