I am Hollywood

[Chapter 1017: Feasibility of the Proposal]

Overall, the plan proposed by John Mack resembled an underwriting agreement, which showcased his confidence.

Investment banks responsible for underwriting client stocks generally employed two methods: buying outright or acting as agents. In a buyout model, the underwriter must ensure that the client's stocks sell completely; any unsold shares must be purchased by the underwriter, thus incurring significant risk. By contrast, in an agency model, there's no guarantee on sales -- whatever is sold is sold. Consequently, the commission earned in this model typically amounts to just half of what it would be in a buyout arrangement.

Typically, both methods pertain to new stocks issued by companies, but this time, John Mack planned to underwrite all existing AOL shares held by Eric, and the value of these shares was unprecedented.

The proposal suggested that Morgan Stanley use its stock sales network to underwrite all AOL shares owned by Firefly Investments. Firefly Investments would pay Morgan Stanley a 5% commission on sales revenue. To facilitate Morgan Stanley's selling process, Firefly Investments also needed to provide a somewhat favorable price that would not be affected by market fluctuations, akin to the initial public offering (IPO) price.

Since Firefly Investments first acquired a 30% stake in AOL for $60 million back in 1992, its total investment had accumulated to an astounding $1.57 billion, much of it spent during the stock acquisitions from late last year into this year.

However, according to Eric's strategy, merely selling the 3.1% stake held by the Clover Fund next year when the AOL stock price was high would be enough to recoup all the capital spent by the Firefly system over the years. Any sales of the 32.6% AOL shares held by Firefly Investments would count as pure profit for Eric.

Based on yesterday's closing price, Firefly Investments' public holding of 32.6% of AOL stock was valued at $14.2 billion.

What does $14.2 billion signify?

In the early rankings of the Forbes World Billionaires list, the Mars family, which controlled the renowned Mars Food Company, ranked tenth with a fortune of only $13.5 billion. Ignoring capital gains taxes for the moment, this $14.2 billion in cash would be enough for a person to make the global billionaire list.

If he could successfully cash out at the current stock price, even if he couldn't compare with giants like General Electric and Walmart, Eric would definitely become the individual with the largest cash reserves in the world, far surpassing all other billionaires.

No one knew the bubble in AOL stock better than Eric. His original plan was to sell as many of his AOL shares as possible before the internet bubble burst, cashing out ten to twenty billion dollars.

Once the bubble burst, even if his remaining shares retained high face value in the short term, no investors would be willing to buy indiscriminately.

Thus, if he could cash out entirely in a short timeframe, even if AOL's current market valuation was much lower than the peak Eric remembered, he was initially unopposed to the proposal put forth by John Mack.

However, after reading through John Mack's proposal, Eric looked up and asked, "John, how confident are you that you can successfully complete this capital operation involving over ten billion dollars?"

"Based on the latest information I've gathered, international hot money has begun a large-scale withdrawal from Southeast Asia, while some hedge funds are targeting the Russian ruble and may attack it as soon as this month. Once launched, I believe the ruble won't last even a month," John Mack didn't directly answer Eric's question. Instead, with a hint of confidence in his tone, he added, "So, Eric, I fully concur with your previous viewpoint that the Nasdaq at 2000 points is merely the beginning. In response to this proposal, Morgan Stanley will release a series of analysis reports predicting that the Nasdaq index will continue to rise, aimed at boosting investor confidence. I hope Firefly Group can provide some media resources to support this."

The economic analysis reports from the major investment banks on Wall Street wield significant influence, often impacting the economic data trends of various countries.

The prior subprime mortgage crisis was partly due to Wall Street investment banks repeatedly touting the safety and returns of high-risk housing mortgage loans through publicly released economic data, leading many investors, including European financial giants like Deutsche Bank, to suffer massive losses. This illustrates the substantial influence Wall Street investment banks have.

As the Nasdaq index surpassed 2000 points, many investors realizing the tech stock bubble began to adopt a cautious stance. However, if a Wall Street heavyweight like Morgan Stanley clearly endorsed the upward trend of the Nasdaq index, it would sway a multitude of investors.

John Mack's remarks clearly outlined his confidence and commitment toward the proposal.

Eric contemplated for a moment before asking another question that concerned him, "So, how long do you need?"

John Mack had evidently considered this aspect and promptly answered, "Three months. Morgan Stanley would need a month to publish relevant economic forecasts to build public sentiment. If the Russian economic crisis erupts as expected during this period, our confidence will increase. Only after a month will Morgan Stanley be able to market AOL stocks to our affiliated investment institutions."

"In that case," Eric leaned back against the chair and looked at John Mack, "what do you think I should do about the plan I mentioned in the video meeting earlier?"

At the end of June, during the video meeting in New Zealand, Eric had forcefully demanded that other AOL shareholders buy the 10% of AOL shares held by Firefly Investments within a month, or else Firefly Investments would opt to sell in the open market.

By this time, nearly half a month had passed since Eric issued that ultimatum, and he couldn't just let it go.

John Mack suddenly realized he had overlooked this matter. From yesterday afternoon until now, he had assumed that after presenting such a secure proposal, Eric would give up his original plan.

After a pause, Eric spoke again before John Mack could respond, "John, I'd like to share my thoughts."

Taken aback, John Mack instinctively nodded in agreement.

"Honestly, everyone knows, including Morgan Stanley, that the other AOL shareholders are not too opposed to purchasing that 10% stake; they're merely concerned that Firefly Investments would offload the remaining stocks onto them."

At this point, Eric paused briefly before continuing, "However, your proposal alleviates the issues everyone faces. Given this, I can make a small concession: that 10% of the stocks will still be taken by AOL shareholders, priced according to the original $4 billion I proposed. Following that, Firefly Investments will grant Morgan Stanley the right to underwrite 15% of AOL stocks for $6 billion. Furthermore, Firefly Investments guarantees that within a year, it will not reduce its remaining stock holdings."

John Mack displayed astonishment on his face; he hadn't anticipated that Eric would make such significant modifications to his proposal in such a short time.

Yet, upon further reflection, John Mack had to concede that Eric's modifications were undoubtedly most beneficial for Firefly Investments.

The total sale of 25% of the shares was valued at $10 billion. According to AOL's current market value, Eric effectively relinquished about $900 million in benefits. Nevertheless, the price aligned with Eric's offer from the end of June's video meeting.

Additionally, separating the transactions into two parts meant that 10% of the stocks would be picked up according to Eric's initial plan, and Firefly Investments would avoid paying Morgan Stanley the 5% commission fee.

The additional 15% stocks would be underwritten by Morgan Stanley, which increased the chances of a successful sale while reducing risks. Firefly Investments could recoup funds in the shortest timeframe.

Were Morgan Stanley merely underwriting 15%, they certainly wouldn't require three months to complete the deal.

By selling 25% of the stock, Firefly Investments still retained 7.6% of its holding.

Though still considered a significant shareholder with ownership falling below 10%, Firefly Investments wouldn't wield enough influence over AOL. Combined with Eric's promise to hold for a year, AOL stock would finally shed the burden of potential sell-offs by Firefly Investments, returning to an upward trend in the broader market.

Finally, keeping 7.6% of the stocks would allow Firefly Investments to benefit from potential gains as AOL's valuation climbed in the future.

However, Morgan Stanley's earnings would be considerably lower.

Under the original underwriting proposal, despite the high risk, success would bring in a commission of 600 to 700 million dollars, which could account for approximately 25% of Morgan Stanley's annual profits.

Yet now, with a $6 billion underwriting plan, Morgan Stanley would only earn around $300 million in commission, more than half less than the original plan.

For a moment, John Mack felt as if he were putting on someone else's clothes.

If Eric could perceive John Mack's thoughts, he'd undoubtedly commend the latter for quickly deciphering his intentions.

Selling 25% of the stocks at once meant that the shares held by Firefly Investments and Clover Fund still amounted to 10.7%. However, on paper, Firefly Investments' equity ratio fell to 7.6%, a figure sufficient enough to ease the market's concerns over Firefly Investments.

As for the valuation of this 25% of AOL stock at $10 billion, it was considerably less than AOL's market cap at its peak. Still, Eric was confident that even John Mack on the other side would make a similar choice if he could foresee the future.

It was crucial to completely remove the invisible "restraining belt" that Firefly Investments had around AOL to allow the stock price to soar alongside the overall trends of the Nasdaq market. Otherwise, AOL would constantly be overshadowed by the fear of sell-offs.

In his memory, by this time next year, the Nasdaq index would surpass 3000 points. At that point, witnessing the ongoing explosion of tech stocks, investors worldwide, not just Wall Street, would be fully caught in a frenzy of irrationality.

By then, as Firefly Investments and Clover Fund gradually reduced their remaining AOL stocks, it wouldn't provoke any significant negative reactions; in fact, investors would be scrambling to buy.

After noticing John Mack's thoughtful silence for a while, Eric took the initiative to speak again, saying, "John, I believe there's definitely room for negotiation on that 5% commission you just mentioned. However, as long as Morgan Stanley cooperates with my recent proposal, I can guarantee that the 15% of the AOL stocks entrusted to Morgan Stanley will operate under this 5% commission -- you think that's reasonable?"

John Mack hesitated for a moment, managing to keep a calm face while betraying a faint hint of a wry smile. He also admired Eric's keen business insight; instead of meeting with Eric's agent Chris Hansen in New York first, he had flown to Los Angeles to meet Eric directly, realizing now that his earlier plans to "take advantage of him" had completely backfired.

Moreover, what could he gain by not agreeing now?

Business proposals do not have traditional patent rights or restrictions. Should he refuse, Eric could directly partner with companies like Goldman Sachs or Lehman Brothers instead. If such a scenario unfolded, Morgan Stanley's competitors would be dreaming of snatching Firefly up while laughing in their sleep.

Without further hesitation, John Mack quickly extended his hand out to Eric, saying, "Then, here's to a successful collaboration."

Eric shook his hand back, nodding with a smile, "To a pleasant collaboration."

Eric was scheduled to start shooting Gravity on Monday, so the detailed cooperation specifics would naturally be handled by Chris in New York.

After wrapping up their discussion, they chatted about Firefly Group's $2 billion bond issuance, which had begun selling the previous week.

Although Firefly Investments anticipated a significant inflow of cash, Eric did not halt the bond issuance plan. It wasn't solely due to the plan being well underway -- pulling out at this stage was impossible -- but also because appropriate levels of debt could benefit Firefly Group through tax deductions.

After inviting John Mack for lunch at the Liberty City Manor, and seeing him off in the afternoon, Eric headed to Hearst Castle in San Simeon, California, for the weekend with Aniston.

*****

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