Billionaire's Pleasure-Chapter 69: Apple’s Taught
Apple’s POV
It pains me to admit it but knowing that Bruce was several thousand miles away brought some clarity to my brain, which had previously been pushed to the background in favor of the rest of my organs.
It is tough to concentrate on mountains of financial data when you keep seeing someone gnawing on your rug.
I spent the weekend reviewing my trip notes from Europe and compiling the information into a report that I was going to deliver to Dew on Monday. Although in today’s market it may have been a touch overly ambitious, Jone’s expansion strategy for fiber optics was sound. Although it wasn’t a deal-breaker by any means, it was something that Onez Enterprises ought to keep in mind for the years to come.
As I looked over the expenditures associated with the expansion one more time, my mind kept going back to the warning signs that I’d seen on the previous profit and loss reports the very first time that I’d seen them (I am a notorious triple-checker). One of the contributing factors to Jones Telecommunications’ inability to meet market revenue estimates during those years was the cost of upgrading obsolete networks in the more remote portions of the company’s service territory. If the numbers that I saw were correct and Jones had a loss at those times, then the balance sheet that they published today would be incorrect.
It’s likely that the estimate was off by as much as one hundred million dollars, but that’s not certain. If such were the case, then the value of Bruce’s stock, for which he is willing to pay $31 per share, would be less than $10. If the SEC, the government, or some interested third party reviewed the older books, the irregularities would be uncovered, and the stock of Onez Enterprises would tumble like a hot rock as a result. I went back and looked at the previous P&Ls, the ones that Chris said contained erroneous information. I masticated on my fingernail and ran the calculations once more, but I got the same answer.
The variance between Jones’s current balance sheet and the historical P&Ls was too great for the in-house team at Bruce to be able to recognize it as a significant difference. They must have gone back there to investigate further. It’s possible that the P&Ls were updated at that time and I just did not get a copy of the updated version.
Either the statistics were wrong, to begin with, and the error was remedied after it was discovered, or the numbers were correct, to begin with, but were adjusted to show that they should be interpreted in a different way.
The first problem was my lack of experience.
Two, it was in fact against the law.
After focusing my attention for a few moments on the screen, I was suddenly struck with an idea. I grabbed the phone out of my pocket and dialed the number of Reyn, who serves as my personal financial advisor. Reyn was aware that I did not have a lot of money at the moment, but she anticipated that I would in the future. I called Reyn at her house on a Sunday afternoon and dialed her number.
Reyn enthusiastically greeted me, "Well, hi, Apple! It never fails to excite you when you are entrusted with the management of other people’s financial resources, no matter the reason. Even when they call on Sundays, we are available. How can I be of use to you?"
"What’s up, Reyn? I had a quick inquiry concerning the shares of a firm that I am now consulting for. I’m sorry to bother you on the weekend with this call, but if you have a moment, I’d want to pick your brain about something."
"Sure," Reyn’s response was. "What kind of company is it?"
I started my explanation by saying, "There are two firms. Onez Enterprises and Jones Telecommunications."
Reyn activated the phone’s speaker function. The sound of her typing was audible. "All right, Friday’s trading of Onez shares finished at $97 per share. The stock price has increased in response to the announcement that Wright will be acquiring Jones Telecommunications."
"What about Jone’s stock?" at some point. I asked. "I’m betting that it’s just passing the time in order to get ready for the takeover."
She used her fingers to tap the keys on the computer. "The price per share was up 2 percent from Friday, coming in at $29. It would appear that Onez is willing to pay $31 per share, which would make the stockholders of Jones quite happy."
I reacted by saying, "I’m sure they are," as I stared at the numbers on my laptop while resting my chin on my hand. "What would happen if Onez bought Jones and then some situation arose that revealed Jones’s stock was not worth what Bruce, um, Onez paid for it?"
Reyn hung up on the person who was calling. She questioned me with a loud voice, "Why would you ask that question, Apple?" she said. "Is Omnilert acting as Onez’s financial advisor for this transaction?"
I found myself admitting, "I’m afraid I’m at a loss for words. Could you perhaps explain to me what the repercussions would be if something like that took place?"
She heaved a sigh right into my ear. If it turns out that Onez overpaid for Jones, then the stock prices of both firms will go down. "Well, if it turns out that Onez overpaid for Jones," An investigation would be opened by both the Securities and Exchange Commission and the state attorney general. If someone were found guilty of manipulating stock prices or cooking the books, they might be sentenced to jail time. At the very least, the fine may reach hundreds of millions of dollars.
My chest grew congested, and I found it difficult to breathe.
"Apple? Are you present?"
"I’m sorry. One final question. All of this is merely speculation at this point. What could possibly motivate someone to act in such a way? Have the records been tampered with in order to artificially inflate the stock price before to an acquisition?"
She continued, her tone becoming more strained as she said, "There are a lot of reasons why someone might do that."
Everything is in the most severe violation of the law.
"Like?"
"It’s almost as if you’re trying to convince people that the offer is significantly better than it actually is, which would be dishonest or attempting to create the illusion that the firm possesses more influence than it actually does. The only answer I can think of is that they were propping up the corporation in order to dismantle it at a later point, which is my best estimate and the only one I can think of at the moment. They would sell short the stocks of both companies, and then, as the prices of the stocks went down, they would make a significant profit."
Someone had chewed on the lower part of my lip. "Please excuse my stupidity, Reyn, but could you maybe explain what you mean when you say, short both company stocks?"
"When you short a stock, you are essentially placing a wager that the price of the stock will decrease rather than increase over the course of the next several days. You are making the assumption that the price will be reduced at some point in the near future. You can accomplish this by purchasing "puts," which give you the right to acquire shares of stock at a set price and then sell those shares whenever the stock reaches a specified "strike point." In other words, buying "puts" gives you the ability to buy shares of stock at a price that is predetermined. When you short a stock, you make money by purchasing the option to sell the shares at a higher price and then selling it back when the price of the stock goes down. The profit you gain is the difference between the two prices, which is referred to as the "spread." What would happen, then, if someone shorted Onez’s stock at $97 a share, with a strike price of $97? at the price of $57, the shorted stock would be worth $57."
They anticipated making a profit of $40 on each share that they were able to sell. After a little pause, Reyn did not speak. "Apple, are you hiding something from me that you don’t want me to know about that’s currently taking place?"
I said that in an effort to convey the idea that I was open to being convinced, and I answered, "No, Reyn, that is not the case. Even though I’m merely a member of the team conducting the purchase due diligence, I’m responsible for looking into everything. That sums it up nicely. That is the extent of the matter. My mind is just racing with all the potential scenarios that could happen."
After uttering those words with a sigh, she continued by saying, "Well, that’s wonderful to hear." The way that she carried herself created the idea that she was concerned about the fact that I was taking part in an activity that I shouldn’t be partaking in. She went on to underscore her point by saying, "Because anyone participating in that kind of cooperation and stock manipulation might go to jail," which was a further addition to her case. She said this to emphasize the seriousness of her position.
I expressed my gratitude to her by saying, "Thank you, Reyn. This is information that has used in a variety of contexts."
