Capítulo 365: Chapter 365: Cashing Out
Jennifer was the second person to know about Simon Westeros' plan to acquire Bell Atlantic; the first was, naturally, Janet.
Simon planned to head to New York after finishing his trip in San Francisco to formally discuss with the high-level executives of Westeros Corporation and Cersei Capital the feasibility of simultaneously initiating the MCA acquisition and the Bell Atlantic acquisition.
This trip to San Francisco was mainly for the affairs of Ygritte and America Online.
Ygritte's problem was straightforward: the company was running out of money again.
Under the joint leadership of Carol Bartz and Jeff Bezos, Ygritte's recent achievements had been quite satisfactory to Simon.
Ygritte continued to consolidate its patent barriers in the World Wide Web technology sector through sustained investment in research and development. The software sales business, benefiting from Carol Bartz's years of industry experience, quickly gained traction. The portal's user numbers kept growing, and it had successfully launched internet advertising services, among other ventures.
All these meant substantial capital expenditure.
Simon was well aware of the significance of the hundreds of core patents in World Wide Web technology that Ygritte held. The complete suite of web-based graphical interface browser software, server software, and web design tools that Ygritte had developed were all software products with solid commercial prospects.
Therefore, Simon planned to inject an additional $50 million into Ygritte to continue the development and promotion of World Wide Web technology.
Initially, Ygritte had a total capital stock of 10 million shares, with Westeros Corporation holding 9 million shares from an investment of $10 million, and Tim Berners-Lee holding the remaining 1 million shares. After the last capital infusion of $20 million, Ygritte's total capital stock doubled, with Tim Berners-Lee's shareholding remaining at 1 million shares, though his ownership percentage dropped to 5%.
This time, Simon did not involve a professional asset valuation team but personally set Ygritte's valuation at $50 million. While this figure might seem high for a startup tech company without stable revenue, Simon believed Ygritte was worth this valuation.
On the other hand, Simon still had no intention of squeezing Tim Berners-Lee's shareholding percentage, as he valued the World Wide Web founder highly. As before, he offered Lee a financing plan to maintain his ownership percentage.
However, Tim Berners-Lee did not accept this time either, as he was very satisfied with his current shares and role.
Although Simon planned to reward some of Ygritte's shares to company executives and staff at an appropriate time, he was not about to freely give shares away to anyone.
As a result, Ygritte's total capital stock doubled again, reaching 40 million shares. Westeros Corporation's ownership percentage in Ygritte increased to 97.5%, and Tim Berners-Lee's decreased to 2.5%, though he still held 1 million shares.
For America Online, the main focus was still on the negotiations for Steve Case's exclusive agreement.
Although Simon planned to start acquiring a regional telecom company early, he did not intend to adjust the pace of America Online's development in the short term. If an exclusive agreement could be signed with Bell Atlantic, NYNEX, and Bell Pacific, it would significantly accelerate America Online's growth over the next few years.
Of course, the biggest issue was funding.
America Online's shareholders, unlike Tim Berners-Lee, planned to raise funds themselves through loans and other means to pay for the first year's exclusive agreement fee with the three companies after the agreement was finalized.
The three companies still insisted on being paid based on total user numbers for the exclusivity, but the actual amount was still negotiable, probably ending up around $1 per household as Jennifer had predicted at breakfast. The total amount of just over $20 million was entirely within America Online's credit capabilities.
Simon also took some time to understand the operational status of the 100 Internet cafes under America Online.
After one month in operation, with strong initial promotion and the public's curiosity about this new form of leisure venue, the 100 Internet cafes managed by America Online generated total revenue of $2.06 million in the first month, with an average revenue of over $20,000 per cafe.
Disregarding initial investments and deducting expenses for rent, salaries, and utilities, the Internet cafe chain alone generated a gross profit of $530,000 in just one month.
If this performance continued, America Online could recoup its initial investment within about two years.
Due to the demonstration effect of these 100 cafes, there were already inquiries about franchising opportunities with America Online.
Moreover, in the past month, the number of customers who accessed the internet through promotional coupons distributed by America Online's Internet cafes reached over 2,600 people, accounting for 5% of America Online's total new user sign-ups during the same period. This was a key factor that Simon greatly valued.
Simon's original purpose in proposing the Internet
cafes was to familiarize people with and get them connected to the internet.
With over 2,600 new users in just the first month, the conversion rate far exceeded the initial expectations of the America Online team. As the functionality of the IE browser continued to improve and the content services provided by the Ygritte portal expanded, it was expected that even more people would choose to connect to the internet at home.
Since the goal had been achieved and was expected to continue, America Online no longer planned to keep this 'Internet Bar' subsidiary under its direct control.
Two years to break even was still a bit long.
At America Online's headquarters in Palo Alto.
After ending a meeting discussing the progress of the exclusive agreement negotiations with the three telecom operators, Simon and Steve Case stayed behind in the meeting room. Case mentioned the Internet Bar project.
"We've been in touch with several private equity funds on Wall Street, and three of them have shown interest in the Internet Bar. America Online holds a 50% stake, and the highest offer so far is $10 million. I think we can push it to $15 million. If we cash out early, that covers most of the first year's fee for the exclusive agreement with Bell Atlantic and the others."
Since Simon didn't plan to make money from the 100 Internet cafes from the start, he wasn't opposed to cashing out.
However, selling them just one month after opening was certainly at a loss.
Whether $10 million or $15 million, these were offers for just 50% of the shares of the existing 100 Internet cafes. If managed patiently for a year or two, developing the Internet Bar into a larger chain operation could significantly increase the company's value.
Simon waited for Steve Case to finish speaking, then asked, "What about IBM?"
"IBM plans to continue holding their shares, but they are not opposed to us selling ours. If we pull out, IBM's team could actually take over the operation of the Internet Bar."
For a recent giant like IBM with a market cap over $50 billion, a startup like the Internet Bar wouldn't matter much; precisely speaking, it was only IBM's venture capital arm that had invested last time. Each corporate giant has similar departments.
Compared to America Online, which needed to watch every penny, IBM's investment team recognized the Internet Bar's potential for appreciation and didn't need to rush to cash out.
Understanding why Steve Case lacked patience on this matter, as the America Online team was worried about Simon continuing to dilute other shareholders' stakes, Simon considered for a moment and didn't insist, saying, "If you think it's appropriate, then go ahead and sell. However, make sure the Internet Bar continues its user promotion partnership with America Online."
Seeing Simon relent, Steve Case nodded, "I understand. Actually, this was part of the negotiation terms when I first contacted those private equity funds. By the way, Simon, if Cersei Capital is interested in the Internet Bar, it's available for $13 million."
America Online had only invested $3.5 million in the Internet cafes, so even at $13 million, the return would be nearly 300%.
However, Simon shook his head; he had already discussed this with Janet.
Cersei Capital was an important part of Simon's strategy on Wall Street; unless necessary, he didn't plan to let Cersei Capital overlap too much with the business operations under Westeros Corporation, as it could easily lead to conflicts of interest and criticism. A $2 million gain was not worth the potential problems.
"This is something Cersei Capital won't get involved in," Simon said after refusing, then continued, "Let's talk about something else. You should know that I've made a substantial amount of money overseas in the past two years."
Seeing Simon decline, Steve Case internally sighed in relief. $2 million might not mean much to Simon, but for America Online, every expense mattered.
As Simon changed the subject, Steve Case nodded, waiting for him to continue.
Simon continued, "The Kuwaiti War has caused a continual downturn in the federal stock market, and now is a good time for expansion. My recent thought is to acquire a regional telecom company, and the initial target is one of the three companies America Online is negotiating with."
Steve Case's face showed surprise, but he composed himself after a moment and laughed, "Simon, I thought you would use that money to acquire a major Hollywood studio, since Daenerys Entertainment's foundation isn't as solid as the Big Seven studios."
Simon knew this was likely what many people thought and also smiled, "Many things are still uncertain; this is just a heads-up for now. I'm heading to New York tomorrow to discuss this matter officially with James and others. Besides, even if it's about acquiring a regional telecom company, the whole process might take about a year. So, everything here at America Online stays the same, and your job is to try to finalize that exclusive agreement by the end of September. Also, remember to keep it confidential
."
Steve Case solemnly agreed, internally guessing which company Simon was targeting.
Although Simon was based on the West Coast, Case didn't think it would be Bell Pacific.
Bell Pacific, despite sounding grander than Bell Atlantic and NYNEX, was actually the smallest of the three companies and probably the smallest of the seven Baby Bells, operating only in California and Nevada.
NYNEX, an abbreviation for New York and New England, covered the northeastern U.S., including the small states of Connecticut, Rhode Island, and Massachusetts, historically known as New England.
One of the Baby Bells, NYNEX, also shared the Boston-Washington metropolitan area with Bell Atlantic.
Given that states like Pennsylvania and Virginia in Bell Atlantic's service area are larger both in area and population, Bell Atlantic was slightly bigger than NYNEX.
Steve Case thought that with Simon's ambitions, the target could only be NYNEX or Bell Atlantic on the West Coast, and more likely the latter.
However, since Simon had not revealed more, Steve Case did not probe further. Any of the three potential target companies would be a giant for America Online. A multi-billion-dollar acquisition was not something he could influence.
Of course, if Simon's target could be achieved, Steve Case could imagine how much it would benefit America Online. His recent efforts to secure an exclusive agreement with the three companies were aimed at gaining access to their telecom networks.
The substantial buyout funds were not just for a simple, abstract exclusive agreement.
Once the plan was achieved, with the three companies opening their network access to America Online, America Online wouldn't need to invest huge amounts of money and effort in laying its own network lines. It would just need to complete the construction of backbone cables and servers, connect to the three companies' networks, and then install modems in the telephone users' homes within these networks' coverage, allowing very convenient internet access for users.
After wrapping up matters with America Online, Simon also visited Cisco's headquarters.
Westeros Corporation had completed an increase in its shareholding in Cisco, reaching a controlling 57.5%.
Due to the ongoing downturn in the U.S. stock market influenced by the Kuwaiti War, Cisco's planned IPO had slowed down. Simon had not stopped Cisco's team from completely halting the IPO preparations, as no one knew better than him how long this economic downturn might last.
It was already Thursday.
After a morning jog in the cool mountain paths of Woodside and planning to fly to New York for breakfast, Simon's schedule meant Janet would stay on the East Coast to spend the weekend together.
Jogging along a cool mountain trail and passing a fork in the road, a middle-aged man in sportswear also came from another path.
Simon glanced at the man and greeted with a smile, "Morning, Larry."
Larry Ellison knew from Simon's smile that the young man had seen through his deliberate appearance here. Luckily, he had thick skin, and his unkempt bearded face showed no embarrassment but responded warmly with a broad smile, "Morning, Simon."
Seeing that the two knew each other, Simon's bodyguard slowed down and kept a distance.
After jogging side by side for a few dozen meters, Larry Ellison initiated the conversation, "Simon, Westeros Corporation's stake in Oracle has increased to 15% now. Are you planning to buy more?"
Simon replied, "With Oracle's stock price so low, it's definitely a good opportunity to buy more. I really believe in this company."
Larry Ellison didn't know if Simon was mocking him.
Oracle's stock price had indeed been very low in recent months. Compared to the high of $28 per share in the past 12 months, Oracle's price had recently fallen to around $8, a drop of 70%. The market cap had plummeted from a high of $3.6 billion to now $1 billion, a dire situation.
Due to the continuous decline in stock price, many shareholders had been selling their Oracle shares.
However, according to a recent SEC filing by Westeros Corporation, its stake in Oracle had increased by 4% to 15% within just one month.
Larry Ellison only held 33% of Oracle, and the company didn't have a multiple voting structure that could maintain his absolute control. If Simon continued buying shares this way, Ellison's control over Oracle would be seriously threatened.
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