by Jim Wygand
“Well, it’s nice to know I have that reputation.” Charlie said.
“You do Mr. Mullins and it is to your credit. I want to start by informing you that Phillip Shaw II will not, I repeat not, be returning as CEO of the Shaw Corporation, at least not in any functional way. His medical condition is not so serious that he could not return but he has indicated to me that he does not want the pressure and the risk of shortening his life. He is perfectly content to step down. In fact, we both know he hardly needs to work for a salary.”
“That’s for sure”, Charlie smiled.
“While he does not intend to return to being CEO, Mr. Shaw does not want to name a successor. He feels that could be divisive and even be detrimental to the long term growth of the company.”
“OK”, said Charlie, “that makes sense, so where do I fit in?”
“Simple, Mr. Mullins, Mr. Shaw wants to make Shaw Corporation a publicly held company.”
“Sell his shares?” Charlie asked incredulously.
“That’s how it’s done, Mr. Mullins, as I am sure you know. Yes, sell his shares and those held by the Shaw family.”
“And he needs me for that? Mr. Carpenter, Phillip Shaw can sell his shares whenever he wants to and without my permission or involvement. I don’t understand why I am here.”
“Mr. Mullins, you and I both know that the Shaw Corporation is cash rich. We both know that interest rates are rising. Consequently, we both know that the cash held by Shaw is increasing in value. Mr. Shaw does not want to see his company bought and then dismembered for its cash value. He believes that the company is worth something as an on-going enterprise. He also respects the effort his father made to build the company virtually from scratch.”
“And with a good chunk of scratch arranged by Gina’s uncle!” Charlie thought to himself.
“I think I see where you are headed, Mr. Carpenter, but please continue. I want to hear it from you!”
“Bill Cummins said you would understand quickly. He was right. Mr. Mullins, Phillip Shaw wants you to make Shaw attractive as an ongoing enterprise, not as a cash cow. He wants you to work with Wexler and Santori to make acquisitions that will reduce the value of the cash opposite the company’s attractiveness as an on-going business.”
“You mean a poison pill strategy?”
“Well, not exactly poison, Mr. Mullins, Mr. Shaw does not want to reduce the value of his company. He wants to make it worth more as an on-going business than it would be for its cash value. It requires some sophisticated strategic choices. The market should see the acquisitions as adding value to Shaw’s business over a longer term while making it unattractive to anyone who wants to simply buy the company’s cash.”
“He wants you to develop an acquisition strategy that will pass the muster of financial analysts and discourage sharks. Do you understand?”
“Yes, fully”, said Charlie, “but why have I been chosen for this work?”
“It’s rather simple, Mr. Mullins, your relationship with Wexler & Santori is the best in the entire company. We will be relying on Wexler & Santori to be constantly evaluating your recommendations and the effect of same on the value of the company. Quite frankly, your direct supervisor, Mr. Perkins, would be most unsuited for working with the auditors in the manner Mr. Shaw desires. This requires teamwork. Moreover, you have been highly praised by the operating department vice presidents. You not only know finance, Mr. Mullins, you also know what motivates the operating departments and what their needs are. Since the acquisitions will essentially be operating companies, your knowledge of operations and your interface with the departments are crucial to making the right kinds of acquisitions. Mr. Perkins is quite talented and excellent in financial acumen, but he lacks the necessary negotiating skills to work in harmony with the operating departments.”
“Now that I have told you why you are here, I must emphasize, perhaps unnecessarily, that not a word of this strategy can reach the market or any of the company employees. Mr. Shaw will soon announce that he intends to return after a period of convalescence. He will return and seem to resume his duties. Whatever hesitance he shows with regard to major decisions will be attributed to his heart attack. However, with him present, no one will try to rush things through.”
“How long is all this supposed to take, Mr. Carpenter?”
“Probably not less than 3 business quarters, and possibly one year. We can take up one quarter with Mr. Shaw’s convalescence and recovery period. During the following two quarters you will be under pressure and will have to be discreet. You will work with Wexler & Santori in absolute secrecy.”
“So, Mr. Mullins, only you, Bill Cummins at Wexler, Phillip Shaw, and I know about this. Will you take on this responsibility?”
“Responsibility is the right word, Mr. Carpenter. I would hate for the Shaw family to receive a reduced value for their holdings because of an error on my part.”
“That’s precisely why you were chosen for the job Mr. Mullins. Mr. Shaw is confident that you will do your best to protect his interests and he does not think that anyone else in the company can do it any better. Wexler & Santori agree.”
“Well, I am certainly flattered that I would be given such trust. I’m sure that you can appreciate that this comes as a complete surprise to me.”
“Certainly, would you like to think it over before deciding?”
“Well, not exactly before deciding. I mean I am pleased at the offer and I appreciate the challenge. But I would like to take a look at the company’s financials in view of this new wrinkle. I had never considered this issue before because it was patently clear that the Shaws did not want to and would not sell their shares and go public. I’d like to do my own analysis and get back to you. I am virtually certain that I will accept the assignment. That’s not the problem. I just want to know first what I am accepting.”
“I was pretty sure you would not simply say ‘yes’ and walk out of here, Mr. Mullins. It’s prudent of you to want to know where you are going and what limitations you might have to face. Would a week be long enough to conduct your review?”
“Yes, I think that would be enough.” Charlie replied.
“OK, let’s meet here again on Monday of next week at the same time – five-thirty, is that OK?”
“That’s fine Mr. Carpenter. I will come back with my analysis and some observations. Until Monday.” Charlie shook hands with Warren Carpenter and walked out his office and to his car almost in a state of shock. He was holding on to what was possibly one of the most valuable pieces of information in the market. What would some investment banker be willing to pay to know that the Shaw Corporation is planning to go public and wants to acquire companies? They could stack the deck anyway they chose, sell the stock to their cronies, make a bundle and then either break up the company or bleed it dry.
He drove home without even bothering to check if he was being followed. He wasn’t – fortunately for him. He arrived to Gina’s apartment building, parked, and went up to what was rapidly becoming his home. He entered the apartment forgetting that he was over an hour later than he usually was because of his meeting with Warren Carpenter. “Charlie, I was worried about you. You are rarely late and you didn’t call. I thought maybe you had to go back to Shoreville or something.”
Gina looked at Charlie who still appeared to be dumbfounded. “Charlie, are you OK? You look like you’ve seen a ghost or something.”
“I’m fine Gina”, and he moved to kiss her, “I need a drink and then I will tell you everything.”
“OK, baby, sit down. I’ll bring you a whisky. Scotch neat, all right? You look like you need a jolt!”
“Oh yeah, scotch neat. I do need a jolt.”
Gina poured two fingers worth of scotch in a glass and handed it to Charlie. He took a healthy swig before starting to talk. “Gina, I probably have the most valuable piece of information in the stock market at this moment!”
“You’ll have to be more specific Charlie. You could tak
e what I know about business, put it in a thimble and it would rattle around like a pea in a barrel. What information is this?”
“Gina, the Shaw Corporation is going to go public.”
“Explain that, Charlie, I’m a Lit major, you know.”
“It’s called an ‘initial placement offer’, known in the jargon as an IPO. It means they are going to give up family control and sell the company’s stock to the public!”
“Ohhh, now I’ve got it. Is that good or bad for you and the company?”
“If it were done now, it would probably result in the dismemberment of the company for its cash. If it is done after the excess cash is invested, it would be good for the company so long as the investments offered good long term prospects for growth. If not, they would diminish the value of the company.”
“Now I get it. So your information that the company plans to go public, as you call it, is worth a lot to someone who might want to buy it.”
“Right, sweets, especially if that someone wanted only to acquire the company’s cash right now. They would have advance information that would allow them to acquire the company and then break it up and keep the cash.”
“Alternatively, an investment bank could set up the placement of the shares in the market and favor its clients through a series of shell companies. It would be a chance to clean up big time.”
“The fact is, Gina, there are only four people in the entire world who supposedly know about this. Phil Shaw, Bill Cummins an auditor at Wexler & Santori, Phil Shaw’s attorney, and me.”
“Why are you involved in this Charlie?” Gina asked innocently, “why wouldn’t this be a matter for the senior management of the company?”
“Normally it would be, Gina, but Phil Shaw has said that he does not plan to remain as CEO. Apparently, he values life too much. If he announces that he will step down or he delegates this job to the Executive or Finance Committee there will be a lot of infighting and most certainly some will try to gain personal advantage or power. Big bucks are involved here.”
“Wow, that’s news, no? I mean about Phillip stepping down.”
“Yep, he will come back, pretend to be recovering so he can resume his normal duties, and in the meantime be preparing to unload the company. I, together with Wexler & Santori will be looking around for acquisition targets to use up the company’s cash.”
“Sounds like the kind of shopping I’d like to do – here take a few million and go out and buy something!” Gina laughed out loud.
“Well, that’s the message behind my assignment but the shopping will be a little more complex than what you have just described. The companies I buy should not serve to reduce the value of the company and, if possible, they should increase it while absorbing the cash.”
“It sounds like a lot of responsibility and not terribly easy to do.”
“It is, but the hard part won’t be making the acquisitions, it will be keeping the whole process a secret until Phillip is ready to announce the initial placement offer, what they call the IPO. I have up to about 9 months to get the whole thing set up. That’s a long time to keep a secret like this one.”
“When do you start, Charlie?”
“Well, actually right away. I told Phil Shaw’s attorney that I wanted a week to evaluate the size of the challenge. I will have to review the company’s financials. I’ll probably go to the auditors’ office tomorrow to talk to my contact there.”
“Gina, we now have two big secrets to protect. No one, but absolutely no one can know about this plan. The slightest leak and the whole thing will become a mess. If the press gets on it, the price of everything we try to buy will go sky high. If we pay too much for acquisitions, the value of Shaw stock will go down. If the companies we acquire are part of a long-term growth strategy we will have more leverage with the shareholders and the stock market analysts.”
“That really sounds exciting, Charlie, I didn’t know business could be that fascinating. It’s almost like negotiating a bunch of secret treaties!”
“I guess that’s a fair comparison, sweets.” Charlie laughed.
“There is just one problem though, I have to do all this in off hours and I’ve still got that ruse in Shoreville to watch over. I can’t let our situation get exposed either. I have to think all this through very carefully. Now, to the important stuff, what’s for dinner my dear?”
“You in the mood for a nice shrimp risotto? I sure hope so, because that’s what I fixed.”
“I’ll open the wine!”
While Gina set the plates and heated the risotto, Charlie grabbed his pocket notebook and started planning his assignment. Over dinner he said to Gina, “Baby, I think I should talk to your uncle about this. Can you set up something for next Sunday? I want to draw on his business experience and experience with keeping things secret. I’m not used to that side of the assignment.”
“I’ll call him tomorrow Charlie.”
They ate calmly and the delicious risotto allowed Charlie to temporarily forget about the assignment.
XXVIII
Charlie woke up at six-thirty on Tuesday morning and walked into the kitchen where Gina was busy fixing some breakfast. “What would you like, Charlie?”
“Something light, sweets, maybe I’ll just have a bowl of granola.”
“Gina poured him a cup of coffee. You sure? You’re gonna need your strength, you’ve got a horny wife, and a lot of stuff to do.”
“I think I can handle the horny wife part,” she added.
“That’s for sure, just make sure you keep up the good work.”
Charlie ate his granola, showered and shaved, and took off for Wilmington. As soon as he arrived at work and settled into his office Charlie called Bill Cummins at Wexler & Santori.
“Bill, I met yesterday with Warren Carpenter. I need to talk to you. Are you available after work this evening? I can stop by your office and we can talk there or go somewhere else.”
“Warren called me last night, Charlie. I was expecting you to call. Let’s get together tonight. There’s a lot of ground to cover. We can meet here. No one will be surprised to see you coming in and most people will be gone by five-thirty anyway.”
“Thanks, Bill, see you tonight then.”
Today would be easy for Charlie because he would have meetings all day with the operating department heads and Fred Perkins. Normally the meetings would be tense and disagreeable, but Perkins was so damned scared of offending anyone who might have power that he was being almost charming. He was rolling over on everything. Charlie could hardly keep a straight face during the meetings.
At five he left as usual and drove up to Philly on I-95 and crossed the Ben Franklin Bridge to Camden for his meeting with Bill Cummins. He pulled into the Wexler & Santori parking lot precisely at five-thirty. When he walked through the door, Phyllis Simpson was clearing her desk and getting ready to leave. “Hello, Mr. Mullins. Nice to see you again. Mr. Cummins told me you would be coming up. He is waiting for you in his office. I’m leaving now, is there anything I can get you before I go? Would you like me to order some coffee? It will only take a few seconds.”
“Thanks, Phyllis. I appreciate that.” Charlie took the elevator up to Bill Cummins’ office. As he entered the elevator, he could hear Phyllis on the phone ordering some coffee from the company kitchen.
He knocked on the doorjamb of Cummins’ spacious professional digs, “Hey Bill, how are you?”
“Come in, Charlie. Close the door and please have a seat.”
A knock on the door kept them from initiating their conversation as the white jacketed company waiter brought in a pot of hot coffee. Bill Cummins said, “Thank you Maurice, you can just leave the coffee pot here. I’ll return it to the kitchen myself after Mr. Mullins and I have our meeting. You don’t need to stay around.”
“Thank you, Mr. Cummins. I can stay if you wish.”
“No, it won’t be necessary, I think I still know the way to the kitchen”, Cummins laughed amiably.
“OK, sir. Good night.”
“Good night and thank you.”
The waiter departed and closed the door behind him.
“I’m glad you said you will work with us on this project, Charlie. The thought of having to deal with Perkins would have given me nightmares. Phil Shaw does not want to have any of the senior executives working on this because he knows there would be all sorts of power plays, possibly even some malfeasance, and most certainly some leaks to the press to gain advantage and leverage.”
“I understand Bill, it’s a delicate issue. I told Warren Carpenter I first wanted to thoroughly review the company’s financials and any possible hidden assets or liabilities. If anyone suspects anything, they will immediately go for the financials. The business press is no different from the regular press or even the banks. They smell blood in the water and they go into a frenzy.”
“Been there and done that, Charlie, let’s go through the figures. There are some things that have to be cleaned up and unfortunately they will increase rather than decrease the available cash. The company owns some residential properties that it leases to family members. The Shaws do it for tax purposes. They will have to buy those properties from the company at fair market prices. Some of the properties are quite expensive. The family members have the money, of course, but it will all go into the pot. We can do ‘desk drawer’ transactions and hold the contracts here rather than run the money into cash. That will not draw the attention of the analysts. At the right time we will consolidate. Since the properties are on the books as company assets, we are simply switching one asset for another. Where there are mortgages still being paid, we will have private contracts written up for those properties so the family can reimburse the company for the mortgage payments that will continue to be made through the company until we consolidate. I have it in mind to store the actual funds in an offshore account pending consolidation. It should work.”
