Storymania - This Little Piggy by Matt Crisci

This Little Piggy (14)
Matt Crisci

       “While in Moscow, I met with the Transportation Minster Sergey Bulatov,” tried Al, heading east. “Interesting fellow, only thirty-eight. We can definitely secure his cooperation moving lumber from the Siberian forests with a few well-placed incentives, if you get my drift. Russia currently requires sugar. So my thought is we approach the Dominican Republic, which
my sources tell me currently has excess of sugar and a shortage of currency
and we …. “
          Michael had heard more than enough. He wanted to throw the clown out but…
         “Michael, listening to Al gives me an idea,” said Bob. “I believe we can modify our domestic focus a bit on this first round. Including Asset Marketing might give The Street a hint of what’s to come. Operationally, since I’ve got the European background, I can work with Al on international expansion, while you concentrate on the US. After all I did name the company International Barter Incorporated.”
          So much for strategic fit and discipline, thought Michael. Bob was going global.
          “I want the same deal as Fred,” demanded Al. “Three million seven for a million dollars in earnings. Plus I’ll also need an initial credit line of ten million to fill the transaction pipeline in Asia and other parts of the Third World. I also have no problem shaving a little off the purchase price in exchange for a higher earn-out on the back end.”
         “Is that million an average over the last three years?” asked Bob.
         “How could that be an average?” said Al. “We’ve only been doing this
for three years. You should know Europeans operate more slowly. The million is what I expect our earnings to be this year.”
         This was a multiple of prospective rather than actual earnings and Michael knew it. Bob didn’t. Or didn’t care.
         “Why don’t we save us all a little time and money by having Marty Edleberg draw up essentially the same contract he developed for Fred,” said Al, going for the close. “Then I’ll have my attorney, Steve Coldman at Sullivan Stouffer Cole and Bates, do a quick once over.”
         “Sullivan Stouffer? Christ, their fees make Delano Mondrain Hudson look like a bargain basement firm,” retorted Bob. “Do you really need to spend that kind of money?”
       “They’re an excellent firm, besides the legal fees are an ITI deal expense,” said Al. “You’re acquiring me.”
      “You can’t be serious,” protested Bob.
      “Why should I be any different than Tothson and Nachman? You’re going to get billed for Edleberg and Boyar’s hours one way or the other?”
     “That’s not fair,” said Bob angrily.

  “Do we really need to play games over this point?” Al threw out his hands. “We’re all big boys here.”

                                                             ##########

Chapter 11.

Hardball on Fifth

   “WHITLAW & COMPANY is confirmed,” announced Ray. “We meet with Managing Director Phil Scarborough on Thursday.”
       “In three days from now,” exclaimed Bob. “What’ll we need?”
       “Have Michael put on a Madison Avenue show: acquisition candidates, proposed operational cost reductions, sales development activities, proformas and returns on capital.”
       “That structured?” asked Bob who wanted to wing it.
       “Damn straight,” Dothan responded forcefully. “They’ve got a hot button for bullshit. We try blowing anything by them and they’ll blow us out of the room.”
          Bob quickly briefed Michael who had played this game a thousand times over in the agency world.
         “Build the presentation with the three-year historical data,” suggested Bob. “I’ll call the principals to get their latest quarterlies.”
         “Hold the phone,” said Michael. “You call and they’ll smell green and pump up their numbers and the de facto purchase price.”
         “You’re paranoid,” said Bob, laughing. “We’ve already agreed on purchase prices. The deals are done. The contracts are issued.”
         Wasn’t Bob supposed to know better? These guys were just like him, thought Michael.
          Bob called Nachman.
        “Whitlaw & Company, is that good?” asked Sam.
        “Good? They turned around Columbia Pictures. When they agree to do a deal, it gets done.”
        “So we want the numbers to be real good?”
        “And accurate.”
        “No problem,” said Sam. We’ll re-categorize short-term expenses as long-term balance sheet items. Amortized over three years, it’ll increase current income.”
        “What about the bribes,” joked Bob.
        “Minor adjustments,” responded Sam without missing a beat. We’ll recast the money as long-term liabilities rather than current deal expenses and I’ll delete the mortgages on my three mansions from the cost of sales. That’ll push up the historical earnings by half a million.”
        Bob’s eyes rolled over the ‘minor adjustments’ while his lips salivated over the extra half a million.“Excellent.”
        “Of course, based on the multiple of earning purchase formula, our purchase price just went up three million,” said Nachman. “My family and my grandchildren thank you.”
                                                                       *
“WE GOT WHAT WE WANTED,” bluffed Bob. “You can add another half million to the proforma.”
Michael saw discomfort in Bob’s body language.
“Anything else?”
Bob paused. He was embarrassed. “Yeah, I agreed to a little good will adjustment.”
“How much is a little?”
“Three million.”
Michael realized this was a defining moment. Did he call Bob on his bullshit or did he let it slide? He chose the latter. Why? Because he had just discovered one of Bob’s Achilles heels. His instincts told him one day he would have to turn that flaw into an advantage against his egomaniacal mentor. He just didn’t know when or in what context.
“What to go Bob,” said Michael. The earnings should make the numbers a little sexier. While the Street is your domain, I’m guessing an additional three million in good will won’t mean a thing in the broad scheme of things.”
Bob smelled a rat in Michael’s self-serving tone. He just didn’t know where to put the trap and the cheese.
“Bob, I do smell damage control.”
“Translation?”
“Sam and Fred are like the boobsie twins. Maybe you want to head off Fred before he gets wind of Sam’s adjustments?”
         Bob knew Michael was right. He also realized Michael’s mind was more Machiavellian than originally anticipated.
Bob quickly dialed Tothson.
        “Fred’s on a long distance conference call. I’ll have him get back to you as soon as he finishes,” said Barbara at Tothson’s office.
        Damn! Nachman had beaten him to it. Sure enough, Tothson called moments later with a replay of the Nachman deal. The Mansfield purchase price had increased another million based on $300,000 in “restated” earnings.
       “What’s this going to do to Peppard’s numbers?” asked Bob. “I got his latest quarterlies. Peppard’s purchase price went up half a million.”
       Bob called Foreman, not knowing what to expect. He figured he might as well get all the good news about earnings increases and all the bad news about purchase price adjustments before he talked to Michael.
       “F & M quarterly earnings were up sixteen percent versus a year ago,” said Frost proudly. “We’re getting smarter finding deals.”
    Bob waited for the other shoe to drop, but to his complete amazement, there were no games, no hint of a purchase price increases. Foreman was honestly pleased that the Whitlaw & Company meeting meant that the financing was moving along. He messengered the updated financials to Bob with a four-foot wide Stealth Bomber toy. Inside the cockpit, a note read, “This guy will escort the money home.”
                                                                 *
      “GREAT JOB, MICHAEL,” said Ray. “The financials look awesome.”
      “We’ll be primed for tomorrow,” added Bob.
    “You mean later today, don’t you?” smiled Michael. It was nearly 1 a.m.
“Honey, I understand,” said Sandra. “But this midnight oil thing is getting to feel like A&J all over again.”
“There’s a huge difference. The Whitlaw & Company meeting is the brass ring. These guys buy daddy’s numbers and we’re home free,” said an upbeat Michael.
“You sound like you’re going to Las Vegas, rather than to a meeting on Wall Street.”
“In some ways, you’re not that far off,” half-joked Michael.
“Well go hit the jackpot, then come home to your woman. No stops along the way at the casino,” teased Sandra.
     Right on time, the ITI limo pulled up at 711 Fifth Avenue. The Whitlaw & Company lobby had none of the usual investment banker trappings, only Coca Cola and Columbia Pictures artifacts.
     “Those two deals are the cornerstone of their influence,” pointed out Ray. “Old man Herb Whitlaw senior started the firm with three grand in 1930, ran it with a steel fist. The family tradition continues, a virtual dictatorship under Herb junior.”
      “Phil Scarborough’s been the front man for twenty years,” said Bob. “He’s the guy to get us over.”
       At the reception desk, a huge armed guard waited, holding a clipboard.
       “If you ain’t on the list,” he said. “You don’t get upstairs.”
       Right at the top, the ITI trio took the elevator to the seventh floor. As they got off in the lobby, a thin, well-dressed man in his late forties nodded at Bob and entered the elevator. Neither said a word.
      Julia, Scarborough’s effusive assistant, introduced herself and escorted the group to a conference room.
     “Gentleman, may I offer you a cup of coffee?” said Phil Scarborough, a short, warm, professor type with a thick head of salt and pepper hair.
      “Perhaps I should give you some of my background first,” suggested Bob, fully pumped and ready to go. “And then tell you more about the business.”
   “I know exactly who you are,” Scarborough cut him off. “But nobody on The Street knows your associate. How about a croissant and coffee while he tells me about himself.”
      Focused and relaxed, Michael filled in all the blanks.
      “Impressive background for such a young fellow,” said Scarborough. “Could you review the ITI business from an operational perspective?”
       Michael spun his Madison Avenue web, elegantly understating the potential and depicting acquisitions as an infinite pool.
      “What are the risks?” asked Scarborough.
    “To paraphrase our attorneys,” replied Michael, “we’re buying a bunch of entrepreneurial cowboys who have always run their own ranch.”
        “Can they be managed as part of a larger corporate enterprise?” asked Scarborough.
        “Absolutely,” responded Michael.
        “What kind of prospective financing does ITI need?”
        Bob wanted to answer. Ray gave him his ‘shut up’ look.
        “We estimate one hundred million dollars to cover the first round of acquisitions and an operating capital reserve,” said Michael. “Round two will probably require another hundred million.”
      Scarborough looked hard at Bob. “The last thing Herb Junior told me before he left a few minutes ago was about doing another deal with you.”
     The man who had walked silently past them to get into the elevator. Bob expressed complete surprise. “ Why would he say something like that?”
       “For Christ’s sake!” shouted Scarborough. “Herb caught you teaching his daughter to snort coke in the bedroom closet at his house.”
       “What’s past is past,” Ray cut in. “Bob is clean. I can vouch for that.”
       “He’d better be,” warned Scarborough. “ I hate to be bullshitted. It insults my intelligence. Do we understand each other?”
       Bob nodded, feigning humility.
       “But I like the business,” admitted Scarborough. “And Michael’s the guy for it. I’ll pitch the deal because I think we can all make a lot of money.”
      “Thank you,” said Michael. “What are the next steps?”
      “Give me a week to get my partners’ input,” said Scarborough. “Then I’ll come back with specifics. In the interim, I’ll do some of my own due diligence.”
                                                                  *
      PHIL SCARBOROUGH MET WITH Kugle, Edleberg and Braffman in Delano Mondrain Hudson’s main conference room. Over a stack of double-decker deli sandwiches, an urn of coffee and a dozen assorted sodas, they got started.
      “Whitlaw & Company is seriously contemplating becoming ITI’s investment banker,” said Scarborough, holding off on lunch till he got some answers. “You’ve been dealing with ITI and a number of their prospective acquisitions...”
        Scarborough’s stomach grumbled as he looked around the table. A lot of people felt this way about lawyers.
        “...What’s your take on ITI management? The management of the various acquisitions?” Scarborough asked, hungry for info. “How comfortable are you with the acquisitions? And lastly, what’s your opinion of ITI’s projections?”
        “We’d be happy to provide candid off-the-record observations about these issues,” said Edleberg. “But Clive’s presence,” pointing to Clive Davis, Whitlaw’s lead attorney, “leaves all of us open to potential Whitlaw & Company litigation.”
         “Bullshit!” said Davis. “I attend all due diligence meetings on Phil’s deals!”
         “What do you take me for, an idiot?” retorted Marty. “Everybody knows, you’re one part lawyer, one part spy. How many times have you used inside information to bring suit against Whitlaw deals, when things didn’t go according to your greedy expectations?”
          “That’s all hearsay. I dare you to site one documented frivolous suit?” Clive snapped back.
          “Cool it!” ordered Scarborough. “This isn’t a necktie party.”
         “We all respect the need for Whitlaw & Company to perform its due diligence,” suggested Kugle. “Why not have Clive sign a standard liability waiver?”
          “If we’re going to do this deal, let’s do it,” said Phil as Kugle slid the paper across the table. “Sign the waiver.”
          “You want me to?” glared Davis.
           “No,” said Scarborough. “But do it anyway.”
           With a stroke of the pen, they got down to cases. Michael was judged a solid operator in the traditional corporate environment, but a complete unknown in a purely entrepreneurial environment. The verdict on Bob: couldn’t operate his way out of a paper bag, ragged ethics, hyperbole and an excessive lifestyle.
       They then took on each acquisition in turn.
       “Bob and the acquisition managers swim in the same gene pool,” Scarborough summed it up. “We’re betting the ranch on Michael’s management skills.”
      “What if Bob gets to him,” said Kugle.
      “What do you mean?” asked Scarborough.
      “The student becoming too much like the master,” Kugle replied.
      “I hear you,” agreed Scarborough. “Michael catches ‘Bobitis’ and we blow the whistle up and down The Street.”
    “Understood,” said Kugle. “Now, what about the recurring nature of the businesses?”
     “Nachman and Tothson have been doing deals together for four years. They know how to find them, structure and execute,” said Edleberg. “F & M looks like a tightly run family business. As for Peppard, who knows what the hell Asset Marketing is. But Tothson isn’t coming unless Peppard’s in the deal.”
       “Generally, I agree with Marty,” said Lou. “But this barter credit thing could be explosive. We may have trouble with the SEC in terms of income recognition and Tothson hasn’t actually fulfilled all two hundred million or so outstanding credits.”
    “Our contracts clearly define a performance standard,” stated Edleberg. “We only have to use our ‘best efforts’ to fulfill barter credits. Fred conscientiously makes available barter credit offerings. That is documented fact. What the clients choose to do or not do is their business.”
       “And what about the proformas?” said Scarborough.
       “Numbers can be anything you want them to be,” said Kugle with a sneer. “They’re consistent with past histories, but are the projected revenue increases and operational savings from redundancies accurate? Who the hell knows? It depends on how well these guys work together. Can they make one plus one equal three?”

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