Business Breakdowns
· Krishna Mohanraj
[00:00:00] S1: There is a nice quote from Gianni that John Elkann quotes. Groups like ours typically go through three stages in their development. A time of strength, a time of privilege and a time of vanity. For me, the first is the only one that counts. Essentially what they're saying is that the heart of what they want to do is to invest in change, but maintain their financial strength along the way. That means change is slow, measured, but there is constant refresh and renewal and pretty much in every interaction with the investors John Elkann points out that they're constantly looking to change. Their intention is to renew that asset mix all the time, look for opportunities. There are three sectors that they've highlighted as for the very long term. Where they want to be, healthcare, luxury and technology. Very long duration plan to build both knowledge, expertise and investments in those three areas. Out of the three, luxury is kind of obvious with Ferrari. Clearly they know the space very well. They've made some small moves there. We've talked about Louboutin, and they also have a majority control of Shang Xia in the Chinese market. But the reality is there's not much to do in luxury. Luxury, especially at the very high end, is a super small, crowded space. Not that many companies that are independent, and if you want to stay in the super premium end, even less so. Anytime there is any opening, there is so much interest in unique assets that it seems like the likelihood of them finding anything at the right price is pretty low. Second, you've got technology, a space that until recently was very new to them, but so much is happening there. If you think about the depth and breadth of what's being created in AI, they are doing their best to build expertise through Vento, which is a seed program that they support in Italy. And also their ventures business has begun to mature over the years. They've taken some bets in mobility, some areas of AI. In fact, one of their investments through ventures is a company called Via. It's in the urban mobility space, essentially optimizing pooling of multiple passengers for vehicle fleets. Exor invested in 2020; they own about 9%. Just recently they have filed an S-1/A confidential filing for an IPO. Some early example of a success story coming out of ventures.
· Krishna Mohanraj
To add to what we talked about in the private space, lots of optionality there that could be hidden, that could play out over the next five, ten years. Also very interesting to note that earlier this year John Elkann joined the board of Meta, which at the very least gives him a ringside view to AI. And it's very clear that he has all the access to the who's who in Silicon Valley early stages, and it remains to be seen what could be a bigger step for them in the tech space. Finally, that brings us to healthcare, which is really the most promising area for them, at least till now. They are very clear on the long-term thesis, the secular need for healthcare. They're especially keen on the healthcare tech side of things. So imaging, diagnostics tools, genomics services. Even though they've called out technology as one of the three focus sectors, healthcare technology is probably where they're likely to spend, build more expertise and more investments. They've already had some significant investments. Philips and Institut Mérieux both seem great investments in themselves and also strategic, giving them a front row seat into that space. It's interesting if you look at the story at Philips. In hindsight, it would seem obvious why Exor would like the story. The last decade or so at Philips has a lot of resonance with their own restructuring of Fiat. Philips went from a mix of everything—consumer electronics, lighting, semiconductors—to a pure play global health tech company. And on top of that, it is also facing both difficult end markets and idiosyncratic issues of its own with a recall on their sleep apnea device. If you're looking to get into the health space, if you're looking for a company that is global, dominant in health and technology, and potentially on the path to greatness, which is a nice way of saying a turnaround, there aren't that many ideas at scale that could be better than Philips. I think they started with a 17, 18% stake and now increased to almost 20% board presence. They have an opportunity to be part of that journey, and they have the time, they have the ability to give Philips the stable ownership that it needs to execute for the long term. There is a bear case, of course. In healthcare, innovation takes much longer than people expect, and very often companies don't get paid for innovation because of regulation.
· Krishna Mohanraj
Just the way the markets are structured, it definitely looks exciting, and we will see how that evolves. And as that becomes successful along with bioMérieux—again we spoke about it—leading scientific group in that space, shared ethos of family ownership. In five years, Exor could be a legitimate player in health tech. At the very least, they will learn a lot in that space, and that could change the flavor of this group for the better. With a holding company set up like this and a leader who's opportunistic, doesn't seem afraid to make changes and take decisions, it's very hard to come up with a five-year view, let alone a ten-year view. So who knows what this group looks like in five years. To some extent, that also makes it exciting. Especially if you think about buying a collection of global assets right now at a huge discount and potentially significant optionality over the next five, ten years. I think it's definitely a bet on the jockey more than just on the current set of assets.
· Zack Fuss
[00:00:00] S0: Just to highlight that discount to NAV, we have a business or collection of assets today that would be valued around €180 a share, trading in the market for around €100. Clearly there's significant opportunity to close that discount. But also to your point, a handful of the most significant assets are themselves trading at somewhat modest multiples. Philips obviously has a turnaround story. CNH and Stellantis, which are going through their cyclical trough. The opportunity set here is seemingly massive, not just to close that discount, but also to continue to compound NAV. Unfortunately, we're coming up on time, and I want to ask our customary question: when you look at this story and the research that you've done, what are the lessons that you've learned that you can apply to other investments? And conversely, or alternatively, what are the other lessons that can be learned that can be applied to businesses or holding companies to improve the operational execution for their businesses?
· Krishna Mohanraj
[00:00:00] S1: Following Exor over long periods of time, it's really like living through a live global case study in investing. There's so much to talk about, and we've touched upon a few of those themes. The one clear lesson that stands out is decisiveness. When you have to make a decision, make a decision. If it turns out to be wrong, fix it. There is none of what Buffett calls thumb sucking—hesitating, waiting on decisions. There's no "on the one hand, on the other hand," and then delaying decisions. If you follow Exor, and I have since inception in 2009 and also before that through Fiat, things are usually quiet, as you would expect from an investment holding company with a very long time horizon. There's not too much daily, quarterly noise, but maybe two or three times a year there is some specific, intentional decision that is moving the group in a certain direction. That comes from the clear intent to renew, refresh the portfolio with time. And I think that comes from Elkann's initial years with the group, the crisis, the fact that they had to find Marchionne as the CEO on the fourth or the fifth attempt within two years. What he learned was if they had stuck with the status quo, they would not have survived. I think that makes Elkann decisive, willing to change. When CEOs don't work out, no hesitation to try something different. Long-term investors tend to have a bias to no action, sitting on past decisions in the name of long term and patient. But investment decisions are not perfect. People decisions are not perfect. Even if they were good decisions for when you made them, the environment changes. It's always worth revisiting. I think it's a good lesson for us long-term investors when we understand that our bias is towards no action, to ask if we are hiding behind long term because we are afraid of uncertainty, to try and be more decisive and make decisions when you have to make decisions.
· Zack Fuss, Krishna Mohanraj
[00:00:00] S0: That was a really interesting summation of a business that probably could take countless hours or days to cover in sufficient depth. And so I think this is a great introduction to Exor, and we'll continue to monitor the story and the situation as the business evolves. [00:00:00] S1: Thank you, Zack.