From legendary short seller to god of American capital

Chapter 236 Leveraged Acquisition

Chapter 236 Leveraged Acquisition

Morgan's gaze fell on the report, but he didn't pick it up immediately. Instead, he examined it for a moment as if he were weighing the purity of a gold nugget.

He seemed to be constantly pondering the meaning of the word "acquisition".

After a few seconds, Morgan reached for the stack of reports and began to look through them, returning to his businesslike state.

"Bausch & Lomb?" Morgan's voice was deep, resonant with his chest. "That eyewear company in Rochester. What did you see in them? Their pitiful patents, or their even more pitiful debt?"

"I saw the value hidden beneath the surface," Larry said calmly, meeting his gaze.

"The market only sees their short-term cash flow problems, but I see their irreplaceable technological barriers and distribution network. With just a bridge loan and a complete management restructuring, the returns will far outweigh the risks. And my fund is willing to take that risk and reap that reward."

Morgan paused for a moment, tapping his fingers on the report. "You just said you don't have the money, but you want to acquire this company. Tell me, what are your plans?"

"Mr. Morgan, my partner and I currently own 19.8% of Bausch & Lomb stock. At the next shareholders' meeting, we've decided to confront the other major shareholders and buy their shares. In my estimation, to gain an overwhelming advantage among the shareholders, we'll need to raise $180 million to $220 million, in cash." Larry laid out his plan to Morgan in a straightforward manner.

Morgan leaned back slightly, picked up his cigar again, but it was already half-extinguished. McKinley quickly lit it for him, and Morgan took a puff, looking at Larry. "So, next. What you want isn't just custody, is it? What you really want to talk about is 'leverage'."

The word "leverage" carried immense weight when he uttered it.

"Yes," Larry readily admitted. "Acquiring Bausch & Lomb requires far more cash than the fund currently has. I need syndicated loans, and I need to use future assets and cash flow as collateral to secure the funds today."

Morgan's gaze sharpened, a cold glint appearing in his eyes for the first time, as he looked at Larry. "Leverage is dangerous magic. It can build you a towering tower overnight, or it can bury you just as quickly. What makes you think Bausch & Lomb's future cash flow will be sufficient to support this debt and satisfy my people?"

"Based on the assessment of the remaining patent years on page seventeen of this report, and the analysis of the asset situation on page twenty-two."

Larry's answer was precise and swift: "What I value is not its past profits, but its future potential for monopoly after consolidation. This is not speculation, Mr. Morgan; it is the prelude to industry consolidation. And consolidation requires the boldness of capital."

"Integration..." Morgan repeated the word, a barely perceptible glint in his eyes. He liked the word.

How much do you need?

"The $200 million acquisition fee will be refunded immediately upon completion, with interest paid at the short-term rate. However, the remaining amount will be paid at the long-term price we have agreed upon."

Morgan paused for a moment, not to consider the risks, but to weigh the timing and the benefits.

"Yes, that's possible. But the syndicate led by Morgan will have to hold a 60% stake. The terms will be the most stringent. Your company will need to sign an unlimited joint and several liability guarantee."

These are almost harsh conditions, placing enormous risks on Larry personally.

"Sure." Larry replied without hesitation.

The core deal was agreed upon in just a few minutes, and the remaining details were naturally negotiated by the senior partners with Larry.

The air seemed to have calmed down a bit.

At that moment, Larry abruptly changed the subject, seemingly casually asking, "Mr. Morgan, since we've come to the topic of leverage and acquisitions, I've recently been researching a... more aggressive operating model, but I'm having some theoretical confusion. Would you mind taking a few minutes to hear your insights?"

Morgan raised an eyebrow, seemingly intrigued by the question. He waved his cigar, gesturing for him to continue.

"Let's assume," Larry carefully phrased, as if presenting a purely academic case, "that the target isn't a manufacturing company like Bausch & Lomb, but rather... well, a more liquid entity with a more complex shareholding structure, like a large trust investment firm. The market values ​​it highly because of its massive real estate portfolio, but its core assets are actually weighed down by heavy long-term debt and complicated cross-shareholdings."

Larry carefully observed Morgan's reaction, while Morgan simply listened quietly with deep eyes.

"Traditional acquisitions require astronomical sums of cash, making them virtually impossible. But what if... the target company's own asset value and cash flow were used as collateral, and the necessary funds for acquiring it were raised through a series of extremely complex tiers of loans and bond issuances... theoretically, is this feasible?"

Larry's description was the prototype of what would later be known as "leveraged buyouts," but in 1892, it was undoubtedly a groundbreaking and almost alchemical financial innovation.

Morgan remained silent for a long time; the only sound in the library was the faint crackling of a cigar burning quietly.

He seemed to be examining the idea itself, as well as the young man who proposed it.

Finally, Morgan spoke slowly, his voice even lower than before: "Larry, what you're talking about isn't an acquisition."

He paused, allowing the weight of his words to settle.

"That's about structuring. It's using debt as a rope and assets as a fulcrum to leverage something far beyond your own strength. It requires not only courage, but also an understanding of the limits of the rules, and... the absolute ability to bear the consequences of failure."

Morgan stared intently at Larry: "This is no longer business, this is art. And a dangerous art at that. A miscalculation, an interest rate fluctuation, or even just an untimely panic, and the rope will snap, the fulcrum will crumble, and the weight that has been lifted will crush everything, including the manipulator himself."

Larry didn't speak, but simply nodded silently.

"You ask if it's feasible?" Morgan's eyes were unfocused as he spoke in an almost whispered voice, "In theory, every temptation of the devil is feasible. But the real question is whether you understand what you are summoning, and whether, when it actually comes, you can control it instead of being consumed by it."

The conversation abruptly ended there. Morgan looked at Larry with a meaningful gaze and remained silent for a long time.

Larry stood up and took his leave of Mr. Morgan. He had received the commitment to trusteeship, the funds needed for the acquisition, and the answers he sought—not specific operational guidelines, but rather an implicit confirmation of the feasibility of his ideas from a financial giant of the era, along with a profound warning.

Mr. Morgan had only a pinch left in his cigar. He looked at Larry through the smoke, his face expressionless. Then, Morgan gave the order.

"McKinley, could you take this to my child and tell him the procedure and details regarding receiving the money?"

As Larry turned to leave, Morgan watched him walk out of the library, just as he had watched the young man's back before.

Once Larry's figure had completely disappeared, Morgan muttered, "Leverage, acquisition... My God! Using Bausch & Lomb's assets to raise funds, and then acquiring Bausch & Lomb. This kid's ideas are truly terrifying..."

(End of this chapter)