Capítulo 214: Chapter 214: Share Swap?
[Chapter 214: The Trap]
Eric gently set down his coffee cup and looked up. "Mr. Murdoch, I'm sure you know a bit about me. I'm a very stubborn person. If you let me speak, the conditions I lay out will have no room for negotiation. If Fox can't accept them, then things will surely get quite unpleasant between us. So, why don't you go first? If Fox's terms can satisfy me, I promise I'm not an unreasonable person."
Murdoch silently cursed under his breath at this slick operator. This wasn't greed, but after a moment's contemplation, Murdoch spoke up. "Eric, the collaboration between Fox and Firefly has always been quite pleasant. So how about this: I offer you 5% ownership in Fox Film Company in exchange for a proportional share in Firefly. You know Fox's market value; Firefly stands to gain quite a lot. This can further tighten the cooperation between our two companies. With this offer, I hope to secure the premiere rights for the upcoming four seasons, and the proposed 70% advertising revenue split would remain unchanged. How does that sound?"
At first, Eric felt some interest from Murdoch's proposal, but after a few seconds, that feeling vanished. He clearly understood that Murdoch was offering Fox Film Company shares in return for an equivalent stake in Firefly, not Fox Network shares.
Many people might assume these two companies were one and the same, but Eric understood the significant differences. Although both were under Barry Diller's control, Fox Film Company and Fox Network were entirely separate entities. As of now, Fox Film Company had a market value of around $2 billion; thus, 5% of its shares would be worth about $100 million, whereas 5% of Firefly was practically worth nothing. Based on the merger with New Line's pricing, Firefly's market value stood around $600 million. That meant if Firefly agreed to this equity swap with Fox, they would be netting a profit of $70 million.
However, the reality was far more complicated.
After the merger between Firefly and New Line, every major Hollywood studio recognized the potential development of Firefly. If Eric's films continued to rake in box office hits, in just a few years, Firefly could rival the top seven studios. Correspondingly, Firefly's market value would skyrocket, possibly surpassing Fox.
Eric was very confident; if everything went smoothly, he believed it wouldn't even take five years. He had recently spent 15% of the shares and a significant amount of cash on New Line, which he felt was a worthy sacrifice as it would help offset Firefly's distribution weaknesses, dramatically accelerating its rise.
Owning 5% of the shares would allow him some say in the boardroom. However, by swapping shares with Fox, Eric wouldn't benefit much; in fact, he would be hindered.
Moreover...
Eric slightly curled his lip, leaning forward, and asked Murdoch, "Mr. Murdoch, how much profit do you think Fox Film Company will make this year?"
Murdoch's heart skipped a beat, thinking, has this little guy figured it out? Yet, Murdoch still held onto a glimmer of hope and shook his head. "I don't really know. We won't have a clear picture until the year-end financial report is out."
Eric almost let out a cold laugh. "Mr. Murdoch, I can do a bit of math for Fox. Because Mr. Diller focuses on developing Fox Network, the company hasn't released many films. In fact, there aren't any big blockbuster films coming from Fox this year. Fox's slate is centered around my three films. Pretty Woman already locked in at $210 million in North America and $530 million worldwide. After subtracting distribution costs, Fox should net at least $70 million in profits. Furthermore, I personally believe that the profits from the next two films could be at least $100 million. If you consider the income from other films Fox distributes and video sales, ha, it's looking like a great year. There's a chance we could see $300 million in annual profits this year, almost double the usual amount."
Hearing Eric's breakdown, Murdoch couldn't help but feel a rush of excitement. If that were true, those results would certainly place Fox at the top of the seven major film companies. Even Warner, which was raking in profits this year, might not reach that height. Once the year-end financial report came out, Fox's market value would surely surge.
However, after that initial excitement, some of Murdoch's hopes crumbled away as he dryly replied, "Eric, isn't that quite the good news?"
"Of course, it is," Eric replied. "So, let's calculate what Firefly's profits will be this year."
Eric raised his fingers to tally. "Based on the current box office trend, Running Out of Time's global earnings could still reach around $500 million. Firefly's share would be approximately $100 million, and by year's end, after costs, Firefly should also net around $100 million with Sleepless in Seattle and Home Alone 2, just like Fox. Don't forget, I have another three films coming out by the end of the year, and I'm optimistic about all of them. Even if those three films, when combined, could only earn $100 million, Firefly will still make $400 million this year. If both of our companies give dividends, according to the 5% of equity exchanged, Fox will get $20 million, but Firefly will only get $15 million."
At this point, Eric lowered his arm, feeling an overwhelming rage. Initially, he had been tempted by the $70 million equity gap that Murdoch had proposed. But after mulling it over, he realized he had walked right into a huge trap set by the old man across the table.
Exchanging shares and Fox acquiring broadcasting rights for the next five seasons were two completely different matters. Murdoch had skillfully intertwined these two issues, giving Eric the false impression that Fox was being sincere. However, if Eric truly accepted the offer for those 5% shares, in the end, he might not see a single benefit. Instead, due to the profit disparity, he could end up giving Fox a share of dividends every year. Furthermore, that equity likely came with a long lock-up period, and by the time it could be sold, Firefly's market value might equal that of Fox.
Furthermore, Fox would surely maintain the right of first refusal on those shares. So, even if Eric were to sell the shares back, the final outcome would mean Fox would have a stake in Firefly and could meddle in Firefly's affairs, while Firefly would have no say in Fox whatsoever. Plus, after the equity swap, the interests of Firefly and Fox would be tied together. Even if he was reluctant, Eric would have no choice but to prioritize collaboration with Fox in future dealings. It seemed this was Murdoch's main reason for wanting to exchange shares with Firefly.
If Eric still held the naive, somewhat timid spirit of a young man, he would likely have been so enraged at this realization that he would have slapped the table, shouting, "This is outrageous! I won't partner with you!"
To be honest, Eric might have felt that surge of youthful impulsiveness due to the lingering thoughts of the original soul.
Yet, the soul that occupied this body now belonged to a more grounded man in his forties. Given the unique experience of reincarnation, Eric had grown indifferent to many things; losing his temper over money simply wouldn't happen.
Of course, Eric still felt incredibly angry. "Mr. Murdoch, it seems Fox doesn't really intend to showcase any good faith, so..."
Murdoch offered a faint, weary smile. "Eric, hear me out, how about we..."
"No," Eric immediately interrupted Murdoch, uncertain if the old man would have yet another trap waiting in his next proposal. If he didn't catch on, things could turn sour. "Let me talk. I have no interest in the shares of Fox Film Company, but since today's discussion is about that, let's talk about Fox Network instead. I want shares in Fox Network. If Fox wants to secure the upcoming seasons' premiere rights, they must transfer 10% of shares to me at 80% of the Fox Network's market value before Friends aired."
Murdoch was taken aback by Eric's audacious opening. While he was known as a media tycoon, he held only just over 30% of News Corporation's shares, which owned about 80% of Fox Network. In effect, his family's stake in Fox Network was only 24%. If he agreed to Eric's conditions, Firefly would become the second-largest shareholder of Fox Network, with supporting influence trailing only behind the Murdoch family. If future conflicts arose, Eric could potentially seize control of Fox Network with backing from other shareholders.
Fox Network was Murdoch's most crucial gambit in breaking into the North American market; he would never agree to such terms.
To be truthful, Eric didn't originally have such lofty ambitions; he planned only to take 5% of the Fox Network shares.
From the data he collected, Fox Network's current value was below $1 billion, which paled in comparison to the $4-$5 billion value of the three major networks.
But Eric knew that a decade later, Fox Network would rival these giants, reaching over $30 billion in value. By investing less than $50 million, those 5% shares could become a treasure worth over $1.5 billion, and compared to film companies, television networks provided steadier profits. He could sit back and draw substantial dividends from those billions in yearly profits without lifting a finger.
*****
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