Perfect Storm trouper

Written by Rick Spence

He’s one of Canada’s most opinionated broadcasters. He’s played the game at all levels and achieved incredible success in Boston. He calls ’em like he sees ’em, names names and crusades against lousy performance.

Don Cherry? Nope. Meet Kevin O’Leary, defender of the oppressed, scourge of Bay Street and “Investor at Large” on Report on Business Television.

O’Leary is a guy who’ll identify one of the Street’s top fund managers and sneer, on national TV, that “she couldn’t pick a stock if her life depended on it. This insidious sucking of people’s cash out of their portfolios, through fees that are not performance-based, is absolutely evil.” But unlike most TV business commentators, O’Leary has actually run a business.

Long-time PROFIT readers may recall O’Leary and Michael Perik as the management team that turned Softkey Software from living-room startup into Canada’s Fastest-Growing Company in 1992. From there, the budget software publisher embarked on an acquisition spree that created an industry giant, redubbed The Learning Co., with headquarters in Boston and sales of US$800 million.

The next steps were muddier. In June 1999, Mattel Inc. bought The Learning Co. in a share swap worth US$3.5 billion. Three months later, Perik and O’Leary sold most of their Mattel shares, each netting US$6 million. Meantime, sales were slowing; in the third quarter of 1999, The Learning Co. lost US$100 million. In November, O’Leary and Perik were fired. Soon after, The Learning Co. posted a Q4 loss of US$180 million, and Mattel CEO Jill Barad resigned. Mattel later “sold” The Learning Co. to an equity buyout firm for a share of future profits.

O’Leary, who lives in Boston, blames the debacle on a “perfect storm” that included the tech meltdown, management issues and a culture clash between marketers of software and traditional toys. “It was a traumatic transaction,” he says. “I’m disappointed we didn’t create more value.”

Perik left Mattel with the rights to a line of remedial-education software and turned it into Achievement Technologies of Newton, Mass. It now has 60 staff. O’Leary, held by a three-year non-compete clause, discovered a new interest. Outraged by the mediocre returns of his professionally managed portfolio, he spent a year learning the investment business for himself.

“There are a lot of idiot fund managers who add no value to the process at all,” he says. “They made a lot of money in the bull market and now they’re just slaughtering investors.” Fee- and risk-averse, O’Leary entrusts his money mainly to fixed-income securities and index funds. And he advises time-pressed CEOs to manage their own investments: “The whole industry is set up to take money from you in the form of slow bleeds.”

With his formula yielding higher returns and lower fees, O’Leary decided to take his opinions public, and talked his way into a screen test at ROBTv. The result was magic, says ROBTv general manager Jack Fleischmann: “I knew in five seconds that he was a natural.” To be safe, Fleischmann hired a researcher to review the Learning Co. case. Concluding that Mattel shared at least equal blame, he turned O’Leary loose.

Three to five times a day, four days a week, O’Leary lambastes underperforming stocks and fund managers. On May 1, he posted a chart showing how the stock picks of leading Wall Street fund managers had all lost money since January 1, even as the S&P 500 rose 5%. “And this is before the fees you pay for this idiot advice,” he thundered.

The result: O’Leary is a hit. He already gets more e-mail than the rest of the station’s hosts combined.

“We want to do more with him,” says Fleischmann. “I just hope we can hold his attention.” But with his non-compete expired, O’Leary is eyeing new opportunities. At 48, he’s not sure he has the energy to run another software company, but says, “I’d like to use my expertise to become an investor again.” He sees rising production costs crashing up against falling prices, creating opportunities for nimble, low-cost producers: “I’ve always loved that combination.”

Rick Spence is a former editor of PROFIT.

© 2003 Rick Spence

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