A merger master's playbook: there is a time to buy and a time to sell, and always a time to do right for the shareholders.

• Author: Fuqua, J.B.
• Position: ENDNOTE

Ed Note: J.B. Fuqua (1918-2006) built a small manufacturer of bricks into a multibillion-dollar collection of businesses known as Fuqua Industries. This self-made entrepreneur who never went to college (but became a major benefactor to Duke University, which named its business school after him) was renowned in the M & A community in the 1970s and '80s for his savvy dealmaking. In 1984, a few years before he sold his controlling interest in the Atlanta-based company, he authored "Size vs. Strength: The Making of Stockholder Wealth," an article for DIRECTORS & BOARDS that laid out some of his fundamental value-creating principles. An excerpt follows. He died in April 2006 at the age of 87.

I BELIEVE THAT stockholder wealth is the most important ingredient in our capitalistic system. In top management we often sit around figuring out how to buy out another company. Actually, what we ought to do is figure out how to increase the value of the stockholders' interest. In my company, I concentrate on that to a greater extent than executives in many public companies, perhaps because I am a significant stockholder myself.

The idea that bigger is always better just isn't true for all corporations in our economic system. I did a little exercise many years ago, which I recommend. I had my associates do a thorough study of what happens with acquisitions in major, acquisition-minded companies. From that study I can tell you that it is hard to justify many of the acquisitions most of us have made. Often, the only ones who win are the stockholders of the acquired company.

We've restructured Fuqua Industries in view of the cycle we've been through, where economic conditions were bad, and we've strengthened the company not by increasing its size but by decreasing it. We had built Fuqua through acquisitions until, in 1979, we had sales of over $2 billion. For 1983, we are down to about $750 million. That shrinkage was done intentionally, and the company is stronger than ever.

In mid-1980 our company was selling for around $15 per share, well under book value despite the fact that 1979 was one of the best years we ever had. In determining ways to enhance the stockholders' investment, we didn't start by saying, "Let's see what we can acquire to make the company bigger." We said, "Let's see what we can do to increase the value of the stock."

Certain well-known economic fundamentals came into play. There is a time to buy and a time to sell, particularly in a...