by Emma Lathen
“George, Everett says you can, which is a rare compliment from him.” Well she knew the crusty old foggy. Not fooled by his mild look at this statement, she almost winked at him as she saw those thoughts go through his mind. She was fun too. If he had been 25 years younger, richer, more handsome, and better educated, he would love to try for her. He started giggling. He couldn’t help it. She gave him a look and a wink, indicating she probably knew what he was thinking. Clairvoyant too, he mused. John and Albert had seen this before but Joyce was baffled. Understandably so.
Elizabeth continued. “OK, let’s go through the numbers. First, as John said, these guys measure how big they are by their pile of cash and position.”
At this point Joyce interjected, “I think it takes a girl to say it, but it’s like those Oxford boys who have a pecking order based on who can pee farthest in the snow,” and Elizabeth joined her in a chuckle, gave her Dad a wink, and they all broke out in laughter. Good they all thought. Nice to lighten up the atmosphere.
Albert, being no fool, poured everyone another drink. The party was moving right along with their own little soap opera.
“So Chuck pushed for the Simply acquisition because they had $100 million pretax profit and free cashflow on just over $110 million in sales, no small feat. They were growing 20% per year without great effort; they were price and quality leaders in the untapped audiobook market and well positioned in the much larger eBook market.”
“Chuck had his favorite, but considered boring, division earning $500 million pretax, growing at 12% per year. So combining just those 2 would give him $600 million pretax; since he had positioned both in Ireland with only their 12.5% tax rate, and being all cyber that was pretty easy to do, that would be $500 million per year in after tax earnings. All he had to do was sell the rest off, and that was the sexy business that people wanted in on, especially IBM, a laggard compared to the fast moving Amazons and others. So he did.”
“The problem for bragging rights on the Street was these divisions together did only $900 million in sales, a lousy top line number. But, and this is a gigantic but, no working capital was involved since these 2 remaining divisions only have $300 million in annual expenses of the $900 million total sales, most of which expenses are only due a few days after receipt of customer payments.”
“Sounds like your own little ATM,” George said with a whistle.
“Yes. But Chuck knew that Jack would have nothing to do with that approach. Chuck told me he had broached it. Clearly the pee in the snow thing, as Joyce said,” and they smiled in unison. “So that’s why Chuck is my prime candidate for you. Now let’s talk about the personal impact of these numbers for Chuck.”
“Conventional wisdom says Chuck was better off with Jack alive. He would have 26% of $20 billion or over $5 billion in the Company. With Jack dead he had 26% of a $5 billion company or just over $1 billion; even with Jack’s share under their buy/sell agreement he had only $2 billion in equity, or less than 40% of what he had when Jack was alive.”
“But Chuck knew it was an increasingly teetering enterprise that would collapse if the momentum or other trends went against them since they had no earnings due to the sales for sales sake division with substantial losses. In addition, Chuck clearly believed Jack would keep doubling down like some drunk casino player until he lost it all. In short, there would be no payout for Chuck and lots of sweat trying to keep everything going. Chuck once told me a telling story, ‘You can juggle the eggs expertly; but sooner or later they hit you in the head.’”
“Chuck knew how to fix everything.com in the ‘drive for show but putt for dough’ strategy that the short game of nickels dimes and quarters is how you win, something Simply and the remaining division have been masterful at.”
“Accordingly, the moment he could, Chuck sold off the fancy profitless cash draining division to IBM, which IBM had been set up to do quietly for some time now through our efforts at the Sloan. I doubt Jack even knew about it. And, and this is a big and, remember all the expensive people and overhead went with that division to Tucson. In short, Chuck created a situation where he never had to see them again and doubt he will do so voluntarily. My hunch, but like John, I am a hunch player.”
She continued with a slight grin, “Chuck has a grind it out dot.com left, that is an automated fully functional B2C business in a few basic niches that require no fancy dancers, equipment, or locations.”
“The Simply business is a pure download one unless a physical retailer wants to put up a hard net 30 day PO and take delivery from a third party manufacturer. No warehouse, no shipping, no fuss, no muss for Simply in that scenario either.”
“OK. We have the picture,” Joyce said.
“Translate to my little world, Elizabeth,” George added.
“OK. On the face of it Chuck had a mess on his hands with the large sexy teetering division. But, and this is a big but, he could drive the train once Jack was gone. Chuck knew which track to go on.”
“IBM had been talking to us as I just said; we had floated the idea to Chuck; all he really had to do was say yes and it was done, as it was. Chuck got us to prepare an agreement, as he always did, before even looking at the deal. This saved a lot of time and was a great idea. We have since adopted this practice widely by having an agreed upon document with only the purchase price to be filled in by the parties; no other negotiations permitted. Clients who use this process benefit; those that don’t are often like Indians paddling towards the sunset. They keep paddling and the sun keeps still being out there.”
They nodded as if in a chorus. They were on board with her description and concepts.
“It was a simple no warranty no guarantee deal. $5 billion bought IBM everything on a purchase order. No stock, no notes, no AR, no AP, no bills, no real estate, no employees or anything else to audit or mull over. Whatever they did about all that was up to them separately. IBM quickly recruited everyone. I think everyone signed on but a few clericals. Tucson is a nice place, cheap, and IBM maintained their New York City salary levels so it was a big pay raise for all of them that joined IBM there. IBM also paid for all moving expenses and temporary quarters out there until they were each fully settled.”
“The Sloan got the IBM money; used it to fund the purchase of the outstanding everything.com stock. We got to 91% based on several calls and 98% today. The rest we can force through in what is called a cram down. Simple and legal. As Chuck said, the worst that happens is we pay the holdouts a little more. Since it is only 1.5% now at last count, as even 25% of the remaining 2% drifted in, that means we expect to get that below 1% of the total stock within a week. If we even doubled the payout to those left, that would only be another 1%. So the stock crash worked wonders for Chuck.”
“Tell us a bit more, if you would,” Joyce added.
“OK. Let me put it in sports terms. You have 3 professional teams. One churns out a lot of cash with good upside, but is a low minor league team like Elmira for the Red Sox. That’s Simply. One is solid but still just a minor league team in Triple A, like Pawtucket, and the remaining everything.com division. The third is a famous major league franchise but a perennial money loser, like the division the company sold off to IBM. So Chuck is left with two productive minor league teams, and that is where major league talent comes from, after all. Just need a bit of patience to see who turns into a really good hitter, to extend the analogy. So the true upside is with the 2 minor league teams or the remaining 2 divisions Chuck now owns lock, stock, and barrel.”
“Ah, I really get it now,” said George. “Those minor leaguers really love the game; they aren’t spoiled; they just want a crack at the big time. Most just enjoy another year in the sun playing ball and getting paid. Yes, less stress, more cash, less envy, simpler life, and more growth potential. After all, once in the majors where is there to go?”
“And importantly, George, something Chuck does well.”
“Now there is a point, a darn good one. Now tell me about this
automatic pilot ATM company. Roughly how many people, how many locations, how much to do, how much to change, etc.
“Let’s build from the foundation up rather than from 40,000 feet down. Simply has about 1100 downloadable titles. That works out to about 50,000 per title sold worldwide at their net receipts of about $2 per title, some more some less or $100,000 each. On their own site they get more, about $4 per title; they prefer to sell through others but $4 is a pretty good number too. 50,000 copies of each title is not a huge hurdle to achieve. A very Elmira kind of activity, with 4,000 fans a good turnout versus needing 40,000 in the majors.”
“These are evergreen backlist audiobook and eBook titles that do not require updating like software. The titles either are on their relatively cheap $1000 per month server or on their distributor or customer servers at no cost to Simply. They have never had a title discontinued. There is no shelfspace issue in cyberspace so maintaining listings for them is no big deal and therefore requires no sales staff.”
“They use a few contractors to maintain their server at very minimum expense because the server company, IBM in fact through another division, does most of that as part of their service. Updating new titles is a relatively simple straightforward process too. They have no invoicing; their accounts ACH wire all payments to their Sloan checking account so no accounting staff is required. The former principal developed or wrote most of the about 50 new titles per year, which is only about 1 per week, so there is no heavy lifting involved. Simply had and required no office, factory, warehouse, or other physical facility. Their expenses are primarily limited to authors they have permanent imperpetuity agreements with that they pay out on. Most are free to Simply forever contracts. Those authors get bragging rights for consulting gigs, employment benefits, or just personal pleasure. Sometimes all 3. The few paid authors get a money split after ACH funds are received, with no guarantees, minimums or audit rights. All on the same sweet one page agreement.”
“Simple like their name.”
“Exactly. The other division, the everything.com one, operates much the same way but has various niches that require more TLC. They too have automated most functions. They have a swat team staff of about 20 contractors, but no employees. So you have a $900 million company with no W2’s, physical facilities or equipment, and none of the employee and physical issues and risks that go with those things. Sweet, no?”
“Right up Chuck’s alley, I can tell from knowing him. Nirvana for him; would be hell for Jack. We know all this because we do all everything.com’s banking for free, using some of the float to give us our fees. We do the accounting, tax filing, payments to authors, and more. Chuck encourages our belt and suspenders conservative approach to accounting and tax payments, which leads governments and agencies to know that if anything they are getting more than their due. All good for everyone involved: Simply, the remaining division, the Sloan, and the tax agencies.”
“So let’s see if I have this right,” said George. “This guy Chuck now has a $900 million company with no debt, right?” and Elizabeth nodded. “It delivers $10 million after tax profit every week?” and she nodded again. “But he has no public stock value and the company isn’t very sexy without the big time division IBM bought,” and she nodded again. “So what could he get for it?”
“Normally these kinds of niche players get 7x to 10x of their cashflow or profits. That means $3.5 to $5 billion. But, in this case, with the ATM feature, it could go higher. And another but. If Chuck does his thing, with the brand name and more, he can grow the business substantially without having to imagine or invent anything new. Note that he couldn’t have done that with Jack because Chuck would constantly have to fix, repair, triage, and more the big division. Now he can concentrate on the ATM that works, like The Little Engine that Could,” and she smiled.
“In sum, that gives him motive, opportunity, and means. We have just 2 problems; we have no proof and we can’t find him,” George said.
“Yes,” John said. “And you can see he has no reason to be found. I suggest we adjourn the discussion on this basis keeping in mind that he is the most probable perpetrator but you need to focus most now on finding him, as you know. After that other things can follow. So come back tomorrow at 5 PM, and we will do round 2?”
“Wonderful,” Joyce said. “We can enjoy looking forward to that too, as we did tonight. George, we can report in we are still working the problem without disclosing the confidential information we have gratefully received,” and left them with a smile.
They chatted amiably for half an hour or so before George and Joyce left.
When they did so, Albert and Elizabeth turned to John for his appraisal and summing up.
“The story points to Chuck. What I see from my perspective is Chuck may well have wanted a rest. Jack wouldn’t have given him that. Jack, like Alexander the Great, wanted to take the next hill, the next province, the next country. When his men found out that was his plan, they rebelled; and Alexander died on the way home because he couldn’t stop from fighting. They had all the booty they required long before they started back to Greece, but the habit was too deep.”
“That’s the way I see it here. Chuck rebelled; didn’t talk about it because he knew Jack too well. No point in that. It would just lead to Chuck getting whacked somehow.”
“This way Chuck avoided dealing with Jack again. Chuck was tired of playing wet nurse to the messy division; so he dumped that too; he was tired of the fancy dancers and fancy dancing so he sent them to IBM; he was tired of the office and closed it; he was tired of the condos so sold them.”
“He has skillfully made the Sloan responsible for all government reporting and tax payments. As the largest bank in the world, and a private one now thanks to Elizabeth and our team, we need make no SEC disclosures of any of this. He has set up a pass through tax situation so his personal taxes are paid before we disburse any money to him. So he is getting 100% clean funds, certified by us and any government authorities that get involved. He authorized a legal fund to deal with any of it but I doubt if that will be necessary because he does not want any tax advantaged anything.”
“Elizabeth, what has he instructed you with regard to disbursements going forward?”
“He asked that we make available to him $1 million in cash in each of his Toronto, New York, London, Paris, Bonn, Geneva, and Athens correspondent bank safe deposit boxes. After that he said to put the proceeds equally into Apple, Amazon, and Dollar Tree stocks until we are notified further. He asked to be included in any major VC commitments available that we approve of and has authorized me to invest up to $10 million on his behalf in any one of my choosing without consulting him. He’s like that. Easy to deal with.”
John interrupted, “You know what I think? I think we should buy some Amazon, Apple, and Dollar Tree based on his getting everything else right.” He chuckled; Albert took note. He would do exactly that. Albert knew how to avoid getting trapped by inside information; this was just John’s opinion, albeit a skilled professional. A little tricky because of the data from Elizabeth, but safe enough he thought. He would turn out to be right as the IRS ignored his modest profits from his new holdings in these 3 companies.
Elizabeth had to be careful but would be so inclined to invest more in them too by giving a hint to Uncle Charlie, who required no more than a hint from those who had tipped him well in the past. John had enough money so wouldn’t, but enjoyed the wit of it all, as he broke into a horse laugh worthy of the old Chairman, George Charles Lancer.
Elizabeth then said, “We are getting it done for Chuck. We have an agreement not to record or disclose his entering any of our correspondent bank locations or using any of their safe deposit boxes. He has the boxes under anonymous names, just by box number. Since the taxes have all been paid, that is no problem for us, him or the correspondent banks themselves. We have set up these boxes in correspondent banks so we are not involved and only he can audit the correctness of the bookkeeping. If all the
money disappeared from all of them, I am sure he would let it go. As I said, he is easy to deal with.”
“One more thing. We personally deliver the money to the boxes. We have already dispatched the carriers while on other rounds. They are given the key at the bank; return the key to another bonded individual there who mails it back to us. Very careful; and very smart I think. His idea of course.”
John had always been a hunch player as Elizabeth had said earlier. He bet Canada. From the bio, Chuck had been a guide there. Chuck was rumored to have a little place up in Northern New England, a jumping off place to Canada. Chuck had been a guide in Algonquin Park. He would be smart enough not to go back there. But he had the skills. He would probably go deep to recover from years of hassling with Jack, to start with, and the police to end with.
It was a curious mystery. He thought he would give a stab at seeing Jim Johnstone, if at IBM now and if he were Jim Johnstone, or whoever impersonated him, which was more likely to be the case.
John used the occasion to think some more. Albert saw the signs and poured him a choice brandy. John was wondering why other entrepreneurs, and their families in particular, with an excess of cash who were into buybacks didn’t stop hyping the stock and let it seek its natural level. That would make the stocks far cheaper to buy back. He was thinking in particular of the Walton family who were on their way to majority ownership of Walmart. Habit and ego he concluded. Well, Chuck didn’t have the habit or the ego which made him smarter than the average bear, darn smart he concluded. This was a man to reckon with if anyone could find him.
No, he concluded, he was not necessarily in Canada. That’s what a more traditional habit and ego person would do. He also wasn’t necessarily not in Canada. A deep one, our boy, thought John, not for the first time. He would stay tuned if not necessarily tuning anyone else in. He had done his bit for the New York police and George. He would stand pat with his hand now, for himself, the Thatchers, and the Sloan.