How Forced Divestitures and FTC Actions Spark Investment Ideas

During their recent episode, Taylor, Carlisle, and Doug Ott discussed How Forced Divestitures and FTC Actions Spark Investment Ideas. Here’s an excerpt from the episode:

Tobias: What’s your idea generation process?

Doug: Yeah. So, it’s the typical thing, is you look at the 13F, see what other great investors are doing. You got other great investors you followed for 10 years. I think one of the interesting things I think I do, I don’t know about other people, but I think– They rarely happen, so it’s still a good place to look. Forced divestitures are always interesting to study or even just keeping tabs on the FTC website, see who they are suing or launching an investigation against, whether it’s a publicly traded company or a private company, because you still might learn something about a specific industry.

I was prepared for a question like this. One of the most interesting examples of an FTC action against a company I’ve ever read about involves a company called Charlotte– what is it? Charlotte Pipe and Foundry Company. So, this is a private company. Their specialty is they made cast iron soil pipes. Very niche industrial business. Can you guess what market share they had with their number two competitor in the US for cast iron soil pipes?

Jake: No.

Doug: It was over 90% of the market share. [Tobias chuckles] The mind-boggling thing that they did– So, they had this dominant market share, these two companies, and Charlotte Pipe fires this new entrant into the market called Star Pipe that operations in China work. Their headquarters in Texas. They were undercutting and trying to take market share from Charlotte and this other company.

Charlotte bought Star Pipe in 2010 or thereabouts, a blatant action to prevent a competitor from upending the monopoly position they had. Part of the purchase deal, they had a six year non-compete with Star Pipe employees, and they literally destroyed the manufacturing equipment of Star Pipe.

Jake: Wow.

Doug: Just so blatant. Obviously, somehow word travels up to the FTC for this insignificant market that no one cares about. It was probably some disgruntled employee. Charlotte Pipe gets in trouble. Even though it might not be an actionable investment idea, reading stuff like this over the years or decades, you might learn something that is useful, whether it comes to your investment process, your investment philosophy or countering a similar situation in the public market somewhere.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

Apple Podcasts