Burn Rate Page 11

  He was standing.

  “Fine,” Hayden said. “Okay. So the agenda will be your conversation with Lehman, and then I would like to see if we can start to structure something. Can we do that?” He was trying to take back a little ground.

  “Sure.” Machinist spread his arms. “Do you want to have lawyers present? Great. Let’s move this along. Absolutely.” He was moving.

  Still, it took us an hour or more to get out of there. Hayden kept trying to hold on, to be left with something firmer than a video conference opportunity. I felt, I think, what he felt. We’d entered into a flux state. We were agreeing but we weren’t deciding, sort of. I was hopeful, of course, that Machinist had a whole different level of insight here, that when it came to the art of the deal, he’d be Picasso. Hayden insisted upon driving us to the airport. Jon Rubin was heading back to San Francisco, so it was Machinist, the factotum, and me with Hayden in the Range Rover. Machinist sat up front and held the floor through the 4:00 traffic by discoursing on the history of fine motor cars.

  “I didn’t want to push it anymore,” Machinist said, as I sat between him and the factotum on the shoe shine dais at the United gate. The 6:00 flight had been delayed, of course.

  “They’re right there,” Machinist purred. “They’re ready to fall. Time is absolutely on our side. They’re starting to panic. They can’t hold out.”

  “How do you know?”

  “How do I know?” He chuckled.

  Then he said, coldly, “We’re not merging with them anymore, we’re taking them over.”

  The plane did not get off for several hours, so we rode east into the late night and early hours of tomorrow. I’d managed to negotiate an upgrade to a seat with Machinist and the factotum in the front of the plane.

  “I’m going to make you a hundred million dollars.” Machinist did not say this humorously. There was not much that was as serious as one hundred million dollars after all. “If I do this deal for you, I want you to do something for me.”

  “Sure,” I said, with some feeling.

  “I want you to give a building to the college.” It was always a small shock to remember we had gone to college together. Machinist was now a member of the board of trustees. “I’m serious. Talk it over with Alison. But it will be something that you can do. We can call it the Wolff Center for New Media.”

  It’s interesting how seamlessly you can move from being an ordinary middle-class working person to being a person with Medici levels of wealth. It doesn’t feel like there’s been an error; it feels, in fact, like there’s some logic in the world. If you work hard, you will succeed. It was satisfying to find out this was true. And reassuring to learn that my feelings of generosity were real.

  “It’s really not important for me to have my name on a building,” I said.

  “You’ll see how you feel when you write the check.”

  “We’re not merging with them anymore, we’re taking them over,” I said to Alison, who woke up as I came into the bedroom sometime before dawn.

  “Who?”

  “We’re taking Magellan over.”

  “With what?”

  Almost as soon as I got into the office just after 10:30 Friday morning, Machinist was on the phone.

  “I’ve just been with the Lehman guys,” he said. “They’re buying into this. They have a hard-on for an Internet play. They haven’t had anything here. They’ve got to get something. It’s very neat to them. They’re coming in to see you after lunch. I want you to talk big picture. Content. Technology. You need to talk technology.”

  “Okay.” I was excited. “So Lehman really thinks this combined company will be worth three hundred million dollars?”

  “They’ll say anything we want them to say to get the deal. Doesn’t mean anything what they say.”

  I was caught up sharply by this. “I thought they were the—”

  “They’re just a placeholder for now. They haven’t done an Internet deal. Why would we want them? But if we have them, we’ll trade up. Or maybe we won’t. If they do the bridge, maybe we’ll go with them.”

  “What about the valuation?”

  “Don’t worry about that. There is no valuation. There’s only orchestration.”

  Given that, as I was starting to understand, there were no givens, that each building block of this deal had countervailing forces that at any time could push it out of the edifice, I was at best a passive participant.

  Still, I couldn’t keep my mouth shut. I was being taken along; others would come along behind me. Within a short time, I could start to feel the rhythms of our office change as the word spread. There were many people here, people who had put their hearts into their jobs for a few years—or a few months—after college, who were going to wake up multimillionaires.

  The Lehman guys who rushed over to our offices that afternoon, surprised me. They had rough edges. The Patricof people not only had a particular sense of dress (“Dress British, think Yiddish”—they loved to say that) but a sense of presentation. Patricof partners embodied the magic of finance. Their skills encompassed considering markets, creating businesses to fit those markets, attracting talent, providing strategic growth plans, identifying merger and acquisition targets, masterminding corporate finance strategies, and providing capital from their own funds or attracting capital from other investors.

  The Lehman guys, it seemed, just sold stock. These were two senior executives who wanted to leave one impression: “If it can be sold, we can sell it.”

  “Do you think that a three-hundred-million-dollar valuation of a combined company is realistic?”

  “No question,” said the older one, spreading his hands.

  “The Internet? Slam dunk,” said the younger.

  “Of course, you can never tell what the market is going to do,” the older added. “But assuming there isn’t a crash or technology doesn’t go down the crapper or the government doesn’t step in and regulate the shit out of the Internet, fuck yes. This is good stuff you got here. Very sexy.”

  “I’m hot,” said the younger.

  “And you’ve spent time with Magellan,” I said, “so you’re comfortable with the company?”

  “Sure. Loses a goddamn fortune,” he shook his head, not without some admiration, “but I guess all you guys do.”

  “We’re working on that,” I said with humility.

  “The market,” he shrugged, “doesn’t seem to care how much you’re losing. You have two or three quarters in which you can be pretty free and easy. After that, you’ll get gutted like a fish.”

  “Schedule-wise, what do you see as the best time to do the offer?” I asked.

  The older one looked at the younger one. The latter shrugged.

  “So ASAP,” the older said.

  “Let’s do it,” the younger added.

  In the main conference room at the Patricof offices Machinist was directing the efforts of two harried MIS types toward getting the video conference unit up and ready to send and receive for our 5:00 video conference. This was fun for him, you could tell. This held the meaning of life, such a gadget.

  “The Lehman guys,” I said, “seemed really enthusiastic.”

  “They’re idiots,” Machinist said, getting behind one of the monitors to make an adjustment.

  “Can they do it? Can they really do this offering?” I asked, slightly concerned for a second.

  “They can do it. Today, anybody can do it. Tomorrow?” He shrugged. “Let’s not think about tomorrow.”

  An empty conference room in the Patricof offices in Palo Alto, California, popped into view. It looked to be in a C-Span sort of limbo; it was pre-air time, but through the awkwardness of modern technology we were seeing it anyway.

  The room in Palo Alto was coming in on one large sixty-four-inch monitor; on the side-by-side matching monitor we, in this room, popped into view.

  “How weird,” I said.

  “God, I love this,” Machinist said.

  Our lawyer arri
ved.

  Alison was out of town, so she had sent in a colleague who, I think she hoped, could balance Machinist’s fervor.

  I was having more and more trouble reconciling the different world-views of my lawyer (and wife) and my banker. Alison had a rationalist’s need to see the world with greater and greater degrees of specificity. There were Newtonian laws that she insisted on applying to most business analyses. Machinist, on the other, was more priest-like, or even shamanlike. He was all-knowing, all-controlling. He envisioned the larger picture, from whence details would flow, rather than the other way around. Indeed, he had never met a detail or encountered a number that could not be “massaged.”

  Gentlemanly, scholarly almost, Alison’s colleague was a type of pre-1980s lawyer in New York; that is, a more remote figure, one who was objective and above the deal, a disinterested advisor rather than a hungry participant.

  “I hope I can be of some assistance. Alison has filled me in on some of the details. I’ve read the draft of the S-1. Very promising,” he said, and sat down to look quizzically at himself on the big video monitor. “Do we have a specific agenda for this . . . meeting?” he asked Machinist. “Or is it still exploratory?”

  “This deal is happening,” Machinist said. “We want to go forward with the intention to complete this merger. This meeting is just to divvy up the lawyering.”

  “I had not gotten from Alison the impression that the deal was that far along,” he said with equanimity.

  I think part of the Machinist method was to speed up when it was least expected and to slow down unaccountably just when you did have a head of steam on. It was hard to explain this to someone new.

  Soundlessly, we watched David Hayden come into the Patricof Palo Alto conference room with his lawyer.

  “David?” Machinist said to the television, which seemed no less strange than speaking to any television. “David Hayden?”

  No response.

  “David Hayden?”

  Still no response, but a moment later a sound tunnel seemed to open into the room in Palo Alto and there was murmuring and breathing and the audible displacement of small objects.

  “David Hayden? This is Bob Machinist in New York.”

  “Hello, Bob.” Clear as a bell and properly cued.

  “We see you and we hear you, David.”

  “I’m glad, Bob, we could help you amortize your equipment costs,” David Hayden said dryly. He introduced his counsel.

  I introduced ours.

  Machinist was working the joystick, which offered a number of camera angles and a zoom.

  “Both Michael and I separately met with Lehman today,” Machinist said.

  “I spoke to them,” Hayden said. “They were very enthusiastic. They were on board before, but I think this deal is much more exciting to them.”

  “Yes. I think the appropriate time to have a discussion with them regarding their participation in the bridge is when we have the companies set for the merger.”

  “I agree,” said Hayden, leaning forward slightly, as though at a congressional hearing.

  “Fine. Let’s move forward with documents and requisite due diligence as we finalize the business points. Attorneys should have an off-camera discussion about the division of the drafting responsibilities.”

  “Bob, on our side, we’d like to move this along. Can we meet on Monday? We’ll come in with our team.”

  Machinist shrugged. It was hard to read. It certainly wasn’t: Yes, definitely, let’s get it done. It was more: It’s your nickel. “We’ll be here,” he said.

  “We’ll be in on Sunday. Do we all want to get together for dinner?” So much of Hayden’s business approach seemed to be centered around large dinners.

  “All right.” Machinist, I sensed, however, was noncommittal.

  “Hello,” our lawyer said, seeming to resist the transparency of the video connection. “I’m new to this discussion, so I just want to make sure I’m looking at the materials correctly. There’s a draft of an S-1 that I’ve seen. Now there’s an additional round of financing that’s expected to close, I take it, before the S-1 is final. Am I understanding that correctly?”

  Hayden and his attorney conferred, again congressional-hearing-like.

  “Yes,” Hayden’s lawyer said.

  “I see,” our lawyer said. “It will have to close soon, then, this round?”

  Hayden seemed to hurry in saying, “Bob and Michael are up to speed on the round. We’ve spent quite a bit of time on the status of the round with them.”

  “Do I have a copy of the private placement documents?”

  “Yes, you should.”

  Our lawyer looked befuddled for a moment, and for a second I was annoyed with Alison for introducing someone into the discussions who was not up to speed.

  “I’ve only seen . . . a draft . . . I think,” he said falteringly.

  “That’s correct. There’s only a draft,” Hayden’s lawyer said, as though pleased to be understood.

  “It’s ninety percent,” Hayden said.

  “So there isn’t an offer out?” our lawyer clarified.

  “No,” Hayden’s lawyer said openly (and guilelessly, I realized).

  “These prospective investors haven’t seen documents then?” Our lawyer prodded further.

  “No,” Hayden’s lawyer said again.

  “They’re all up to date,” Hayden said. “They’ll be getting documents within a few days.”

  “Maybe another week,” the lawyer said.

  “All right,” our lawyer said, “I just wanted to understand what I’m looking at.”

  There was a complex etiquette moment when the video conference finished. How much emphasis did we put on the new mezzanine documents’ facts? Somebody, and I guessed it was logically Machinist, had overlooked a spot of softness in the melon. If Magellan’s prospective investors didn’t have documents yet, it meant that the round, in the best-case scenario, was weeks from closing and in the worst case was still in the hope-and-pray category.

  To belabor the point, or even to bring it up now, seemed like pushing Machinist’s face in it.

  I didn’t get to speak to him until the next afternoon. If he had had a moment of self-doubt, it had passed.

  But it had altered reality slightly.

  “What do you think? Did you expect this?”

  “I expect everything. They’re fucked up. It’s the Maxwells.”

  “But you think the deal is still doable?”

  “Of course it’s doable. We have to decide if we want to do it.”

  “Has that changed, our thinking?”

  “Has it?”

  “If Lehman thinks it can do an IPO for that much money—”

  “We’ll see.” He seemed distracted.

  “What about dinner tomorrow?”

  “With Hayden and the Maxwells? I don’t think so.”

  Something seemed to have just dropped in my lap.

  “I should call him,” I said.

  “You and Hayden should have dinner. Ask him what else he hasn’t told us.”

  “I don’t know where the deal is,” I said to Alison.

  “It’s the same place it’s always been. There is no deal. At least there is no deal yet.”

  “We have a rationale for why there should be a deal. Now we have to massage the various pieces.”

  “I honestly think that’s bullshit. The Maxwells have told Lehman they can put enough money in the bank to do an IPO. Then on the basis of Lehman’s interest, they’ve brought us in, figuring that Patricof will solve the mezzanine round problem. What has to be massaged is a missing seven and a half million dollars,” Alison said, firmly outlining the reality principle.

  “So you really have doubts about their prospects for the mezz round?”

  “Didn’t you listen? They have no mezz round.”

  It was hard for me to read Jon Rubin’s tone when he called me at home late on Saturday. It clearly implied a failing on someone’s part—Machi
nist or me, and certainly the Maxwells—but most of all a failure by someone other than him.

  “The Magellan CFO,” he said, “has applied for a job at First Virtual.”

  This was the other Internet company that Rubin had a big investment in.

  This sounded bad, but I was not instantly sure how bad. “What do you think that means?”

  “It means he doesn’t think there’s going to be a public offering of Magellan. Certainly, if the CFO leaves eight weeks before a planned offering, there isn’t going to be one. I’ve put a call in to him.”

  “Will he talk to you?”

  “Considering that he’s the CFO of a company I’m trying to buy and that I’ve just discovered he’s applied for a job as the CFO of a company I own, I don’t think he has much of an alternative.”

  We had a mole. My first mole.

  It made sense to me that as we pushed, the weak parts of the structure or the proposition were going to start to fray. It seemed like something to expect. This was an industry, I thought everyone understood, of weak companies. How could they be strong? They were new companies, composed of people who had worked together a very short time, without a sufficient capital base and without a dependable business model. That was the page we were on.

  I called Rubin several times the next day for an update, but he had heard nothing yet.

  I stayed by the phone.

  When he called, he was muted, dispassionate, as though there existed a mortal flaw at the heart of all business and to be a businessman, a real businessman, was to have gotten past that.

  “According to the CFO, the company is in disarray. The Maxwell sisters are in a different reality. The CFO will only stay with the company if we complete a merger and step in to control and get rid of the Maxwells.”

  Rubin, Machinist, and I got on a conference together.

  “But this doesn’t change anything,” I said. “Why should it?”

  “Well, you would be merging with a company in a management crisis, in economic free-fall, three thousand miles away.” Rubin clearly spaced each word.