From legendary short seller to god of American capital

Chapter 217 Top Secret Business Intelligence

Chapter 217 Top Secret Business Intelligence

The date is April 14th, last Thursday.

Larry first went to Mr. Porter's place and sent a telegram, asking Matthew Browning to take the next train to New York as soon as possible, as there were some specific matters concerning the purchase of bullets to be dealt with.

The telegram was sent directly to Mr. Winthrop of the Boston Globe, who then relayed it to his prospective son-in-law.

Goldman Sachs sent someone to inquire about the bullets, and also informed him that the business advisory document he needed was ready.

After sending the telegram, Larry and Mr. Dunbar took a carriage to Pine Street.

As soon as the two sat down, Henry Goldman, as if presenting a treasure, took out a metal safe, took the key, unlocked the complicated lock, and finally took out the report called "Investigation Report on the Assets and Equity of Bausch & Lomb Corporation".

Larry took the report without speaking, but looked down at this hard-won intelligence, which contained all the information about Bausch & Lomb from Goldman Sachs, the most well-informed company on Wall Street.

Rochester, New York, has been home to two mega-corporations: Eastman Kodak and Bausch & Lomb.

However, Bausch & Lomb's history predates Kodak's by a considerable margin.

In 1853, Dr. John Bausch, a German immigrant, opened a small shop selling monocles in Rochester, New York. George Eastman was born a year later.

Upon seeing this, Larry looked back at the name of the founder, Dr. John, and wondered, "Why is it another German immigrant?"

Why are so many founders of large companies German immigrants?

Larry paused for two seconds before continuing to read.

In 1861, Dr. John introduced hard rubber-framed glasses, which became the company's first blockbuster product.

In 1865, his friend Henry Lomb lent him $60 to invest, and the two officially partnered to establish a company. The name of the company was a combination of their surnames, and it became Bausch & Lomb.

Subsequently, Bausch & Lomb began to venture into the optical glass industry and started producing the first batch of "Made in the USA" optical glass, thus entering the optical instrument industry.

In 1872, Bausch & Lomb began its foray into the field of microscopy.

It's worth noting that in that same year, the microscopes produced by the German company Zeiss had been sold in Europe for 25 years. Bausch & Lomb, as a newcomer to the world, started with difficulty, and in order to catch up with the cutting-edge technology of international advanced optical lenses, it spared no expense in its arduous research and development of optical lenses.

In 1880, Dr. John's son visited the Zeiss company in Germany. After carefully examining the Zeiss microscopes and discovering the pinnacle of technology in eliminating chromatic aberration, spherical aberration, coma, and other specific defects in the objectives, he decided to immediately submit to the Zeiss company and obtain authorization from the German company to design and manufacture Zeiss's patented lenses in the United States.

Thus, the relationship between German company Zeiss and Bausch & Lomb became very close.

Currently, Bausch & Lomb is a multi-field company spanning eyeglasses, microscopes, and camera optical lenses, and is the absolute leader in its respective optical sub-sector.

These companies are not publicly listed companies, and they dominate niche industries, so they keep a low profile.

However, industry insiders are very wary of Bausch & Lomb's formidable influence.

A hundred years from now, these companies will have a special name: "hidden champions".

Turning glass into eyeglasses and lenses is an extremely lucrative industry, but it has very high technological barriers. With companies like Bausch & Lomb existing, other American optics companies face significant challenges in production.

The report indicates that the company has significant long-term growth potential.

According to Rochester's financial industry intelligence, the company is secretly developing military-grade monoculars and binoculars. There are also reports that Dr. Edward himself is contacting the great inventor Thomas Edison to jointly improve the optical system he produced called a "movie camera" so that it can become a new machine called a "movie projector".

Larry's lips twitched when he saw this, thinking to himself, "I don't want to do so many big things this year either!"

But time waits for no one!

These days, technology is advancing rapidly. If Bausch & Lomb were allowed to secure military orders or enter the military industry, the funds required to acquire Bausch & Lomb would be at least an order of magnitude higher.

Another important part of the report is the analysis of the company's assets and profitability.

Larry glanced at this part of the report, then looked up at Henry Goldman and said something meaningful.

"Well done!"

Henry Goldman nodded with a smile, not without a hint of pride, and said, "We're Goldman Sachs!"

Larry smiled and looked down to continue reading the report.

The reason Larry looked up to praise Henry Goldman was because Larry realized that the other man had fully understood his underlying meaning.

Goldman Sachs conducted an in-depth investigation, listing Bausch & Lomb's book assets on the one hand, and thoughtfully listing the hidden value of Bausch & Lomb's tangible and intangible assets on the other.

Specifically:

The land and factory buildings, located in Rochester's old town, are valued at $15, but Goldman Sachs believes that was the value during the last corporate consolidation.

The company's value now extends far beyond this, thanks to the high-quality underground water source, a crucial resource for optical manufacturing, demonstrating the founder's exceptional foresight. However, the current land price fails to reflect the true value of this premium spring.

Goldman Sachs estimates it is now worth at least $35.

In addition, the book value of the machinery and equipment is $12, which is calculated based on the depreciation of the machinery purchased that year.

However, after verifying the equivalent equipment purchased by Bausch & Lomb from the German precision manufacturer Zeiss, Goldman Sachs found that this equipment only requires a few replacements to produce high-precision military lenses, with extremely high replacement costs and proprietary technology added value.

Goldman Sachs valued the company at $28.

In addition, Goldman Sachs also analyzed inventory, raw materials, and accounts receivable, and concluded that there was not much hidden value in these areas.

But the harsh reality followed. Currently, Bausch & Lomb's book value does not include its expertise and core technologies, brand and goodwill, distribution network and key customers, because many small businesses do not consider these as assets.

But Goldman Sachs was fully inspired by Larry, and refined the relevant intangible assets and quantified them using comparable parity, which led to some amazing discoveries.

For example, regarding patents, Goldman Sachs discovered that Bausch & Lomb possesses numerous core optical patents, some of which are long-term patents purchased from Zeiss. These patents not only constitute a strong technological patent barrier but can also generate huge profits through licensing, making them the company's most valuable assets.

Goldman Sachs' assessment for this item alone was $120 million.

Furthermore, Goldman Sachs found that the Bausch & Lomb brand enjoys an extremely high reputation in the professional field, resulting in a brand premium that allows it to command a 30% higher price compared to similar products. This trust can directly translate into market share and pricing power.

Goldman Sachs assessed the premium for this portion at $45.

In addition, there are channels and distributors. Goldman Sachs found that these are all long-term exclusive agency agreements. These are barriers that new competitors cannot quickly establish and have enormous value.

The book value of this item is still zero, but Goldman Sachs values ​​it at least $15.

Bausch & Lomb's greatest potential value lies in their upcoming military project. With the U.S. military currently expanding, once the company secures orders for its military lenses, it will be able to rapidly improve its asset quality, net assets, profit margins, orders, and liquidity.

Of course, Goldman Sachs didn't take the so-called "movie projector" project seriously, but Larry knew that the revenue from it would be no less than that from military orders in the future.

Furthermore, Goldman Sachs, with its keen insight, revealed Bausch & Lomb's most overlooked potential value: Bausch & Lomb boasts a team of top-tier, and globally renowned, experienced optical technicians and engineers. Their skills cannot be quickly replicated, but they are the core of maintaining product quality and innovation.

The value of this "living asset" is not reflected on the books, but its true value is almost astronomical.

Goldman Sachs estimated the value of these personnel alone at $25.

Larry thought about it and concluded that Goldman Sachs hadn't overestimated these values. According to Mr. Porter's intelligence about De Beers opening a jewelry retail store in the US, Cecil Rhodes had already invested hundreds of thousands of pounds just in recruiting European jewelry artisans.

If they were to be kept in the United States, the resettlement expenses would be another huge expenditure.

Sometimes, starting a business from scratch and wanting to directly establish a high-standard, mature business model is easier said than done!

New entrants have to pay a huge price just to poach talent.

In summary, Goldman Sachs concluded that Bausch & Lomb's apparent value was around $120 million, but according to Goldman Sachs' estimates, the company's total value should be close to $298 million.

Larry's heart pounded when he saw this conclusion.

Company valuation in this era was very rudimentary, focusing only on the apparent assets. People generally did not realize the true extent of a company's intangible assets.

But Larry knew, and he knew not only that, but also the potential value of projects such as military lenses and cinematic optical machinery.

In addition, Eastman also discovered a potential business opportunity—of course, it was Eastman who considered it "potential," but Larry had long known its value.

Eastman has an eye condition; his eyes tear up constantly if he looks directly at a light source.

In the past, he could only silently endure it or drink various painful medicines.

However, on one occasion when Eastman went to Bausch & Lomb to purchase supplies, Bausch & Lomb provided him with the light-colored glasses he is currently wearing, which greatly alleviated his photophobia.

Eastman felt that this was actually a latent demand, because many people would need these light-colored glasses.

But Larry knew that this potential demand was not only huge, but would also become a globally popular invention: sunglasses.

……

Larry pondered for a long time after reading the report.

After a while, Larry realized what was happening, turned to look at Henry Goldman, and nodded seriously.

Then, Larry took $500 out of his wallet and handed it to him.

Henry Goldman smiled and carefully accepted the $500, thanking Larry.

Larry waved his hand and said solemnly,

"We need to sign another business consulting contract, this time for $1000, and it must include a confidentiality clause."

Henry Goldman was initially startled, then a look of delight appeared on his face, and he quickly asked,

"Who else should we investigate?"

Larry pointed to the report and said, "It's the same one, Bausch & Lomb! This time I want you to go through every single standard you see, down to the most detailed standards. And yes, you can hire accountants and asset appraisers. In short, I need a report that's as detailed as ironclad evidence, the kind that would be considered politically sound even by the Supreme Court. I need it!"

Henry Goldman was a little doubtful, but he still solemnly agreed.

"Furthermore, I have a few more terms to add!" Larry's expression remained grave as he looked directly into Henry Goldman's eyes and continued.

"Don't pander to my preferences and disregard the facts! You can't exaggerate Bausch & Lomb's assets just because I think they have various intangible assets. My subjective judgment is irrelevant; I'm going to use your detailed asset assessment report to do something important. If you distort the facts to please me, you'll have to compensate me tenfold. Understand?"

Henry Goldman's expression also turned serious, and he nodded, saying, "I understand. Everything should be based on the facts!"

Larry nodded slowly, then fell into deep thought again. Without realizing it, he looked out the window and saw a flock of passenger pigeons, which had become very rare at this time, flying over one after another to a place further north.

(End of this chapter)