“Oh, it’s nothing illegal,” she hastened to explain. “One set is the real books, the other is for public consumption — the stockholders mainly.”
“That sounds illegal to me.”
She made a face. “It is and it isn’t. Let’s just say the second set of books is more — cosmetic. It looks prettier. The figures haven’t been falsified so much as they’ve been — rearranged. Like, for instance, HARLIE.”
“HARLIE?”
“Yes, HARLIE. You know and I know that he’s a research operation — but some of the Directors think his cost is too large a sum to be listed entirely under Research. Don’t look at me like that, David — I don’t make policy and I don’t know why this policy was made in the first place. Apparently they feel it wouldn’t look good to the stockholders to see that much money being plowed back into the business—”
“Elzer. Carl Elzer,” said Auberson.
“And others,” Annie conceded.
Aubie’s mind was working. “I know what it is,” he said. “They’re looters.”
“Huh?”
“You remember how they took over the company?”
“Wasn’t it some kind of stock mix-up? I remember there was a lot of talk about it, but I didn’t pay that much attention.”
“Neither did I, damnit.” He searched his memory. “I know there were a lot of hard feelings about it. I know a couple people quit; a couple others were fired. Elzer and Dome and some of the other Directors are part of a financial syndicate. They specialize in taking over companies. They loot them for their cash assets and use that money to buy other companies.” He snapped his fingers. “That’s it — they must have taken it away from the holding company.”
“You’re starting to lose me,” she said.
“I’m not sure I follow it all myself.” One thought tumbled out after another. “Look, Stellar-American Technology and Research set up four other companies to handle various aspects of hyper-state electronics. We’re one of them. Stellar-American owns 51 percent of each — but Stellar-American is owned by a holding company itself. Get control of that holding company and you’ve got five companies in your pocket — six, counting the holding.”
“But, how—”
“I can think of a couple ways. In order to exploit the hyper-state process, they probably had to go heavily into debt. Let’s say they were betting on a four percent return on their investment in order to pay back the loans; the process proves harder to develop than they thought, and expected profits don’t materialize; they lose money, they borrow more, they go deeper into debt, all the time betting that they’ll be able to make it back because the market is entering an inflationary spiral. This is all guesswork on my part, but suppose the company was pushed to the point where they’d be willing to put up shares of stock as collateral for a new loan. If Dome and Elzer made the loan — or one of their companies — they could take over the stock when the debtor found himself unable to pay back the funds. In this case, they get the holding company.”
“Yes, but David — no company is going to risk a controlling amount of its stock.”
“No,” he agreed. “But they might risk enough to cut their share of it down — that is, if they were sure the other major stockholders wouldn’t doublecross them.”
“Ugh.” She made a face. “Wait a minute — you may be right. I think only 36 percent of Stellar-American Technology ever reached the open market.”
“How do you know that?”
“It was in a report I had to process. In order to get the original rights to produce hyper-state units, they had to trade a certain number of shares to the man who owns the patents.”
“Krofft? Dr. Krofft?”
“I don’t know — if that’s his name, then he’s the one. Anyway, I know for a fact that the inventor owns something like 24 percent of Stellar-American voting stock. He’s a company all by himself — Stellar-American had to trade the stock for exclusive rights to the process.”
Auberson whistled. “That Krofft—” He began thinking out loud. “Let’s see, the holding company owns 51 percent of Stellar-American. They could take out a loan on a 24-percent piece, and figure that Krofft will stick with them so they would still control 51 percent.”
“But obviously he didn’t.”
“I wonder what Dome and Elzer promised him,” said Auberson. “He’s director of research over there—”
“Whatever he was promised,” said Annie, “it must have been something. With so much at stake, it’d have to be.”
“He’s probably securely in their pocket,” Auberson said. “But that’s it — they must have taken over the company from the inside. Dome and Elzer have been involved with Stellar-American for a long time. It must have been a matter of waiting for the right opportunity. Krofft’s share of stock, plus the over-extended condition of the holding company, probably gave it to them. I’d guess that the holding company has been left with a minority share of Stellar-American Technology and Research.”
They paused then while the waitress set out their food. As soon as she was gone, Annie said, “Okay, Dome and Elzer have got the holding company — what happens now?”
“Well, actually they’ve got five companies. They’ve got Stellar-American and the other four: Hyper-State Visual, Hyper-State Stereo, Hyper-State Modules, and Hyper-State Computer, that’s us. Each of these companies has a certain value — if you liquidate their assets and mortgage them to the hilt, you can use that money to buy another company. It happens all the time.”
“I don’t like it,” she said. “It’s ugly.”
“Oh, not necessarily. A company that lets itself get into such a position that it can be taken over is obviously in need of new management. Usually, a person who can take over an ailing company through a shrewd stock maneuver is also smart enough to know how to trim away its fat and put it back on its feet.”
“You’re not defending them, are you?”
He shook his head. “Uh uh — I think Elzer is a vampire. He doesn’t understand the difference between saving a company for future potential and milking it of its resources now. To him, exploitation is exploitation, pure and simple. Unless he’s careful, sooner or later fate will catch up with him. It’s a very slippery paper empire they’ve built, and it can collapse easily. All you need is a serious reversal. Hmm, Elzer wouldn’t be hurt by it in his own pocketbook — but the companies would. All he’d lose would be a little control.”
“Do you think that’s what they’re up to now — milking the company?”
“Seems like it That’s probably why they’re down on HARLIE. If he can’t make a lot of money for them very fast, then they’ll want to discontinue him. I know Elzer’s been eyeing his appropriation for some time. If they do cut HARLIE off, they can profit three different ways. One, write him off as a tax loss — oh, yes, what a beaut that would be. Two, sell his components to junk dealers — computer company jackals. And three, pocket his maintenance costs — his appropriated budget for the next three years. There are other ways to milk a company too — skip a few dividend payments to the stockholders and funnel the money into your own pocket.”
“How would you do that?”
“Vote yourself a raise; pay yourself for special services; invest it in a company that you own 100 percent of, or lend it to that company.” He shrugged. “Let that company declare the dividends. You collect it all.”
She frowned. “Is there any way we could prove this?”
“You’re in a better position than I am to do that.”
She shook her head. “They’re awfully secretive. I haven’t seen any evidence of anything.”
“Then they’re probably not trying it — yet.” Auberson toyed with his food. “Anyway, it seems to me that it’s mostly Elzer we have to worry about. As far as I can tell, Dome is seriously interested in running this company. Elzer’s the greedy one.”
“But they’re both in the same group of looters.”
“Um, yes and no. I think it’s a marriage of convenience. Elzer wants the money, Dome wants the company — so they work together. Apparently, Dome had the pull to accomplish his goals, but not the money — Elzer had the money, but not the position. At the moment, Dome is in control — but that could change. HARLIE’s continued existence depends on Dome’s good will. If he gets pressured too heavily by the rest — pffft! — he may have to throw them HARLIE in order to protect himself. That’s probably why he’s let us continue this long — so he’ll have a bone to throw them if he needs one.”