[Chapter 285: More Wolves Than Meat]
After arriving at the office, Link spent some time reading the newspaper before calling a meeting with executives Michael Leeson, Mark Amin, Jon Gordon, and Lily.
Given the current rumors circulating in Hollywood, Link wanted them to ensure that the company's employees remained focused. It didn't matter whether the major studios were trying to push Guess Pictures down; what was important was to concentrate on their work, including promoting their new movies and planning for the next year. He emphasized that they should avoid any mistakes with critical projects like the upcoming participation of The Butterfly Effect in the Berlin International Film Festival.
As for the rest, he would handle it. Michael and the others nodded, understanding what was at stake.
...
During the meeting, Link received a call from Greg Davis, the chief investor at Vanguard Capital. Greg told him that because Link's valuation was too high, Vanguard had decided not to participate in the next funding round. However, if Link was willing to lower the company's valuation to below $800 million and offer up more than 50% of the shares for the financing, he was confident he could persuade the investment team to reconsider.
...
Shortly after Greg's call, Paul Zummo from J.P. Morgan also reached out, stating that J.P. Morgan would be dropping out of this round of financing as well, for reasons similar to those given by Vanguard. He explained that Link was offering too small a stake, which prevented participation from larger institutional investors, creating a distribution issue.
Without the backing of those investors, they would exert pressure through other major studios to undermine Guess Pictures' growth. Paul suggested that Link should offer a larger share for financing, which would allow more investors to come in, thus benefiting everyone involved and reducing any negative attention.
Link understood the implications of what both men were suggesting -- there were too many wolves and not enough meat to go around.
He straightened up and told them, "$1.6 billion is my bottom line; I won't lower it anymore. Offering 30% in this second round is already the maximum." Those were his limits, and they were non-negotiable.
If they were unwilling to continue financing, that was fine. Guess Pictures was doing very well and growing rapidly, so they were certainly not in need of investors.
...
"Link, think it over," Greg urged, unwilling to concede. "Guess Pictures has made a significant amount of money in the last couple of years, money that would have normally gone to the major studios, to their shareholders."
"Making decisions that upset them may provoke retaliation. As one of your investors, Vanguard doesn't want that outcome either. Those studios are powerful enough that we can't withstand their pressures. Moving forward, Guess Pictures will face more hurdles, which will lower its revenue. Conversely, accepting additional financing means gaining resources and support, speeding up our growth."
Link responded confidently, "I already offered 30%. That's a significant commitment."
"But you're asking for too high a price. No one will accept it," Greg replied.
"Greg, I fail to see your perspective. This is a company that the major studios view as a deadly rival, and Wall Street investors are clamoring to finance it. How on Earth could $1.6 billion be excessive? In fact, the market value of 1.6 billion was raised with the help of the seven major film studios. If they didn't value us so much, I wouldn't even have known it was worth that much."
"Mmm..." Greg stammered, trying to find a counterpoint, only to realize that Link had a strong argument.
Guess Pictures was aggressively targeted by the major Hollywood players, yet the interest from Wall Street underscored its value. At this moment, even those less savvy in the game must recognize the worth.
"Link, while you make valid points, have you considered the repercussions of provoking a conflict with the major studios? It would lead Guess Pictures to potential bankruptcy under that pressure."
"Is that really such a dire consequence? I have the capability to create the number one grossing production company within three years; I can establish another one from scratch as well. Do you believe that?" Link asserted with confidence.
Greg smiled weakly; it was true. He had no choice but to believe it. Guess Pictures had thrived largely due to Link's personal fortune and abilities. He was the absolute core of the company, and as long as he was in charge, the threat of bankruptcy didn't weigh heavily.
"Link, you're right, but I still hope you'll consider lowering your price to $1.2 billion. If you can accept that, I'm 80% sure I can persuade the investors."
"I initially set my asking price between $1.8 billion and $2 billion. Out of goodwill, I brought it down to $1.6 billion. That's the lowest I'll go; I won't back down any further." Link's tone was resolute as he added, "Given the current situation, we also need to prepare for potential pressure from the major studios. I will require additional funds, so we will not distribute dividends this year. We need enough capital for film production and marketing, and in order to bolster our competitiveness, we plan on acquiring a few more production and distribution companies."
"Whoa, Link, you can't do that. The company made over $1 billion this year. After leaving $400 million for production, that's enough to cover costs; there's plenty left for dividends," Greg insisted.
"You're right, but considering the current complexities in Hollywood and the pressure from the major studios, Guess Pictures is at risk for bankruptcy. We must protect against that risk by holding adequate funds," Link logically stated.
"Uh..." Greg was taken aback.
"Damn!" Greg cursed loudly into the phone, seething with frustration.
...
Dividends were a portion of a company's earnings paid to shareholders at a specified rate. Following a typical distribution process, after the box office revenue had been collected at the end of the year, the company would proportional distribute dividends to shareholders in the months following.
Last year, Guess Pictures earned around $1 billion, setting aside $400 million as costs and disbursing $600 million in dividends. With 12% of shares, Vanguard would receive over $60 million. They had only invested $60 million to acquire their stake, meaning they broke even within a year.
It was a lucrative deal, lauded as a classic investment case during Greg's tenure as Chief Investment Officer. Now, Link was declaring there would be no dividends this year, opting instead to save $1 billion to combat pressure from the major studios.
That was an outrageous sum; even top 500 companies didn't have such reserves.
Link was essentially planning to enter into a bidding war with the major studios using that kind of cash. Greg was furious enough to grind his teeth; Vanguard was not only a shareholder of Guess Pictures but also held large stakes in Disney, Warner Bros., and 20th Century Fox, ranking in the top five of various boardrooms.
With Link putting $1 billion against the major studios, it was akin to financial self-sabotage for Vanguard.
Regardless of who prevailed, Vanguard would lose. Greg was irate, wanting to chastise Link and demand he distribute dividends quickly.
But Link was the founder and majority shareholder of Guess Pictures. He had unilateral authority within the boardroom. His word determined when dividends would be distributed, and if he chose to delay distribution, any objection from other shareholders would be moot.
If Link manipulated the books and failed to pay them out, it would be hard to investigate. They often had to manage Link's feelings and reactions to retain his favor. This made them eager to gain control over the board of Guess Pictures.
If the investment companies could seize control of the board, they could assign professional managers, overseeing finances, project costs, and dividends -- all managing to secure investors' interests more effectively.
With Link still in charge, he could easily withhold dividends from shareholders while leveraging film productions to personally profit, claiming high salaries or cutting lucrative deals for his partners. These situations were beyond the investors' intervention.
Now that Link learned Vanguard wouldn't be participating in financing, he employed such tactics against them. Greg, despite his frustration, couldn't fathom Link playing with fire like this.
If Vanguard's investors reacted furiously and supported the major studios in their efforts to undermine Guess Pictures or decided to sell their shares, then that could result in the company's removal from Hollywood altogether.
Greg wanted to threaten Link with potential fallout, but then he recalled Link's confidence in confronting competition -- that even if Guess Pictures went bankrupt because of the major studios, he wouldn't mind.
It sounded like bravado, but perhaps it held truth. Link wasn't just anyone; he was a billionaire worth more than 2 billion, making blockbuster movies every year. If Guess Pictures went under, he could undoubtedly start another company immediately.
In the end, Link might lose a few hundred million while they would suffer tens of millions.
Link would be losing his own money, thus less affected. They, on the other hand, were losing their clients' money, and that had serious implications.
Taking that into consideration, Greg calmed his boiling anger and decided to reason with Link instead, expressing that he would continue to lobby internally to ensure continued support for Guess Pictures.
"Okay, Greg, let's agree on that. Once Guess Pictures emerges from this crisis, we will reward our shareholders generously," Link concluded.
...
As he hung up, Link let out a cold smile. These guys wanted everything without lifting a finger, expecting more benefits. There's no way to have it that easy; in the next funding round, he would dilute their shares.
Before long, he received another call from Paul Zummo of J.P. Morgans.
...
J.P. Morgans was a powerhouse on Wall Street, being among the top five investment companies, and it had stakes behind the major studios as well. Paul's stance was similar to Greg's, pushing Link to reduce his price and offer more shares for financing.
Link's response remained unchanged, reiterating that this year no dividends would be distributed as a precaution against the major studios.
Paul, also suppressing his frustration, assured Link that he would continue to advocate for Guess Pictures internally.
Link expressed his gratitude for his support.
...
After ending the call, Link continued the meeting, instructing Vice President Mark Amin, who was responsible for the company development plans, to look into other production companies. If any promising targets were identified, they could consider acquisitions to enhance their production and distribution capabilities.
He also arranged for someone to contact Pixar Animation Studios and Blue Sky Studios to ask them if they had any plans to sell. With Disney's animated film The Lion King grossing around $800 million globally this year, it showcased the commercial potential of animated films.
There was a chance that if those two companies were willing to collaborate, Guess Pictures could also venture into animation production.
*****
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