The receptionist left me in the conference room as I fidgeted uncomfortably, wondering if I should stand up and act like an impatient businessman or sit down and act nonchalant. I went with nonchalant, and moments later Loreta came in, shook my hand, and led me into her office. She sat down at her desk, steepled her hands together, and smiled. I thought, “This is it. This is the part where she tells me I don’t have a case, and that I’m just acting like a whiny child.”
Much to the contrary, her first words to me were, “I’ve read your file. It’s a clear case of shareholder oppression. Ready to make these bastards pay?” She may not have actually said “these bastards,” but I knew “these people” is lawyer speak for the same thing.
She then explained to me, “Sanjay, in litigation cases, nobody ever wants to go to trial. And in 90 percent of cases, the threat alone is enough to get an outcome that is acceptable to the litigant, otherwise court action is going to cost you upward of $150,000.”
I must have blanched because she rapidly followed with, “But you can simply file an action with the courts and use that as a credible threat that you’ll go through with it.”
I tensed and asked, “And how much is filing a court action going to cost?”
“A $10,000 retainer should cover it.”
I let out my breath and said, “Let’s do it.”
As we discussed next steps, Loreta asked me, “The filed action is going to serve as a credible threat. What do you want the outcome to be?”
I repeated what I had told James, “I want them to buy out my shares.”
She shook her head, “No, from what you’ve told me, it’s quite likely they won’t be willing or able to come up with the money, and then you’ll have painted yourself into a corner where you either have to sue, or you’ll look silly.”
I nodded and asked, “What do you recommend I do, then?”
“Offer to buy them out if they won’t buy you out.”
---
I immediately called all of my contacts in the financial community, and within a few days I had a tentative commitment from the Royal Bank to back me with a $500,000 loan to help me buy the company. It would be just enough to buy a majority of shares from the most recalcitrant shareholders and board members.
Two weeks after being fired, I wrote a letter to the board, outlining my request and a threat. I suggested the board members arrange to buy me out at $1.65 a share, or if they couldn’t make that happen, I would buy them out at the same value. There was a board meeting scheduled for two weeks later, and I said I would begin oppression litigation immediately following the meeting if the outcome wasn’t favorable.
I received a response from the chairman the next day, stating, “We refuse to negotiate at the point of a gun. Remove the threat of a lawsuit, and we’ll be willing to talk.” I responded by agreeing to stand down the lawyers for six weeks as long as they’d begin good faith negotiations on selling the company to me. At the same time, unknown to me, the board hired a boutique investment bank to begin searching for a third party to buy the company.
Two weeks later, the day before our board meeting, I received notice from the SAB Board that it felt the shares in the company were worth $2.70 a share, substantially above my offer price, and that they had unanimously rejected my offer. I’d had an independent third-party valuation of Simply Audiobooks done, and I was assured the value of the company was in the range of $1.40–$1.65. Unfortunately, with the promise of holding off on litigation, I had made a tactical error, and “the bastards” had succeeded in buying themselves three months to find a solution more palatable to them.
A few weeks later, I received a surprise e-mail from the board, offering to buy my shares. As I opened the e-mail, I was nervous. It was the outcome I had hoped for from the beginning, but I found it hard to believe it was actually happening. When I read the full attachment, I realized it wasn’t as good as I’d hoped. They were offering me the $1.65 I’d calculated, but were only making 40 percent of the payment in cash. The rest would be drawn out over five years. It meant they could fund the entire deal from corporate resources. They also refused to buy out the other smaller common shareholders, who all happened to be friends of mine who had backed the company in the very early days.
I rejected the counteroffer, and by the end of October, we had reached an impasse and another board strategy was coming to light. I was supposed to be receiving $10,000 a month in severance payments following my firing, and the first two payments had been missed. I called my father and told him, “Dad, I can’t believe it. On top of everything else, now they’re not paying me severance. It’s like they’re daring me to sue them.”
My father replied, “Don’t worry. They think you don’t actually have the money to file a lawsuit and are trying to make the situation worse. But I’ll back you with whatever you need. Tell them to go to hell, and add the severance to the lawsuit.”
My offer to purchase and promise not to litigate expired on November 1, and I filed the lawsuit the next day. It was going to be expensive, but I was damned if I was going to be jerked around and not take the one really good shot I had.
I had to formally serve notice on each named party, but there was only one person I really had to talk to. Despite events of the past few months, Justin and I had maintained a good relationship on the surface as the board was doing all the dirty work, so I invited him to have a drink and catch up.
A day later, he and I met at a bar in Oakville. We talked about the business but didn’t refer to my lawsuit—or anything to do with my departure—until our beers arrived. After one swallow, I reached into my coat pocket and pulled out the notice of lawsuit, which included a litany of acts committed by the major shareholders to justify my oppression lawsuit. Justin recognized what it was but didn’t blink. He picked up the folded notice, pointed it at me, and said, “Is this what I think it is?” I scanned the mostly empty tables and nodded, wondering if he was going to make a scene, but he just continued. “Just tell me one thing. Is everything in here true? You didn’t make a bunch of shit up?”
“No, Justin, I didn’t make a bunch of shit up. Everything in there is true. Go ahead and read it.”
“I don’t have to read it,” he said. “I just want to make sure it isn’t bullshit.”
I paired the filing of the lawsuit with another formal offer to buy the shares of the company for $1.65. Within a few days, the major shareholders accepted my offer in principle. Just like that, this was all finally going to be over. We began formal sale proceedings, quibbling over many details. My bankers at the Royal Bank of Canada conducted due diligence, sent notices to all shareholders, and made phone calls to my lawyers thanking them for all their help. SAB even finally gave me my severance payments.
One month later, before the deal formally closed, a final wrench got thrown. Recorded Books, a major competitor of SAB’s, had indicated to the investment bank its desire to make a third-party offer for Simply Audiobooks. We didn’t have a number from them, but everyone knew it would be higher than mine, and everyone involved would be happier taking the Recorded Books deal, including me. I continued the closing process however, as a lot of work had already gone into it, and the final signatures could always be delayed if Recorded Books came up with a serious offer.
As it became more apparent that Recorded Books was serious, we continued to hold off on my purchase of the company. Three months went by, and in late February we finally received a formal offer at $1.68 a share; annoyingly, just high enough to outbid me. I called my father to tell him the good news. “Dad, we finally got a real offer from this other company! I’m sick and tired of this whole thing, but it’s finally going to go away.”
“And I’m not going to have to lend you any more money!” Dad responded. “I’m happy, too!”
In their offer, Recorded Books indicated that they would need three more months to complete due diligence on the deal. I turned my attention to Fusenet and dismissed my bankers, saying, “Thanks for backing
me this far, but I think I’ll stop paying the monthly ‘standby’ fee you guys are charging and just live with whatever happens next.”
Almost exactly on schedule, two and a half months later, at the beginning of May, we received a letter from Recorded Books that, due to debt restructuring problems at its parent company, it would not be able to complete the transaction. All the work, the board meetings, the fundraising, the lawyers…all of it was wasted. I didn’t have the energy to remount the financing or the lawsuit, and I decided to just move on.
YOU’RE SMARTER AND WISER NOW
By this time, the spring of 2009, that little side project Ryan and I had started, Fusenet, was doing quite well, meeting and surpassing the $200,000 a year income mark that we had both been hoping for. With the Simply Audiobooks fiasco having reached a conclusion of sorts, I became a passive board member there, and Justin ran the company without further interference from me.
Ryan and I started discussing what was going to come next. Fusenet had already exceeded our modest expectations, and we threw around many ideas, including managing the company remotely from the Bahamas via Skype, or finding some other warm country with no personal income taxes to worry about. As far as the company was concerned, growth wasn’t going to be part of the equation.
I thought it made me look good, not greedy, if I let it be known around the company that we had achieved our expectations, that we were all going to come to work and enjoy ourselves and not be too stressed out. But it didn’t take too long to discover that there’s no such thing as a neutral balance when it comes to life or a company. More than one staffer came to me complaining that things weren’t as exciting as before, and with the turmoil of Simply Audiobooks behind me, I gradually came to feel the same way.
Ryan and I then had a different conversation. I didn’t want to be CEO, but he didn’t want to manage the company if it grew any larger. Fusenet was going to flatten at its current revenue level without an aggressive leader, and I still wasn’t ready to be a leader.
Mac and I were meeting regularly for lunch at this time, and I told him about my problems deciding what to do next. He said, “Hap, I’ve known you for years, and when you and I were running into each other at Signal, I didn’t think you had the maturity to be a CEO. But I’ve seen you grow a lot the past few years—I think you’re ready to run a company. Go for it.”
I was afraid of the role, but I went back to Ryan and said, “Okay, if you want to take the risk to make this thing grow, I’ll agree to run it.”
---
By summer, things at Fusenet had continued to go well, and we had enough customers that we needed to have a formal customer service department with a professional phone system that would give customers the “Press one for customer service” experience. I had bought and installed the original call queuing system for Simply Audiobooks, and I knew how hard it was to install and manage. Ryan and I discussed options, and I threw one out that surprised even myself. “Hey, Ryan, I know that Justin’s not having any fun running Simply Audiobooks. Would you be up for buying SAB to get ourselves a larger office and a professional customer service group thrown in?”
Ryan was game, so I met Justin and casually threw out a philosophical comment, “You know, things aren’t getting any better at Simply Audiobooks. I’d probably be willing to sell my shares now for a lot less—like ninety cents or maybe a dollar. Think you’d do something like that?” Justin really wasn’t having fun running the company, which consisted mostly of cutting costs to maintain profitability. He responded that he might consider an offer of a dollar, but since we didn’t have a buyer, what difference did it make?
I told Ryan about the conversation and got his clearance to make Justin an offer. A few days later, in early August 2009, I proposed a deal to Justin. Any animosity around my departure from SAB the previous August was gone, and unbelievably, we were able to formalize and get to the verge of signing a deal in only two weeks. There was just one more hitch.
Justin and I met to sign the agreement that would transfer his shares in Simply Audiobooks to me, which would result in a cascade of transactions that would leave me in control of the company. As he held the pen in his hand, he asked me, “Do you have some secret plan that you’re not telling me about that will make SAB incredibly valuable?”
I replied honestly. “No, nothing like that, Justin. I want the customer service department, and this is a lot easier than building one.” No reference to revenge or any other motive.
Justin had one more question. “If I turn this agreement around right now and ask you to sell to me under the same terms, will you?”
I held my breath. I thought I was getting a good deal, and I didn’t want to have to abandon it, but I decided in that moment that if this was a ploy by Justin to get me to sell my own shares, then what the hell. At least it got me out of my involvement with the company. “Justin, turn it around, and hand me the pen.”
He grinned. “Okay, just making sure.” Then he signed over the company.
On August 31, 2009, almost one year to the day from when I left, I was handed the key to the Simply Audiobooks office, and I walked in as the new CEO.
---
With Simply Audiobooks added to the mix, we were able to reduce the expenses of each company and they both began to throw off a lot of cash. Sitting down with Ryan one day, I said to him, “We’re starting to build up a cash balance. What do you want to do with it?” He gave me a questioning look, and I added, “I mean do you want to reinvest it in the business or take it out?”
Thinking for a moment, he asked, “Is there any reason not to take it out?”
“Why don’t we take half of it out and reinvest the rest?” I suggested. He agreed, and we started to write ourselves checks that started out small, but quickly became larger.
Putting money back into Fusenet resulted in rapid acceleration of our revenues and earnings. With the “reinvestment fund,” we increased staff by 40 percent and rented out expansion office space across the road from our main office. Shortly after moving ten people into the new space, I asked Ryan, “How would you feel about buying a golf cart to go back and forth between the offices?”
Ryan looked out the window. “Isn’t it only three hundred feet from this door to that door?”
“Yes,” I replied, “but it’ll be so cool! Haven’t you always wanted to own your own golf cart?”
A week later, we bought a golf cart off Kijiji for the low price of $2,000.
We had one other vehicle to look at. We had both heard of a high-performance sports car called the Tesla roadster that was zipping around Toronto. I asked Ryan, “Want me to see if I can get a demo of that roadster? I hear the acceleration is insane and it’s completely quiet. How cool is that?”
Ryan responded, “Sure, I’d love to see it. I’m going to buy myself a Ferrari when I can afford it, but I want to see this car too.”
Hans from Tesla showed up at our office in a tiny blue sports car, the Tesla Roadster. We were standing outside watching him arrive and marveled at the lack of sound as he pulled up. After each taking a quick road test, I arrived at the conclusion that I’d throw my back out getting in and out of the low-slung car and told Hans so. After shaking hands and saying thanks, Ryan and I both shook our heads in amazement at the performance as Hans sped off soundlessly.
A few days later Hans called me and said, “Sanjay, I know you didn’t like the roadster, but Tesla has plans to introduce a more normal passenger vehicle, the Tesla Model S, that will be ready in a year or so and you can reserve a spot in line for $5,000.”
I discussed it with Ryan, who was skeptical. “$5,000 isn’t cheap, and who knows if they’ll ever actually introduce it? I’ve read an article that said they’re in financial trouble. Come look at Ferraris with me!”
I mused, “Really? I didn’t know that. I guess you’re right, but if they ever do introduce it, I’d want to be one of the first to have one. My back can’t handle a Ferrari.”
The next
day I called Hans and said I’d mail him a check for $5,000.
---
A year after I bought Simply Audiobooks, my assistant came into my office.
“There’s a guy on the phone asking for Justin,” she said. “Want me to forward him to you?”
“Who is he?”
“It’s Bob* Davis.”
I couldn’t place it but thought the name sounded kind of familiar so, curious, I said, “Okay, put him through.”
“Hi, it’s Sanjay Singhal.”
A bright voice responded, “Hi, is this Justin?”
I hesitated, wondering what to say next, then settled for, “Uh, no. Justin’s no longer with the company. Can I help you?”
“I hope so,” he said. “I’m Bob Davis, at Recorded Books. Were you involved in the negotiations a couple of years ago to sell Simply Audiobooks to us?”
Surprised, I said, “No, but I was a shareholder at the time, and I kind of knew what was going on.” Trying to get ahead of him, I added, “But I bought the company last year myself, and it’s not really for sale anymore.”
Bob laughed and said, “That’s not why I’m calling. We’ve decided to focus on publishing and our library business. Would you be interested in buying our direct-to-consumer division from us?”
I was stunned. After telling Bob that I’d consider it and get back to him, I went immediately to Ryan’s office. “You’re not going to believe the call I just got.”
A few weeks later, we had an agreement to purchase our largest competitor at a good price, bumping Simply Audiobooks’ revenues at no extra marketing cost. By combining staff and office expenses with Fusenet, we had managed to dramatically increase profitability, and aggressive price experimentation and new features continued to increase our profit margins and top line revenue.
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