“It also says we can put anything to a vote. If we split, George has to decide,” Tommy said. Tommy and John had placed a lot of trust in George to break a tie but both respected his judgment and found it preferable to a 50/50 situation where nothing would get done if they didn’t agree.
They both looked at George to see if they could read which way he was leaning. George gave them nothing to go on, just a stunned stare that said, “Not now. Don’t make me decide.” There was some irony to that look as George suspected there would come a day when he needed to break a tie, and he was prepared to do so. Neither man had an advantage as George really wasn’t that fond of, or obligated to, either of them. Of course, he had worked for both for years, but in that time, he observed more of their flaws than good qualities. He was working with them again strictly because it was the best opportunity he had to make some real money. Although he would never admit it to anyone, he knew he was smarter than either of them, but it appeared that age, timing, and circumstances wouldn’t allow George an opportunity other than in a supporting role. John and Tommy simply didn’t see or think that he would be the guy to take the organization further and that giving him one percent of the company, plus a decent salary, was more than fair. Frustrated yet determined to stake his claim, George tolerated both men. At least for the time being.
“Are you forcing this now?” John shouted.
“No, but I’ll keep pushing,” Tommy warned.
“Okay. I’m guessing that you wanted to gauge where George might land when it comes to breaking a tie,” John said and smiled coyly. “To tell you the truth, we do have to sell a bit more of our inventory. We are spending a lot more on the credits in inventory than we are taking in on the ones we are selling into the market so we are burning cash, but we can’t sell too much more at this point. If supply outstrips demand the price could implode. I think we can sell ten percent more as you asked, but let’s really push this thing and drive up production. Maybe even double it up.”
George and Tommy looked at each other and nodded. It was just too enticing. They would try to do just that.
Just saying “double production” didn’t make it happen overnight, but it was pretty close. Projects were starting to come in on their own, and Tommy’s guys hardly even touched them. They went straight to George. He kept adding staff and cranking out credits. It was almost like printing money, John would say. The firm’s notoriety in the market had Tommy attending some environmental conferences and other speaking engagements. He loathed such trips and found himself at the O’Hare Airport much more often than he wanted. Tommy almost always had something with him to do to avoid wasting time, but on this trip he found himself trapped in a plane that wasn’t moving with nothing to occupy his mind and no control of his situation. He stared out of the plane window at the seemingly random numbers and letters on the runway signs painted on the tarmac thinking to himself that he would pay a thousand dollars right then and there if the plane would move a single inch, just a nudge. Something to show that the pilot was awake and that there was some hope that eternity would not be spent in that spot. His anxiety flew through the roof but the plane, unfortunately, went nowhere.
Suddenly, Tommy was encouraged by a slight movement of the plane, but it was only the wind. He grew more agitated with the false hope and lack of any communication from the cockpit. Maybe a visit up there was in order, TSA regulations be damned. Tommy felt himself shackled, not seat belted, and treated like a boot camp marine expected to take anything they threw at him. At least the two fourteen-year-old girls that he paid twenty dollars each to stop talking weren’t adding to his stress level.
As he bargained in his mind with God, or the FAA, or whoever was out there, it occurred to him that maybe he needed to up the stakes. Perhaps it wasn’t about money. He was certainly willing to cut off a finger or two to get out of that plane, and he was probably willing to part with a foot if necessary. Tommy was embarrassed by how his mind worked, how badly he needed to control things and how poorly he handled situations when he was not in control. What was a routine tarmac delay by other people’s standards thankfully cleared and another work-related trip was underway.
These trips had created a buzz in the market from all the interviews, press releases, and speaking engagements. All of the coverage kept the projects rolling in, month after month. The prices that their second business, Carbon Traders, were selling for weren’t going up, but even with all the inventory they were selling into the market, at least they weren’t going down. Tommy begrudgingly realized that John was right.
The market wasn’t big enough if they tried to dump their inventory. Prices would surely fall dramatically.
Tommy knew the value was in the integrity of their firm. He wanted perfection. They checked and rechecked every project his sales guys put through, and every time George’s field guys were one hundred percent accurate. At every monthly meeting Tommy reminded George and John how important it was. “We are creating millions of dollars of value pretty much out of thin air. Let’s not fuck it up,” he would say.
They reviewed the financials every month. The numbers were starting to overwhelm Tommy. They were big; that’s about all he knew.
The biggest one was “carbon credit inventory,” paper now worth more than one hundred million. His twenty-million investment was now worth more than fifty million in a little over a year, and if the market doubled . . . he had gone all-in and loved the result. Tommy knew, however, that they needed to be careful because they were at a vulnerable point. They had most of the value of the business wrapped up in the inventory, and they were out of cash and borrowing money.
The good times continued well into the second year as the combination of Environmental Verifications and Carbon Traders, Inc. had become the country’s largest carbon credits trading company. Tommy and George now had nearly a hundred sales representatives, engineers, and technicians cranking out credits at an astronomically high rate.
There were now big brokerage firms and others getting into the market and a robust futures trading business developing, all built on a handful of companies creating the credits and driving the market. The appetite among environmental groups and utilities was complemented by that of socially-conscious people and companies that combined to buy up the credits which drove the market.
Tommy, George, and John headed into their monthly meeting for the twenty-second time. The meetings were no longer at John’s firm since they now included about ten VPs. The main conference room at Environmental Verifications was big enough to hold the group, although now they had more space on several floors. On the far end of the room in the corner was a life-sized cardboard cutout of Tommy and John from the front cover of the current Time magazine.
John clearly wanted to get the meeting over with quickly and he covered the financials wrapping things up in only ten minutes. Tommy and George knew from past experience when John had something additional on his mind, so they remained in the room. Within a minute it was just the three partners and the life-sized caricatures in the room.
Tommy had not seen the final Time magazine layout prior to the meeting. The editors had selected a picture of the pair standing back to back, looking over their shoulders at the camera. The line under the picture read, Mean, Clean, and Green: How This Power Pair Are Helping to Drive a New Market.
Mean, Clean, and Green. Tommy thought it a bit embarrassing, but not John. “I look more handsome, I must admit,” John smirked.
“Taller, too. What did you do?” Tommy asked.
“On my tiptoes. Thought us being the same height made for a better picture,” John offered.
“Watching out for Time magazine’s aesthetics. What a guy.” Tommy didn’t care about that and was generally uncomfortable with the attention. As different as the two of them were in attitude and politics, they didn’t really clash over ideology. Neither cared enough about such things to bother, so at least they had that in common. They admired other people’s passion for politics but t
hey each loved making money. It was the one thing that connected them and held whatever relationship they had together.
Tommy continued, “All this publicity better make for more sales, or it’s not worth it.”
“It will be worth it. More sales and more offers for the business,” John said. “Good, because I can’t do this forever,” Tommy said.
“That’s why I ended the meeting early. You, George, and I need to talk. I have been routinely getting offers for our business, but now that they are in the two hundred million range, I thought I should at least make you aware of them.”
“That’s huge! How come you didn’t tell us about the earlier ones?!” Tommy asked excitedly.
“They were insulting. This one’s not even that good. If we wait until prices are up a bit, we should be able to get five hundred million, maybe more. I’m not ready to sell.”
“What if George and I want to sell?” Tommy pushed.
“You’re kidding, right? This thing is still heading up. I can feel it.
George? Tommy? You really want to sell?” John asked.
George finally spoke. “What happens if we sell? Do we still have jobs?”
“Well, after an offer is agreed to the buyer comes in with accountants and attorneys and gives us a million-dollar proctology exam,” John said. “They will probe and poke at everything. Once we pass, we move on to closing and any individual deals for us.”
“What kind of deals?” George asked.
“If you want to stay on, you’ll probably have to roll some money back in from your proceeds, negotiate a salary, maybe some options in the new business and then keep working. Personally, I will be gone,” John said.
“Me, too,” added Tommy.
George just stared at them, looking inappropriately nervous and edgy, hoping the other two didn’t notice. “Proctology exam. Sounds uncomfortable.”
John pleaded, “Let’s wait. I have some ideas. We can buy ourselves a couple of big names to further enhance our profile and create a management succession plan. Buyers willing to pay top dollar will be expecting leaders in place to run the business. You guys could hire that hippie who just left the Department of Energy. A do-gooder like that would enhance our image. We all know that without credibility, carbon offsets are toilet paper.”
“You mean Jeremy Irvine, the retiring Secretary of the Department of Energy?” Tommy asked.
“Yeah, that guy. Pay him a million dollars. Heard he’s good in both the sandals and wingtips crowds,” John continued.
“You said a couple of big names,” George interjected.
“Yeah, one on my side, too. The head of the EuroBank commodities trading business, except he would have to really work for a living and make a lot more than your guy. We could be doing more to be a market-maker, commissions on trades, hedging strategies. Plus, with our inventory, we could be doing a better job of managing the market,” John said.
He had made little quote signs in the air when he said the word managing. George and Tommy knew that meant manipulate, and they didn’t really need the condescension.
Tommy agreed that waiting, bringing in some big names, and getting ready for a sale down the road was probably a good idea. George didn’t offer, nor was he asked, to provide input. Tommy put in a call to Jeremy Irvine hoping it would be returned.
5
George left the meeting with Tommy and John even more apprehensive and caught off guard than he hoped it looked to his two partners. He was beyond frustrated, feeling once again disrespected. The idea of selling, and the eventual financial and legal proctology exam, as John had called it, were coming sooner than he had anticipated. George felt John and Tommy should somehow have to pay for not respecting him and his contributions to their businesses over the years.
George was feeling more angry each day knowing that he had been instrumental in achieving the business success that John, and then later Tommy, had both experienced. And this time around they didn’t even give consideration to me running this business, George thought to himself.
That’s the last straw and there is no turning back now.
The irony of working for John and Tommy again, and them potentially making so much more than him, gnawed at George. He knew the deal that he had made was for one percent of the company, and it didn’t cost him a penny to get it, so he didn’t fully understand why he was feeling so angry toward his partners. Maybe the tumor he knew was growing in his head was changing him. All he really knew for certain was that he loved his wife, Deb, so much that he would do anything to make the rest of her life better.
The little moves he was making in the market weren’t going to be enough and he was running out of time. George needed someone to protect Deb and he also needed a deep-pocketed investor. Someone with millions of dollars to pay the fees to borrow millions of carbon credits. Then, if the price went down, they could buy the credits at a lower cost, pay back the originally borrowed credits and make a huge profit. ‘Shorting’ was a great way to make money if the price of the asset that was shorted actually fell. George was sure that he could help make that happen for a couple of key individuals willing to help him out.
6
Jeremy returned Tommy’s call promptly. He was excited about the opportunity and was with Tommy in the Chicago office of Environmental Verifications within a week.
“How was your flight from D.C.?” Tommy asked Jeremy as they shook hands just outside the main conference room.
“Fine. Nice to meet you. I’ve been doing a little research on your business. Interesting model. Looking forward to our discussion,” Jeremy said. He had evidently read the part of the article in Time talking about the company preferring informality. Jeremy was dressed in jeans, a flannel shirt, and ankle-high, well-worn work boots. He had a long jaw line, was thin, tan, and energetic-looking for a man in his early sixties. His hair was gray and thick and looked like it had been dried by a breeze off of the prairie.
John had done some homework and Tommy realized he had made a good pick. Before heading the Department of Energy, Jeremy had run a business manufacturing wind turbines that he sold and decided to give back by getting into politics. He had also been a congressman from South Dakota and had tons of environmental and utility contacts.
“Listen, Tommy. Let’s get down to it. You’ve got a gold mine here but there’s more you can do. Heard you’re looking at the guy from EuroBank, too. Good idea.”
Tommy could see how well John had orchestrated this whole process, but that didn’t matter if his ideas were solid. George entered the conference room, introduced himself to Jeremy and sat back to listen.
“So, do you see any problems with our plan?” Tommy asked.
“No, but then again I haven’t really looked. Can you give me next week to shadow you two and John so I can get to know the business? If it checks out, and you like me too, I want to be an owner. At least five percent. I’ll pay what’s fair, but I’m hoping you can do that at a little discount to current market value,” Jeremy said but then paused.
“We’re listening. Is there more?” Tommy asked.
“Not really. Just don’t want to be paid like some figurehead. I don’t need a salary. From what I hear, you need someone to run this business after you’re ready to sell.”
“Would you even consider the paid representative route?” George asked. “I would prefer not to see dilution in my little share.”
“Sorry, no, sir,” Jeremy answered. “Near as I can tell from the financials that John sent, your business is worth close to two hundred million. I’m ready to write a ten million dollar check if that’s what it takes to get five percent of this business.”
“Well, I’ll talk to John, but looks like he is already good with this. Can you spend a day or two now with us here in Chicago?” Tommy asked.
“Yes, I can. Let’s get the basics down this week regarding potential ownership and confidentiality and such,” Jeremy suggested. George walked out of the room first, knowing things were moving
too quickly and worried about the extra scrutiny. Tommy and Jeremy headed to lunch shortly after George left the room, passing him as he sulked his way down the hallway.
John and Tommy cut very similar preliminary deals with Jeremy and the EuroBank guy. They settled on four percent for each and they were both ready to pay nine million for their shares. Tommy and John would each own forty-five and a half percent, and George would still own one percent. They were pretty proud of themselves. As long as the two agreed, they would drive the business. If they disagreed, either needed two of the other three owners to side with them. Next was a week of Jeremy’s due diligence and they could close the deal the week after that.
They continued to avoid considering George as the guy to run the business after the sale or ask what he thought about the deal. John and Tommy both continued to view George as a good soldier but not the leader for the business. There was simply a disconnect between George’s view of himself and that of both John and Tommy. Since they continued to make changes without diluting George’s one percent, they figured he should be happy. He’d be in line to make a few million dollars down the road, as long as the business continued to do well.
Jeremy was in Tommy’s office bright and early the next Monday with a different flannel shirt and jeans, but the same well-worn boots, tan face, and slightly too-bushy prairie hair. Tommy and Jeremy spent most of the morning diagramming how the offset creation and trading worked, including the sales and inventory at the sister company, the opportunities for more income in hedging, future strategies, and the percent of the market they controlled.
“This is amazing,” Jeremy exclaimed. “People would kill to own this percentage of any commodity market, and you’ve done it right under the nose of the big traders and brokerage houses. When you . . . we . . . sell this thing, there will be a bidding war, and my guess is McKinstry will be right in the middle of it with the big boys.”
The Squeeze Page 3