now that we’ve wrapped up the nickel and dime haggling, I’ve got some real news on the financing front. The Penny Boys love Martin’s subject-to acquisition strategy.”
“Sorry," Victor cut in. “Why’s that?”
“Simple, my boy,” sighed Diamond as he glanced at the ceiling. “We get the money first and buy the companies later. And, avoid those costly SEC cover-your-ass acquisition guidelines.”
“Sounds like we’re buying a car or a house with no money down,” joked Victor. Nobody laughed.
Chapter 14
600,000,000 Shares
Creating value out of thin air is a talent reserved for perverted minds.
“Gentlemen, as I was saying before I was so rudely interrupted,” continued Ryman. “Recently, I was introduced to one of the penny stock market’s leading underwriters, Norwest Securities, just across the river in Hoboken.
“I’m pretty confident they have the potential to raise larger sums. They have a state-of-the-art trading room and a good track record in completing IPOs and performing the post-IPO market-maker function, which, as you can appreciate, is critically important to our ongoing acquisition strategy. But most of all, they have a database of investors who lost their shirts iduring the last few years when the Dow went on a roller-coaster ride.”
Franklin decided to throw Victor an “ethical” bone. “First, let me say these are not people you and I would ever willingly invite to lunch, but I’d make a deal with the devil if it got us where we wanted to go.” Franklin then pulled a little red devil out of his pocket. “Say hello to my friend, Satan Jones.” They all laughed, but Franklin wasn’t kidding. “Seriously, once we’ve completed the first round of financing and get a collection of ‘subject-to’ acquisitions under our belt, we’ll be ready for the prime-time investment bankers. The market will be on the mend, and we’ll have an attractive enough Pro-forma revenue base and an operating history to negotiate pretty favorable terms with the big boys.”
Diamond continued. “Our goal is to use Norwest to help us raise ten million and make a market in the stock during the critical first year. Franklin and I have developed a rationale to value the company at sixty million, so we only have to offer about fifteen percent to the public for ten million.”
“Martin, do you feel Norwest can put away an offering with such a high start-up evaluation?” asked Victor, to the surprise of everyone in the room.
“What I love about penny stock investors is that they take the long view. They all want to discover the next Microsoft so that they can make 50 and 100 times their investment. They’re comfortable taking a little more risk. They love the action. ITI is the perfect fit for that mindset. Do you realize Gates and Microsoft began as a penny stock? I think it was like nine cents.
“Norwest has a hundred plus brokers pitching stock offerings to little investors all over the country, high-pressure telemarketers par excellence,” smiled Franklin confidently. “They’ll get the word out that we’ve got one hot IPO. Nobody will even ask about the pre-money valuation.
“So, do I have a motion to approve Norwest Securities as our underwriter?” pushed Tishman, ignoring Victor.
“I so move,” said Franklin. “Second,” said Diamond.
~
“Franklin, perhaps it’s appropriate to explain the terms of the financing to Victor since they are quite favorable to the company.” Franklin winked at Tishman as they continued their performance. Victor understood the financing arrangement was a done deed. He decided to play along with the charade. The sixty-million-dollar valuation meant he was an instant multimillionaire!
“Our advisory group suggests we price the shares at ten cents, with a warrant convertible at twenty cents during the next offering,” Franklin said, talking telephone numbers. “The plan is to issue six hundred million shares and offer the public one hundred million of those shares.”
“Who comprises the advisory group?” asked Victor.
“Actually,” said Ryman, “besides Martin, they are a group of people I’ve worked closely with over the years. The names won’t mean anything to you, but you’ll get to meet everybody in due course. The only other financing matter I believe we need to address is Norwest’s request for a pre-launch meeting with their brokers, so we can tell them our story and light their fire before they hit the phones.”
“I don’t see any problem with that,” said Tishman, confident Victor knew nothing about the rules surrounding “quiet periods,” i.e., management silence during the SEC prospectus filing and approval process. “Do you, Victor?”
~
Two hours after the meeting at Tishman’s, Victor burst through the front door, gloating like a Cheshire cat. “The deal is almost done,” he declared with a hearty thumbs up. “I took the boys to the cleaners, thanks to my Sandra guilt-complex negotiation.”
“What in the world does that mean?”
“Every time they wanted to shut me down, I said I needed more money because of the style to which you had become accustomed!”
“You didn’t!” said Sandra horrified. “That’s an outright lie.”
“Aww, don’t worry about it. On Wall Street, everybody tries to control their destiny by employing some version of the truth. That’s part of the game.”
Some version of the truth was a funny line, even though its meaning contained an unconscionable moral statement. Sandra smiled. She was starting to selectively ignore certain aspects of the unfolding ITI scenario…partially because she wanted to support her husband’s newfound passion and partially because the dangling carrot of absolute financial independence felt good. “Pretty, pretty good,” as comic Larry David would say.
“Honey, you know the boys and I had a really good time getting to know Franklin. He’s got a few warts. But then, don’t we all?”
Sandra paused. “What do you mean, almost done?”
“Some final papers have to be filed and approved by the government before we can commence operations. Just routine stuff.”
Sandra’s conservative instincts reared their head. “How long will that take?”
“Six weeks, more or less.”
“Suppose word gets out?”
“Baby, No chance. Just remember it’s business as usual at A&J. Ditto at the hospital. Agree
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