Opportunity in systemic change
In 1981 Congress passed the Economic Recovery Tax Act, which among other things, substantially extended the life of NOLs. But there was virtually no change in the share prices of NOL companies as a result of the new legislation. That presented us with an enormous opportunity to gain control of those NOLs and create holding companies for businesses whose profits would be shielded from taxes. Our ultimate goal was to use this advantage to build great companies.
One of the NOL companies we acquired was Itel, a conglomerate with a large portfolio of freight containers and railcars. We grew Itel into the largest oceangoing freight container company in the industry. By 1992 we also had grown the company’s railcar business, and we began negotiating an agreement with GE Capital Railcar Services to lease Itel’s entire rail car fleet, with an option to purchase. It was a highly complex arrangement riddled with hurdles, with Itel and GE holding the cars in trust together and GE paying Itel under the terms of the trust. We were dealing with 70,000 railcars, many with debt on them, and hundreds of customer leases. When the transaction closed nine months later, Sam commissioned a 6’ x 5’ oil painting depicting the participants and their roles in the vein of Dante’s Inferno. The painting features the web of players: the GE team, the attorneys, and representatives from the IRS, Justice Department and SEC. An accompanying narration of the deal was written in the meter of Dante. We eventually focused Itel on one of its subsidiaries, Anixter. But that’s another story.