Capítulo 366: Chapter 366: The Oracle Problem
Jogging in step with Simon, Larry Ellison followed up on his previous statement, "Simon, since you're bullish on Oracle, why not give me the voting rights of Westeros Corporation's shares, like what you did with Microsoft?"
Simon bluntly responded, "Larry, just because I'm bullish on Oracle doesn't mean I'm bullish on you. If Oracle's stock continues to fall, I think it might be necessary to change the leadership."
Ellison had hoped to climb up the pole with his suggestion but unexpectedly dug himself into a hole. He laughed awkwardly and said, "Simon, you must be joking, right?"
As they rounded another bend, Simon's mountain mansion came into view.
Simon showed no intention of inviting Ellison for breakfast. He stopped jogging and said, "Larry, since Westeros Corporation began buying in, it should be seen as a strong positive for Oracle. Moreover, from the first time Westeros Corporation bought into Oracle years ago, I have never interfered with Oracle's operations. You should understand my stance. Since you've appeared here today and are now worried about losing control over Oracle, what exactly is going on with Oracle?"
Caught off guard by Simon's directness, Ellison was momentarily at a loss for words.
Seeing Ellison's silence, Simon asked more pointedly, "The third quarter financial report is due next month. How much is Oracle's loss?"
"About... 30 million dollars," Ellison hesitated before giving a vague figure, quickly adding, "Simon, it's only temporary. This quarter, Oracle's revenue is set to break 200 million dollars, with a 26% growth from the previous quarter. Based on this growth rate, Oracle's revenue could exceed 1 billion dollars this fiscal year."
Simon ignored Ellison's defense, reiterating with disbelief, "A loss of 30 million dollars in one quarter?"
Oracle had seen revenues double year-over-year in the past few years and had started expanding into Latin America and Europe, which contributed to its strong growth and a peak market value of 3.6 billion dollars last year.
However, Oracle's net profit for the entire last year was only a little over 40 million dollars. Now, a quarterly loss of 30 million dollars, without major investments or acquisitions to account for it, suggested serious internal issues.
While Simon didn't interfere with Oracle's operations, he was not ignorant about the company.
Since the beginning of the year, media skepticism about inflated financial figures at Oracle had been rampant, and the profits for the first two quarters had shrunk, leading to the ongoing stock price slump. The sudden 30 million dollar loss this quarter was shocking.
Under Simon's penetrating gaze, Ellison could only nod again.
Simon stopped and pressed, "So, what's the plan?"
Ellison knew what Simon was implying and decided not to hide any longer. "Simon, it's just a strategic error. Some salespeople, to earn more bonuses, counted customers who had only signed intent to purchase as part of their performance. These customers later did not go through with using Oracle's software. I've been dealing with this issue for months…"
Ellison trailed off, and Simon understood.
The issue wasn't resolved yet.
With the new quarterly report about to be released, serious strategic mistakes, inflated revenue numbers, and a 30 million dollar loss would be enough to infuriate shareholders and potentially cost Ellison his position. His encounter with Simon today likely aimed at securing a form of endorsement.
Regardless of Simon's personal reputation for creating a financial miracle in just a few years, just the 15% Oracle stake held by Westeros Corporation, combined with Ellison's own 33%, practically ensured control over Oracle.
Tech companies like Apple, Microsoft, and Oracle didn't have dual-class share structures to protect founder control in their early days.
If Simon and other shareholders wanted to oust Ellison, even as the largest shareholder with 33%, he would likely just have to pack up and leave, much like Jobs was ousted from Apple.
After a moment, Simon said, "Contact Jim and draft a detailed report on this issue and your follow-up plan."
Ellison didn't want to go around James Reebold again and suggested, "Simon, why don't we have breakfast together? My car is just there. Or, you could come to Oracle's headquarters this morning, and we can discuss this in detail."
"Skip breakfast. Moreover, I'm about to head to New York," Simon declined. Although he didn't plan to replace Ellison right away, he didn't want to appear too agreeable. "That's all for now. Go back and contact Jim as soon as possible. I don't want Oracle to keep things from us, the major shareholders, anymore."
With that, Simon turned and walked towards his mansion.
After breakfast at Woodside and taking off on his private plane, Simon called James Reebold to discuss the Oracle issue.
Reebold had also been monitoring Oracle's situation. If Oracle weren't among
the companies Westeros Corporation had pledged not to reduce its stake in for three years, he would have suggested Simon sell rather than buy more shares.
The issues at Oracle might be more severe than what Ellison described to Simon: excessive expansion causing cash flow issues, a stock price crash leading to financing difficulties, and potential class-action lawsuits due to previously inflated performance figures. If Oracle couldn't overcome this hurdle, the company might not go bankrupt but could struggle to recover.
The advent of the internet era would significantly increase the demand for database software. Simon wasn't as pessimistic as Reebold and instructed Westeros Corporation to continue increasing its stake in Oracle while the stock was undervalued, aiming for a 20% share.
It wasn't clear if Oracle had faced such a crisis in the original timeline, but even if this venture ended up a total loss, Simon could well afford it at this stage.
Four hours of flight time between the coasts.
After hanging up with Reebold, Simon sat in the front cabin lounge by the window, opened his laptop, and began reviewing the Dune video game Nancy had given him days before.
After an indeterminate amount of time, with the faint scent of perfume in the air, Simon looked up to see AB girl Alison Norris approaching in a sky-blue flight attendant uniform, looking even more slender and elegant, her hair up revealing her delicate, pale neck.
It couldn't be said that Janet's selection of these four "vases" wasn't impressive; each could easily score over 80 points.
Noticing Simon looking up, Alison asked, "Boss, would you like some lunch on the plane?"
While saying this, she couldn't help but glance at the video game on Simon's laptop screen, feeling a slight sense of defeat. Did her and Becky's allure really fall short of a video game?
Simon checked his watch, which read eleven in the morning West Coast time, making it two in the afternoon on the East Coast. He would only be able to have dinner with Janet once in New York, so he replied, "Just prepare something light; I'll head to the dining area later."
Alison nodded but didn't immediately leave. She descended the spiral staircase to the lower deck's cloakroom, opened the safe, selected a box of watches, and returned to present them to Simon, bending forward slightly, "Boss, would you like to switch to a watch set to East Coast time?"
As she leaned forward, her blouse gaped slightly, revealing enticingly pale skin.
The proximity intensified the alluring scent of her perfume.
Simon chose a silver Rolex, handed his Patek Philippe to Alison, and smiled, "That's all for now, go prepare lunch, and no more seducing me here."
With her intentions playfully exposed, Alison's face reddened, but she looked boldly at Simon, standing as if at his disposal.
Only when Simon turned his attention back to his laptop screen, clearly dismissing her, did Alison reluctantly return the box of watches worth over a million dollars to the safe and left the front cabin to prepare his lunch.
Beauty was in front of him, and of course, Simon was not indifferent; he merely possessed self-control.
Moreover, at Simon's current position, because it was too easy to obtain, women indeed held no special allure for him.
For instance, many in Hollywood were lecherous, but as Simon knew, the top-tier studio moguls often cared little for such pleasures.
In a casual conversation, Robert Redford once told him a joke about a studio head in the early '80s who whimsically wanted to host a swimsuit party.
A mogul's party would attract more ambitious men and women than any Hollywood star's gathering could.
When the mansion's pool was filled with attractive bikini-clad women, the mogul received an important script and, engrossed, read through it. Realizing it was late at night after finishing, he casually instructed his butler to end the party and picked up the phone to discuss script revisions with the writer, largely ignoring the throng of glamorous party-goers.
Arriving in New York that Thursday afternoon, Simon convened a meeting the next day with James Reebold, president of Westeros Corporation, Leon Black, president of Apollo Management under Cersei Capital, and others to formally discuss the acquisition of Bell Atlantic.
James Reebold, Leon Black, and Amy Pascal, who had been preparing for the MCA acquisition for months, were all taken aback by Simon's sudden proposal for a dual-track operation and the acquisition of Bell Atlantic, and they generally viewed his decision unfavorably.
Following the 1984 AT&T breakup, the federal government had encouraged competition in the telecommunications industry, leading to hundreds of telecom companies in the U.S.; America Online could be considered one of them.
Thus, the legal barriers to acquiring Bell Atlantic were minimal; the key issue was funding.
Simon's planned acquisitions—Daenerys Entertainment's acquisition of MCA and Westeros Corporation's acquisition of Bell Atlantic—required preparations of 7
billion and 8 billion dollars respectively, totaling 15 billion dollars.
However, after year-end settlements at Cersei Fund Management, the funds Simon could transfer from overseas, minus a 28% capital gains tax, amounted to only about 6 billion dollars. This meant Simon needed to raise at least another 9 billion dollars in cash to complete these acquisitions.
If reliant on loans, based on a 10-year repayment period, the entire Westeros system would need to manage over 1 billion dollars annually in debt principal and interest payments—a burden not even top Fortune 500 companies could guarantee to cover every year.
Such a heavy debt load could cause Simon's business empire, built over the years, to crumble if not managed carefully.
Moreover, in terms of the acquisition targets, Leon Black, who had thrived in the leveraged buyout sector with Drexel Burnham in the '80s, also believed that acquiring a regional telecom operator was not a particularly good choice for Simon.
Acquiring MCA would not only solidify Daenerys Entertainment's foundation in Hollywood but also enable synergies in music, television, cinemas, and theme parks.
Acquiring Bell Atlantic, on the other hand, was a completely unfamiliar industry for Simon, and the development space for the company post-acquisition seemed limited.
From the establishment of Bell Telephone Company in 1887, the U.S. telecommunications industry had undergone a century of development, with the Bell system reaching its peak in phone services.
During the most prosperous period of '80s leveraged buyouts, no company targeted the Baby Bells spun off from AT&T for precisely these reasons.
Standard leveraged buyouts involve quickly reducing debt through asset sales post-merger. However, regional telecom companies, post-1984 AT&T breakup, were focused on preserving market share to fend off numerous smaller telecoms encroaching on their territories. Asset sales would plummet their value, and telecom regulations prevented them from expanding further to strengthen scale effects.
Simon's goal in acquiring Bell Atlantic was for operation, not leveraging buyout tactics, making it even harder to reduce debt through asset sales.
Moreover, even if, as Simon anticipated, the federal government might relax telecom regulations in coming years, allowing regional companies to expand market share and venture into long-distance, cable TV, and other areas, this would also take time.
Before then, if Bell Atlantic couldn't manage the substantial debt from the Westeros Corporation acquisition, once regulations were relaxed, the company would struggle to invest capital for expansion in other areas and might even become a target for acquisition by other telecom giants.
Simon knew that the concerns voiced by James Reebold, Leon Black, and others were valid. He was aware that the planned acquisition of Bell Atlantic and subsequent expansion was not as straightforward as he had imagined.
In many years, only Verizon, evolved from Bell Atlantic, would remain of the original seven Baby Bells, with the others disappearing in the merger waves of the new millennium.
However, challenges also presented tremendous opportunities.
In the '90s, not only traditional phone services and the newly reopened cable TV market but also mobile communications and the internet would rise rapidly. It was these burgeoning fields that would create a behemoth like Verizon, a comprehensive telecom giant valued in the hundreds of billions.
Discussions about launching two simultaneous acquisition initiatives occupied Westeros Corporation throughout the weekend.
A new week began, and discussions continued. Forbes magazine released its annual list of the 400 richest Americans, instantly drawing the attention of many.
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