The First Billion Page 8

  Sam Tannenbaum was Black Jet’s in-house counsel, Meg Kratzer its head of investment banking.

  “Aye, aye,” said Tustin, saluting, then turning on a heel and hustling out of the room.

  “Stupid git,” laughed Llewellyn-Davies, a bit of color returning to his cheeks. “Doesn’t even know you’re Air Force.”

  Gavallan laughed too. “You want a coffee? Something to eat while we wait?”

  “No thanks. I’m fine as is.”

  “Sure? I’m thinking of a breakfast burrito. Sausage and egg. Maybe a soda. Didn’t teach you to eat like that at Eton, did they?”

  “Stone the crows, no. A burrito would probably send me to the heavens.” Llewellyn-Davies coughed once, violently. “Pardon,” he said, raising a hankie to his mouth.

  “You okay, Tony?” Gavallan asked, concerned.

  “I’m alive, Jett. That’s good enough for me.”

  “If you need anything . . .”

  “Yes, I know. Ask.” Llewellyn-Davies knitted his brow inquisitively. “Not looking for another ticket to the ball tonight, are you? Hoping I might opt out?”

  “No,” said Gavallan abashedly. “No, no, no.”

  “Good, because I have every intention of attending. I can’t wait to see you mount the dais and make a bloody fool of yourself. You have to pay good money for that kind of entertainment.”

  “You bastard!” said Gavallan, laughing in earnest for the first time that morning and clapping his friend and colleague on the back. Sometimes it was hard to hide his admiration for Llewellyn-Davies. It had to be damned tough living your life on a leash, he thought, relying on ten different combinations of six different pills—“cocktails,” they were called—to be taken six times a day. He remembered the frail, sallow man who’d showed up for the interview seven years earlier, the thousand-yard stare, the unflinching honesty.

  “I’m sick,” Llewellyn-Davies had said. “You can see that. But I can work. Have to, actually. Can’t go out leaving debts behind me. What would my dad say? An accountant, don’t you know?”

  His resume read like gold. Oxford, Harvard, a year at a bulge bracket firm before being fired for excessive absences. Gavallan had made some calls beforehand. Smart as a whip, came the unanimous response. Polite. Great sense of humor. Clients love him. But, come on, the coughing, the sweating, all those doctor’s appointments. How long’s he got, anyway? Six months? A year? Who wants to sit next to a fuckin’ cadaver all day long? Besides, you never know. Shit may be contagious that way, too.

  “The job’s for a trader on our Swiss franc book,” Gavallan had said. “Pays fifty thousand a year plus a fifteen percent bonus if you don’t lose us too much money. If you have to miss work, get someone to cover for you. If you can’t find someone to cover for you, call me. Understood?”

  Llewellyn-Davies had nodded, his jaw clenched, eyes welling. “Monday is it, then?” he’d asked, wiping his cheek with the back of his hand.

  “You kidding?” Gavallan had exclaimed, standing and walking to the door. “You’re starting now. Take off that necktie and come with me.”

  Gavallan looked at Llewellyn-Davies now, wondering if maybe he was remembering the same moment. Seven years later, Tony wasn’t simply alive but a vital component of Black Jet Securities and one of Gavallan’s most trusted lieutenants. For a few more seconds, neither man spoke, and the silence that invaded the room was soft and comforting.

  “Jett, do you think it might be true?” Llewellyn-Davies asked finally, in his mildest brogue. “You think Kirov’s having us on, then?”

  “Is it true?” For once, Gavallan didn’t have an answer. Shrugging, he was unable even to mouth the requisite denials. The answers, he knew, lay elsewhere. In the past. In his judgment. In his greed.

  And instead of looking at the delicate features of Antony Llewellyn-Davies, he was meeting the brooding, religious gaze of Konstantin Romanovich Kirov the night they had first met six months before.

  8

  You are Mr. Gavallan, I think.”

  “Mr. Kirov. It’s an honor.”

  The two were standing in a plush reception hall on the campus of Stanford University. Kirov had been invited to deliver the annual Grousbeck lecture on foreign affairs. As his subject, he had chosen the current state of the Russian legal system, and his performance had been impressive, an impassioned sixty-minute discourse hitting all the buzzwords a liberal California audience was dying to hear. The need for an independent judiciary, ratification of the nation’s highest judges by a legislative authority, freedom of the press, the right to free speech. It was the Federalist Papers dressed up in an Italian blazer, Cartier links, and Lobb shoes, and topped off with an irresistibly cosmopolitan Russian accent. Kirov was still glowing from the standing ovation he’d received.

  “Such a joy to speak to an American audience,” he said, patting his brow with a folded handkerchief. “If only my countrymen understood the importance of democratic institutions as well as yours. I must always remind myself that you have two hundred years’ experience to put your ideas into practice. Russia has a thousand years of an altogether different experience: oppression, tyranny, poverty. In short, the boot.” He balled his hands into fists and stamped his foot dramatically on the wooden floor, but his optimistic grin promised Gavallan and the circle of devotees around him that if Konstantin Kirov had anything to say about it, “the boot” would soon be a thing of the past.

  “Shall we find someplace private to speak?” Kirov asked Gavallan, and grasping him amicably by the arm, led him from the crowded reception room into a quiet hallway outside. “There, that is better. Now we can talk. Man to man.”

  Kirov was a slim, compact man with narrow shoulders and an economical step. Leaving the reception area, Gavallan remarked upon the strict posture and bowed head, the carriage of the arms tucked close to his body, and rushed ahead to open the door, as if ushering a clergyman or someone whose life conveyed a sanctity of purpose greater than the never-ending quest for the almighty dollar. This higher calling was also visible in Kirov’s face. It was grave and focused, the skin so pale as to be translucent, the eyes dark, deep-set, and menacing as a witches’ hollow. His hair was a raven’s black. Cropped close to the skull, it accentuated the sharp cheekbones and drawn jowls. But there was fun in him, too. His mouth was puckish, as if ready to smile given the slightest reason. His eyes could surprise you with their playfulness. And he had a fine, boisterous laugh, louder than one would expect from such a small man. Mostly, though, what Gavallan sensed about the man was a monastic self-control, a zealot’s singularity of purpose.

  “I’ve heard much about you, Mr. Gavallan,” Kirov went on. “Believe me when I say the honor is all mine. Thank you for making the trip to see me. Since you have come, I take it you are familiar with my company, Mercury Broadband?”

  “Naturally,” said Gavallan, aware he was being patronized. He sure as hell hadn’t driven to Palo Alto to brush up on the principles of American democracy. “You’ve built an exciting platform for the industry. We’re all very impressed.”

  The mandate to take Mercury public was the hottest ticket on the street. All the big boys wanted in. Credit Suisse, Morgan, Goldman. Gavallan considered it a miracle in itself he’d been able to secure an hour of face time with the Russian tycoon.

  “Yes, it is time we offer shares in Mercury to the investing public,” said Kirov. “Time to show the world Russia is no longer a second-class country. That Russia is not a land of criminals, for criminals, and by criminals. That rights of ownership, once documented, are respected by rule of law.”

  “I couldn’t agree more,” said Gavallan, liking the man: the muted confidence, the palpable determination. Of course, if Mercury Broadband had been solely a Russian company, as Kirov was implying, Gavallan wouldn’t have touched it with a ten-foot pole. But with operations in Switzerland, the Czech Republic, and Germany—and even an R&D facility literally just up the road in Palo Alto—Mercury Broadband deserved to be called a mult
inational, and multinationals were exactly the kind of client Gavallan was looking for. “The timing is ideal. The market’s hungry for a first-class international operation like Mercury. I’m confident an offering would be greeted favorably.”

  “I am of the same opinion,” said Kirov.

  “Mercury’s revenues have demonstrated a pattern of consistent growth. You have a solid record of earnings and a sustainable business model. We’ve taken a close look at the financial statements you so kindly provided, and my colleagues and I believe an offering in the neighborhood of five hundred million dollars is realistic.”

  “Five hundred million?” Kirov pursed his lips, his expression puckered with uncertainty.

  “For ten percent of the company,” Gavallan hastened to explain. “We’ll go out with fifty million shares priced at ten bucks per, then float another ten percent in a year when the market sees what a great job you’re doing and values the company accordingly. We don’t want to sell Mercury short before you realize your true worth.”

  Normally, if a company met its revenue forecasts, it could count on floating additional shares within twelve to twenty-four months at a price significantly superior to the original offering. It was important, therefore, that the client not give away too much of itself at a less than maximal price.

  “So you believe Mercury deserves a valuation of five billion dollars?”

  “No,” said Gavallan. “I’d say ten or fifteen billion, but we’ll need time to work the market up to that level.” It was crucial he offer Kirov a mildly inflated but marginally realistic value for his company. There were others out there chomping at the bit to get the deal, and he could only guess at how high they had valued Mercury Broadband.

  The process of winning the mandate for an IPO was called a “bakeoff” or a “beauty contest,” and like all mating rituals it had its own strict rules. Bankers strolled down the runway in their scantiest togs, planted themselves suggestively in the prospective client’s lap, and immodestly drew attention to their most lubricious assets—namely, where they ranked in the league tables, the number of IPOs their firm had done in a similar space, and the performance of those stocks six, twelve, and twenty-four months after the offerings.

  Next, they turned their attention to the client, whispering tantalizing nothings in his ear about the true market value of the company in play, boasting about the size of the offering—bigger was always better—and giggling, with eager eyes about how diligently they would support the stock. Yessir, we’ll keep the price up, up, up. After a drink or two, it was time for the bankers to drop their negligees and show some skin, letting slip that their analyst, invariably an Institutional Investor “first teamer,” would start the party off with a bang by issuing a “strong buy” on the stock.

  If the client was not yet sufficiently aroused, the banker would trot in the big guns, often the bank’s CEO himself, to drive home the firm’s overwhelming desire to win the business. With a wantonness that would make even the most jaded harlot blush, the CEO would run his hand through the client’s hair, drown him in butterfly kisses, and promise his firmest, longest-lasting, and deepest professional and personal commitment to the stock.

  In short, it was a diamond-crusted striptease, and the bank with the nicest tits won.

  “I was thinking more in the neighborhood of two billion,” Kirov suggested. “We have ambitious plans to expand. When you learn of the full scope of operations, you will be convinced.”

  “I don’t doubt it,” conceded Gavallan, not wanting to lose the business before he had it. “Two billion is doable, provided you’re willing to part with the extra chunk of your company. I wouldn’t advise that at such an early stage.”

  “Two billion,” Kirov repeated, his resolve to be found in the firm set of his jaw, the narrowing of his eyes. “We must have two billion. Now is the time for us to expand. We must strike while the iron is heated.”

  “Two billion it is. It’s big for Nasdaq, but why not.”

  “I’m afraid that Nasdaq is out of the question,” said Kirov, his voice hardly a whisper.

  “Oh?” asked Gavallan, knowing that this was how the Russian showed his anger, not with bluster but with discipline, the fist clenching tighter.

  “Nasdaq is for new, unproven companies. We are established. We are profitable. A market leader in the East. Perhaps you are not as conversant about our company as you should be. It comes down to a question of face. We, Russians, have a terrible inferiority complex. Several of our nation’s larger corporations are already trading on the New York Stock Exchange. We must list Mercury alongside them. It is the New York Stock Exchange or nothing.”

  Gavallan made the appropriate soothing noises, ego gratification being perhaps the most important job of a chief executive. He’d bring up the listing requirements at a later date—if there was a later date. After a promising start, the meeting had embarked on a series of wrong turns. The first order of business was to change the atmosphere. A long, drafty hallway was hardly the place for this conversation.

  Gavallan suggested they continue their discussion in the provost’s lounge, where they might sit and have a cup of coffee. He had attended business school at Stanford and knew the provost’s lounge as the spot where the university president wined and dined the school’s more important benefactors. Apparently there was something about oversized club chairs and oil portraits of long-dead scholars that made people free with their checkbooks.

  Inside the lounge, the two men sat down, agreeing almost immediately that the chairs were wonderfully comfortable. Settling himself in, Kirov delved into his pocket for a sterling-silver cigarette case. “Sobranie?” Opening it, he offered the case to Gavallan. The cigarettes were long and black, the two-headed Russian eagle stamped boldly above a shiny gold filter. One head faced east, the other west. In Russia, danger had always come from within and without.

  “No thank you,” said Gavallan. “I don’t smoke.”

  “I know, I know,” pleaded Kirov, as he slipped one into his mouth and lit it with a matching silver lighter. “But a man should be allowed one vice.” The brows jumped excitedly under the curtain of blue smoke. “After all, we are not saints!”

  Kirov drew thoughtfully on the cigarette, inhaling for what seemed an eternity before expelling the smoke in neat flutes through his nose. “I have spoken with a few of your competitors these last days,” he said offhandedly. “As you can imagine, a good many are anxious to work with us. Please don’t think me rude, but I was hoping you might be able to tell me why I should consider someone outside of New York. Someone so much smaller.”

  Gavallan made it a point never to discuss his competitors—comparisons conveyed weakness and insecurity. “True, we’re a smaller company,” he said, launching into a pitch he’d given a thousand times, “but we think our size is one of our advantages. We choose our clients with great care and we like to think they exercise the same scrutiny in choosing us. Our record in the Internet sector is second to none. Of the forty-two companies we’ve taken public in the last four years, more than fifty percent are trading at significant multiples of their offering price. Not one has gone belly-up. We’re selective with whom we work, Mr. Kirov. Black Jet’s name on a prospectus has come to indicate a certain quality. We’re deeply committed to the companies we offer our investors. The clients for whom we do choose to work receive the complete and dedicated resources of our company.”

  “So you choose your clients?”

  “I prefer to think that we choose each other. Hopefully, bringing Mercury public will be the first step in a long relationship between our two groups.”

  “So you wish to work with Mercury? You are sure?” Kirov’s amused tone indicated he hadn’t heard this approach before and just might be buying into it.

  “It would be a privilege. And I think I can promise that in the current environment, Black Jet could insure that a Mercury offering would be a home run.”

  Kirov nodded approvingly. If nothing else, he lo
oked to be enjoying the courtship. He questioned Gavallan about Black Jet’s ability to manage so large an offering, its relative inexperience in working with international companies, and its commitment to supporting the stock once it began trading. He asked about Black Jet’s analyst, inquiring whether he was on Institutional Investor’s first team (he was, at a salary of four million a year!), and was curious to know if the larger funds would be buyers of the stock, meaning if they would look to build a long-term position in Mercury.

  In short, he asked all the right questions. Either he’d been briefed by his chief financial officer or he’d already sat through a dozen of these pitches.

  Gavallan addressed each of Kirov’s concerns in turn. Knowing he was at a disadvantage to the bulge bracket firms, which could commit a sales force double the size of his own to the IPO and promise a hundred-million-dollar kitty to keep the float active, the stock price above water, he concentrated on Black Jet’s strengths: its topflight research team; its position at the vanguard of the new economy; its close ties to the nation’s largest mutual funds. In the end, though, it came down to personality. Everybody on the street was offering the same services, more or less. It was a question of whether Kirov liked Miss August or Miss November.

  At the close of Gavallan’s comments, Kirov placed his hand atop the American’s and gave it several pats. “I have received advice from people close to me—people I trust—that you are good man. That your company may soon be very big, very powerful. Like Mercury, I think.” Another pat to let him know they were on good terms. “I like you, Mr. Gavallan. You are young. You are ambitious. I sense you are honest, even if you are arrogant.” He laughed quietly. “You choosing your clients. Very good. I must remember to use that myself one day. But I must have a reason to explain to my own shareholders why I choose your company. We, Russians, like big names. BMW, Gucci, Rolex. We feel we must carry these brands with us to prove our legitimacy. Again our inferiority complex; excuse us. But if I may speak frankly, Black Jet is not yet such a big name.”