The CHH investment is an excellent example of Smith’s opportunism and his willingness to make sizable bets when circumstances warranted. The transaction was both very large (equal to over 40 percent of GC’s enterprise value) and very complex. It was also very attractive. Ives negotiated a preferred security that guaranteed General Cinema a 10 percent return, allowed it to convert its interest into 40 percent of the common stock if the business performed well, and included a fixed-price option to buy Waldenbooks, a wholly owned subsidiary of CHH. As Ives summarized to me, “At the end of the
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