Ultimately, the two sides settled on $290 million -- according to Gustafson, the largest amount ever paid for a technology company that had yet to ship a product and whose product was only 90% complete. True, UUNet and GTE had signed on to test the product. But, says Gustafson, "We hadn't even proven it would work."
Buechner was willing to pay the price for one reason: time to market. Nortel was able to ship a 20-inch-high access switch that could handle 1,344 calls simultaneously by summer 1998, roughly one year ahead of its competitors -- a critical advantage for the company in executing its Web-tone strategy. Since the acquisition, Gustafson says, not only has Aptis delivered on time, but it has also widened its lead by 9 to 12 months. It even expects to deliver a new switch with 2,600 ports later this year -- all of which has made Klaus Buechner one happy man. Says Buechner: "Market momentum is ultimately everything."
Bob Boldt is a dyed-in-the-pinstripes investment manager. "My first job out of business school was investments," he says. "That's what I wanted to do, and it's what I've done ever since." In the 26 years since he left business school, Boldt, 50, has come to do investing in a big way, and, in the process, he has developed new ways to measure the value of intangible assets.
For the past two and a half years, Boldt has managed more than $140 billion in state-employee retirement assets for the California Public Employees' Retirement System, the largest public pension fund in the United States. As part of his job as senior investment officer for global public-market investments, he oversees a domestic portfolio of roughly 1,700 stocks worth more than $100 billion.
His assignment with CalPERS has led Boldt to think about value in new ways. Part of that thinking stems from CalPERS's approach to its investments: It owns a market basket of stocks, and it manages 75% of its holdings passively. It holds the best stocks and the worst ones; it doesn't make rapid-fire trades to play the market.
Boldt approaches companies in which CalPERS has a position less as a speculator and more as an owner. His job, in essence, is to approach underperforming companies and to prod them to change in ways that will create value in the future. His goal is to educate them to think about the sources of a company's value -- about where their real assets lie and how those assets should be managed.
Boldt knows all about analyzing stock values by using traditional methods. After earning his mba at the University of Texas at Austin in 1973, he went on to manage money for several banks in Chicago. That's where, in 1981, he cofounded Concord Capital Management, which later moved its operations to San Mateo, California. Boldt managed institutional money for Scudder, Stevens & Clark from 1993 to 1996. A charter financial analyst, he won the Graham and Dodd Award in 1984, a prize for excellence in financial writing. (The award is named after Benjamin Graham and David Dodd, authors of the 1934 finance classic Security Analysis.)
But these days, Boldt has to come up with atypical approaches to dealing with nontraditional issues. He has the fiduciary duty to find every possible means of boosting the value of CalPERS's portfolio. For Boldt, that doesn't mean giving special attention to every stock: The portfolio is simply too big for that. Instead, he centers his work on the worst of the worst''on what are called "focus list" stocks.
Since the mid-1980s, CalPERS has named about 10 companies every year to its focus list. Recent entries on that list include Apple Computer, Advanced Micro Devices, Reebok, and Rollins Environmental Services. In looking at the list, CalPERS tries to find the most reliable indicators of each company's ability -- or, more important, its lack of ability -- to perform. It then asks each company to take steps to improve its performance in those areas.
Over the years, this unique approach has moved William Crist, 60, an economics professor who heads the CalPERS board, to champion some cutting-edge notions. About 10 years ago, he led CalPERS in suggesting that modernizing the governance practices of a board of directors could improve a company's performance. CalPERS's argument: If the board is stacked with the ceo's friends and family members, if it simply rubber-stamps the ceo's ideas, then the entire company gets the message that "good enough" is good enough.
As logical as that idea sounds, it met with stony resistance from many big-company bosses, who didn't agree that something as wildly intangible as governance practices could be used as an indicator of a corporation's value-creating potential. "We were seen as intruders," recalls Crist, "hostile aliens invading from somewhere."
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