Simon was having a quiet conversation with Bryce Levison when a slightly hoarse, elderly voice called out, "Hey, Simon."
Turning his head, he saw Warren Buffett.
As part of the top tier of society, this wasn't Simon's first encounter with Buffett. They had met at several social events before, though they weren't particularly close.
Tonight's meeting wasn't planned.
Simon knew Buffett would attend and had intended to orchestrate a casual encounter. Both men were well aware of each other's intentions; otherwise, a 65-year-old Buffett wouldn't have gone through the trouble of securing an invitation to a fashion-related party.
Historically, Buffett had agreed to sell the Metropolis ABC Group to Disney in 1995, foreseeing the increasing impact of cable TV and the internet on traditional public television networks. His decision to cash out at a high point proved largely correct.
After the turn of the century, even with FOX, the major U.S. public television networks experienced a steady decline. The once-common 20 to 30 million viewers per program became rare after the millennium. While still profitable, the networks became subsidiaries to larger media conglomerates, overshadowed by the rise of cable TV and the internet.
Buffett's timing seemed slightly early, but it aligned with his conservative investment philosophy of not chasing the last dollar. This prudent approach helped him avoid significant losses, as seen when he divested from mortgage-related stocks before the subprime crisis.
Simon smiled and stood up to shake Buffett's hand, casually introducing Bryce. After exchanging greetings, Simon whispered something in Bryce's ear, and despite her slight reluctance, she left, allowing Simon and Buffett to sit together.
Buffett watched the alluring Bryce walk away and joked with Simon, "I envy you young people."
Simon smiled back, "Warren, you're not old at all."
In fact, Buffett was living in a rather "two-wives" situation.
He had been separated from his first wife since the 1970s, though they never divorced and continued to appear together at public events. At the same time, Buffett had been living with another partner, essentially as husband and wife. It was rumored that the trio had a good relationship, with Buffett even signing holiday cards with all three names. The media often teased him about having two wives.
However, in wealthy circles, Buffett's situation wasn't particularly noteworthy.
When one reaches the pinnacle of society, they often find that reality far surpasses their wildest fantasies.
Apart from being notoriously frugal, Buffett was much like any other super-wealthy individual, frequently attending elite social gatherings.
Of course, charity events that required donations were an exception.
After some polite compliments about the party, Buffett quickly shifted the topic to Egret, bombarding Simon with questions about the company's various issues. Despite being 65, Buffett's memory and sharpness remained intact, and he seemed to have Egret's financial data memorized.
It was clear Buffett was puzzled and skeptical about Egret's rapid financial rise.
Historically, despite the booming internet wave, Buffett had steadfastly avoided new tech industries he didn't understand. This even led to an incident at a Berkshire Hathaway shareholder meeting where someone threw an egg at him, accusing him of missing the best investment opportunities.
Now, the conservative Buffett still didn't fully grasp the internet. "So, Amazon's online mall is the biggest loss-making part of the business. Simon, have you considered spinning it off or reducing the investment? Egret could grow much more steadily that way, and its stock price post-IPO would definitely see more potential for growth."
Simon realized that Buffett was interested in Egret's upcoming IPO.
This wasn't surprising.
Buffett was always on the lookout for businesses with a "moat." Right now, Egret, with its advertising and software businesses, was essentially a fortress with deep moats, with no real competition in the industry.
However, for someone as focused on profitability as Buffett, Egret's major flaw was its aggressive investments, resulting in what he saw as unnecessary losses. If these "burdens" were removed, Egret would immediately become Buffett's ideal investment target: high growth, high profitability, and formidable barriers to entry.
Of course, Simon wasn't going to restructure the company just to cater to Buffett's preferences. He shook his head. "Warren, e-commerce is an indispensable part of Egret's ecosystem. While this segment may seem unprofitable, it significantly enhances the variety of internet services, increasing user stickiness. Overall, it's about market cultivation. Everything Egret is doing is designed to help people realize the rich services available online, which will lead to direct or indirect spending in the future."
Buffett nodded, then shook his head again. "But Simon, there's no shortage of capital in the internet space. I believe Egret could focus more. You know, companies that over-diversify often don't fare well."
Simon responded, "I understand, and Egret is already working on related adjustments. I will streamline the company when the time is right, but not yet."
Simon's "right time" referred to the aftermath of the internet bubble burst.
Even though the Westeros system had pioneered in new technology fields, the natural economic cycles of a capitalist society couldn't be stopped. The bubble would burst eventually.
When that time came, Simon planned to not only streamline the business but also trim Egret's bloated workforce. In recent years, the company had accumulated many internal issues due to its rapid expansion. Simon intended to use the bursting of the internet bubble to resolve these problems and lead Egret to a rebirth.
Buffett, of course, couldn't know Simon's plans and assumed this was just the usual excuse from a young entrepreneur. He shook his head slightly and then changed the topic. "Simon, I've noticed you're planning to acquire ABC, aren't you?"
In fact, Simon had already revealed quite a few clues.
For example, acquiring ESPN shares from the Hearst family.
The massive IPO financing last year.
And, over the past few years, deliberately allowing shows like Friends and ER to air on other networks. Simon's strategy was akin to parasitic infiltration, similar to his Hollywood partnerships. To Buffett, it was clear that Simon was deliberately holding back ABC's growth to depress its stock price ahead of a takeover—part of the truth, indeed.
Given this, Simon didn't bother with pretenses and nodded. "Yes, now that media consolidation bans have been lifted, further consolidation in this sector to adapt to global competition is inevitable. Metropolis ABC is my top priority, though not my only option. Warren, if you're interested, we can talk about the price right now."
Berkshire Hathaway held 25% of Metropolis ABC, giving Buffett more influence than CEO Tom Murphy. If Buffett agreed, the deal would essentially be done.
Buffett didn't respond immediately, instead complaining, "Simon, Danelys' stock price is just too high right now."
Simon simply smiled and shrugged.
He recalled the terms of Disney's historical acquisition of Metropolis ABC, a mix of half stock and half cash. It was clear that Buffett was thinking along the same lines this time. However, with Danelys Entertainment's stock price now sky-high, Buffett was reluctant to accept an all-stock or part-stock deal, fearing it would disadvantage ABC.
Simon didn't feel pressured by this. Danelys' market value was much higher, now exceeding $130 billion. According to Danelys Entertainment's first-quarter financial report for 1995, released in February, its P/E ratio had reached an astronomical 120x, which Buffett could never accept.
In contrast, Metropolis ABC's P/E ratio was only 37x.
Seeing Simon's silent smile, Buffett frowned slightly before asking, "Simon, do you think Danelys' stock still has room to grow?"
Simon shook his head. "Warren, who can say for sure? But I have full confidence in Danelys. Many say the company's growth has hit a ceiling, but if they look at the February financial report, they'll see that our quarterly revenue grew by 39%. I believe this growth will continue for a long time."
Buffett frowned in thought for a moment, then seemed to make a decision. "Simon, I can sell Metropolis ABC to you, but my shareholders need to benefit too. I'd like a payment mix of cash and convertible bonds—half cash, half convertible bonds based on the current stock price, with a 10-year term and an 8% annual interest rate."
Every investor has their own style.
Buffett's preferred method of acquiring companies often involved a mix of cash and stock or bonds. Cash provided immediate security, while stocks or bonds allowed him to defer capital gains taxes and maximize future profits.
Simon immediately rejected the offer. "Warren, if that's what you insist on, there's no need for us to continue talking."
Danelys Entertainment's IPO was intended precisely for this acquisition of a public television network. Including the IPO proceeds and subsequent profits, Danelys now had more than $7 billion in cash reserves. If this cash wasn't spent, it would depreciate due to inflation, which would be particularly damaging for a company with such a large amount.
For Danelys, an all-cash acquisition was the most favorable option, even with its high stock price.
Buffett wanted both cash and a guaranteed high-interest bond that could be converted into Danelys stock at a favorable rate in the future. He had enjoyed such favorable terms in many deals before, but those were only when companies were in dire straits and had no choice.
Danelys was flourishing, and if Simon agreed to such an unequal deal, he'd be harshly criticized by other shareholders.
Still, Simon didn't want to completely shut down the negotiations. He softened his tone slightly. "Warren, I won't accept a deal with unequal terms. You have a duty to your shareholders, and I have a duty
to mine. So, it's either all cash or all stock, or a mix of cash and stock, but without any extra clauses. Otherwise, I'll have to explore partnerships with the other two networks. And frankly, in Hollywood, Danelys Entertainment is the only company capable of acquiring all three major networks. With the rise of cable TV and the internet, public TV is in decline. The longer you wait to sell, or if you sell to another company later, the price will only drop further. Holding onto it will lead to even faster value depreciation, much like what's happening to print media right now."
Buffett's expression didn't change as he listened. He said, "Simon, if that's what you believe, why are you acquiring a TV network?"
Simon replied, "An independent TV network may struggle to grow, but for a large media conglomerate, it's an essential component. It provides marketing and distribution channels for Danelys' other businesses. I'm sure you understand that."
Buffett lightly shook his head again, not refuting Simon's point but muttering, "Danelys' stock price really is too high."
The old man clearly wanted stock but couldn't stomach Danelys' P/E ratio of 120x.
Simon smiled. "Then opt for all cash, Warren. You've probably heard that capital gains tax will be adjusted soon. With the upcoming 15% capital gains tax rate, your return on Metropolis ABC will still be excellent."
Even if they struck a deal now, a $20 billion transaction would take at least three to five months to complete.
According to Simon's information, the capital gains tax reform bill was expected to pass by May. At that point, Berkshire Hathaway, having held Metropolis ABC stock for many years, could enjoy the most favorable capital gains tax rate.
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