I am Hollywood

[Chapter 1006: The Terms of Withdrawal]

Eric ignored the various expressions of the people on the screen and seemed somewhat indifferent as he said, "So, Steve, you won. I officially announce that, starting today, Firefly Investments will no longer interfere in any internal affairs of America Online. You are completely free to manage this company as you see fit."

In the conference room in New York, everyone sighed in relief upon hearing Eric's words.

However, Steve Case, despite feeling a sense of easing in his heart, soon found himself engulfed by a wave of anxiety. No one understood better than him, the CEO, the significance of the Firefly system to America Online -- it was certainly not just about being the largest shareholder.

Over the years, beyond financial support, the Firefly group had shown tremendous backing to America Online, providing resources in media and technology.

America Online's portal had enjoyed privileges comparable to those of Yahoo concerning internet news publishing rights from the Firefly Group and News Corp's media outlets. Furthermore, America Online had received over 2,000 patent licenses from Yahoo concerning email, instant messaging, and browser software technology. The cooperation between the two in specific projects, such as integrated search engines and online payment platforms, was deeply intertwined.

On the surface, it appeared that America Online had gained significantly more than it had given. However, this had gradually deepened America Online's dependency on the Firefly system.

It was easy to imagine that once they parted ways, if the Firefly group severed the multifaceted cooperation they had established, America Online, which was already falling behind Yahoo in internet media, could potentially descend into chaos.

What was more daunting was that this situation was far from the worst-case scenario; the Firefly system remained America Online's largest shareholder, which was the rooted source of pressure for everyone present.

A series of possibilities dashed through Steve Case's mind. His anxiety morphed into outright fear as he finally spoke up, "Eric, I think I need to explain something."

"I just said, you all listen," Eric interrupted coldly before Steve Case could continue. Once Steve, embarrassed, closed his mouth, Eric went on, "Secondly, I pledge here that in the next two years, the collaborations between several companies of the Firefly system and America Online will not change in any way. Moreover, to mitigate the impact of what happened just a few days ago, Chris Hansen, Ian Gurney, and Robert Iger will officially resign from the America Online board tomorrow. So, Steve, you won again. I truly will not attempt to take control of America Online in a way that might harm the company's interests."

During the initial investment phase, Eric promised not to interfere in America Online's management for three years. The three-year period ended in 1995, and to facilitate the upcoming public listing, America Online restructured its board.

The Firefly system secured three seats on America Online's board out of eleven. Chris gained one seat as a representative of shareholders, while Yahoo CEO Ian Gurney and ABC Group CEO Robert Iger obtained the other two as independent directors.

Eric had originally hoped for Jeffrey Katzenberg to join the America Online board, but since Katzenberg was based in Los Angeles and America Online moved its headquarters from Virginia to New York just before going public, that independent director position was given to Robert Iger.

The declared role of board members for large companies was to provide constructive opinions for the company's development, but in reality, they were primarily advocates for the interests of major shareholders or the management. Even independent directors could not truly maintain their independence.

Typically, the board of directors of publicly held companies controlled by the public's equity was the actual power core of the company, possessing the authority to appoint and dismiss management. Thus, each board position was heavily contested, with control over these positions representing who had actual control over the company.

Upon hearing that Eric would give up the three board seats for Firefly on America Online, everyone in the New York conference room found it hard to remain calm. This news surprised and agitated everyone present even more than hearing Eric guarantee that there would be no changes in their cooperation with America Online for the next two years.

Even though it was unlikely anyone would dare to overlook the influence of the largest shareholder by having Firefly Investments relinquish its board positions, doing so meant Firefly Investments was giving up its direct influence over America Online's decision-makers, further jeopardizing its rights as a major shareholder.

As long as they wanted, America Online's other shareholders and management could easily band together, resorting to mergers, share increases, or introducing other investors to gradually dilute Firefly's 30% stake, effectively marginalizing Firefly Investments. They might even resort to underhanded tactics that directly harmed Firefly Investments' interests.

But now, the fact was that Firefly Investments genuinely intended to do so.

No one could view Eric Williams' decision as anything but madness arising from foolishness; there was only one possible explanation: Firefly intended to withdraw from America Online, and rapidly so.

From Eric's recent words, it was easy for everyone to speculate that Firefly Investments' deadline for selling their shares was approximately two years.

For America Online, a public company valued at $40 billion, that meant the largest shareholder with over a 30% stake would have to offload all its stock within two years, which was extraordinarily hasty.

It was at least predictable that if in the next two years, Firefly Investments continued to sell large amounts of stock on the open market, even if the market remained optimistic about America Online, there was no way the company's share price could improve.

Taking all this into consideration, the American Online shareholders and executives, who had previously been excitedly contemplating how to seize those three board seats after Firefly Investments' exit, now had their expressions shift dramatically.

"Now that I've made my guarantees, what follows is what you need to do," Eric glanced down at the documents in his hands, then lifted his head to observe the faces on the screen and continued, "You probably guessed some of this. The current situation is that Firefly Investments holds a 32.6% stake in America Online, totaling 53.79 million shares. Since 1992, to show support for America Online, Firefly has never sold a single share, not even three years prior when the company went public. On the contrary, we have been continuously increasing our holdings. However, now, since we cannot reach a consensus on the company's direction, Firefly will no longer insist on its position as the largest shareholder."

In reality, the Firefly system held a total of 58.9 million shares in America Online, accounting for 35.7% of America Online's total equity of 165 million shares.

However, another 3.1% was held by the Clover Fund under the Firefly Group.

With a stake of less than 5%, according to federal securities laws, Firefly was not required to report this to the SEC (Securities and Exchange Commission), and they were also not obliged to inform other shareholders or the management of America Online about these holdings.

Although there were those present who understood that the Firefly system held a significantly larger share of America Online stock, they knew Eric had chosen to ignore that holding and did not bring it up.

Still, imagining the potential scenario of a third of the company's stock flooding the market made everyone shudder slightly.

Historically, the stock market crash in 1929 that caused the Great Depression was due to large shareholders hastily liquidating their shares. After that crash, the SEC imposed strict regulations on large shareholders' offloading in North American public companies to maintain market stability and protect the interests of small shareholders.

For a major shareholder like Firefly Investments, attempting to reduce their stake through the secondary market would first require submitting paperwork to the SEC about their sell-off shares and publicly disclosing the reasons behind the sale. They would also be required to disclose America Online's recent operational performance and financial data to prove that the major shareholder was not acting on insider information.

Ultimately though, these restrictions were designed to prevent major shareholders from willfully harming the interests of other shareholders and investors.

But stocks were ultimately private property; as long as a major shareholder's selling was done legitimately and legally, even if it led to a drastic drop in stock price or a complete collapse, no one had the right to stop them.

All shares held by Firefly Investments in America Online were ordinary shares that could be freely traded. Moreover, since America Online went public three years ago, the shares held by Firefly Investments had long since passed their six-month lock-up period, completely allowing for the possibility of selling.

As people contemplated these scenarios, someone in the conference room broke the silence and spoke up, "Eric, trying to sell off all your shares in such a short timeframe is simply unrealistic. Have you considered the consequences?"

Eric listened to the voice coming from the speakers and glanced at the monitor; it was a somewhat balding middle-aged man. Eric vaguely remembered seeing him during America Online's public offering three years ago, as he seemed to be the president of First Boston Investment Bank.

Eric did not inquire about the man's name but simply replied, "Of course, I have considered it. Everything I said today has been thoroughly thought out."

As his thoughts interrupted, Eric looked down again at the documents in front of him before continuing, "My decision now is that Firefly Investments will first sell 16.5 million shares. I need you to handle this next. As for how much each of you plans to acquire, that's up to you; I'm giving you one month. After a month, if I don't get a positive response, Firefly will choose to sell on the open market."

The 16.5 million shares amounted to exactly 10% of America Online's total equity.

At the current share price of America Online, this batch of stock was worth around $4 billion.

For investment banks and funds holding America Online shares, coming up with $4 billion in the short term was out of the question. However, if they shared the burden, while it would still be a significant transaction, it was something they might be able to manage.

Yet, what everyone was considering was not these numbers.

By selling off 16.5 million shares, Firefly Investments would still have over 37 million shares remaining. It begged the question of how Eric Williams intended to handle the remaining shares; were they going to have to continue buying them up over the next two years?

With the Nasdaq index nearing 2,000 points, everyone understood the significant bubble costs involved.

Setting aside everything else and looking solely at America Online, based on recent valuations and profit expectations, the company's price-to-earnings ratio had reached 131 times, something unimaginable just a few years prior.

In previous years, even companies with great growth prospects rarely exceeded a price-to-earnings ratio of 30. For many investors, a company's ratio exceeding 30 indicated a very high investment risk. Presently, America Online's ratio was over 131 times, its risk was abundantly clear.

While countless media outlets and investors touted tech stocks as the future, arguing against judging the industry by these companies' current earnings, everyone understood that behind those soaring stock prices lurked substantial bubbles.

Calculating with a 30:1 price-to-earnings ratio meant America Online's true value should only be around $9 billion; even that was already deemed overvaluation. Yet currently, America Online's market cap was about $40 billion -- over four times what it should have been in a normal state.

Amidst such a severe bubble, nobody knew how long America Online's high stock price could hold.

Thus, while all shareholders in the New York headquarters reveled in the substantial paper profits from the sustained rise in America Online's stock price over the past few years, they were deeply reluctant to spend $4 billion to purchase the 16.5 million shares Eric was offering.

In many people's eyes, that amount of money was practically enough to buy half of America Online.

However, if they refused to take up the offering, they would face the alternative of Firefly Investments going public with their shares.

They also understood that Firefly Investments wouldn't recklessly liquidate all their stocks at once; rather, a prolonged, continuous sell-off would be much more grueling. With a steady flow of buy orders entering the market, there was no chance America Online's stock price could see any positive changes.

The room fell silent for a moment before John Mack, president of Morgan Stanley and somewhat familiar with Eric, inquired, "Eric, at what price do you intend to sell this batch of stock?"

"If you agree now, $4 billion," Eric looked over, saying, "If you wish to think it over for a month, then we'll go with the price at that time."

John Mack immediately shook his head, "Eric, that's too expensive. Everyone here understands the actual situation at America Online; besides, this is such a large stock transaction. If you're willing to offer a discount, I can immediately commit to buying 3 million shares on behalf of Morgan Stanley. I think 70% of the current price is a figure everyone can accept."

Once John Mack finished speaking, everyone in the conference room nodded in agreement.

They all recognized that to avoid a prolonged downturn in America Online's stock price due to Firefly Investments' continuous offloading, taking on some of Firefly's offerings was unavoidable. But if Eric were willing to sell his shares at 70% of the current price, they were more than happy to take them on -- even if he sold a few more shares than that.

Calculating based on America Online's peak valuation of $180 billion, the total value of the shares held by the Firefly system would exceed $60 billion.

However, even if Firefly Investments sold 1% of America Online's stock in one day, it could collapse the company's stock price, let alone selling off the entire 35.7% holding at the peak price -- that was utterly ludicrous.

Eric was never a greedy person; regarding his America Online shares, as long as he could cash out a couple of billion dollars over the next year, he would be perfectly content. After all, to Eric, the real value of America Online didn't even approach $10 billion.

Had he been uncertain about America Online's stock price growth potential over the next two years, Eric would have indeed considered selling his shares at a lower discounted price. However, a 70% deep discount was certainly off the table for him.

But at that moment, Eric was not planning on making any concessions. Instead, he firmly shook his head, saying, "If that's the case, you can think it over for a month. Today's session ends here. For the remaining matters, you can discuss with Chris."

Just as he was about to hang up the call, Steve Case, who had been relatively quiet at the meeting table, finally spoke up again, "Eric, what about the remaining shares beyond those 16.5 million? How do you plan to handle those?"

Eric glanced at Steve Case and then surveyed the faces of everyone in the conference room. "We'll discuss the remaining shares next year. We'll set it for six months from now, still at 16.5 million shares. You can decide whether to take it or not. I've already mentioned that I won't take any extreme actions, but you'll also have to pay the necessary price to maintain the current situation."

With those words, Eric ignored the rest of the people and casually ended the video call.

*****

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