Though the market valuations of Nicholas and Cisco appeared robust, that did not guarantee high liquidity!
With Citibank and Morgan Bank declining to lend funds, Cisco's stock price remained volatile. Henry understood that if Sequoia Capital sold its 2.7% stake outright, it would result in nearly $1.4 billion in shares being dumped onto the market. Such a large sell-off would inevitably cause turbulence in Cisco's stock price, requiring even more resources to stabilize.
Should AOL collapse during this process, Cisco would be left desperately needing additional capital. It was clear that the tides were shifting against them!
Previously, Cisco had already invested heavily to counter AOL's maneuvers. In fact, the combined cash reserves of both Nicholas and Cisco had dipped below $2 billion! In the short term, funds would be quite scarce.
"You all go back to work for now. I need to think this through quietly," Henry instructed, retreating to his office.
Throughout the afternoon, Henry contemplated the implications of Citibank and Morgan Bank's sudden refusal to assist Cisco. The company had been pushed into a very passive position. Banks evidently perceived the combined market capital of Cisco and Nicholas to be inflated, especially in comparison to AOL's powerful coalition of telecommunications companies. From a self-interested perspective, the decisions made by Citibank and Morgan may have been prudent.
Henry came to terms with the brutality of the capital world.
It became increasingly clear that fortunes could change in an instant, leaving business dealings to merely shift hands.
As time passed, John Chambers and others continued pacing in anticipation, frequently glancing toward Henry's office.
Finally, at a quarter past five, Henry emerged, drawing everyone's attention.
"Chairman, what's the plan?" John Chambers inquired urgently.
Henry spoke deliberately: "I have decided to temporarily abandon the acquisition of MCI."
Everyone exchanged surprised glances, taken aback by the unexpected announcement.
Henry silenced them with a wave of his hand before continuing coldly, "Chambers, I want a detailed list of all telecommunications companies within the AOL alliance. One day, I will take them all down!"
"Yes!!" John Chambers replied, his heart racing. He quickly followed up with a crucial question: "Chairman, how should we handle the impending sale of shares by Sequoia Capital?"
"Let them throw them out!" Henry commanded. "This is the perfect opportunity to reclaim all Cisco shares!"
Henry understood better than anyone how many switches and routers would be essential for the future of the internet. Cisco's market capitalization was bound to reach hundreds of billions. Taking advantage of the lowered stock price, Henry was eager to reclaim a sizable stake!
Henry stepped forward, confidence radiating from him. "Acquiring MCI won't be easy for them. They won't get their hands on it for at least three to five months. That's more than enough time for us to raise the necessary funds!"
With that, he dismissed the others for the evening. However, he kept John Chambers back to discuss more pressing matters.
"Chambers, you're tasked with retrieving Cisco shares. Act quickly and strategically! Ensure we buy back as many shares as possible with our limited resources. Together, the Nicholas Group, Cisco, and my personal funds amount to roughly $2.4 billion. If our company's management wishes to participate, that's acceptable! Don't forget; we need to increase our shareholding during this phase!!"
Henry was uncertain how many shares would be offloaded by those looking to sell, but he anticipated Sequoia Capital would join in, as would Citibank and Morgan Bank!
"Chairman, rest assured, I'll assemble the most proficient team to assist!" John Chambers promised.
"Good," Henry replied. "Also, start reaching out to other banks to see which ones are willing to extend a loan."
"Understood!"
---
After some time, Cisco's stock price stabilized following initial fluctuations. However, before long, a new wave of volatility struck! This time, it was even more severe, creating longer-lasting turmoil. Citibank, Morgan Bank, and Sequoia Capital began selling off shares in a serial fashion. To mask their actions, they cleverly dispersed the sales over numerous trading accounts, selling just a little each day—a tricky maneuver that made it hard to detect!
Ordinary shareholders struggled to comprehend the coordinated moves of Sequoia, Citibank, and JPMorgan Chase. But Henry was well aware of their operations in the market.
"They're starting to move..." Henry noted casually. "Then we can't let this opportunity pass us by!"
"Chambers, I want you to release rumors about Cisco suffering financial losses or other setbacks. I want Cisco's stock price to nosedive! Moreover, we must observe as Citi, Morgan, and Sequoia Capital offload their Cisco shares. Let's see how they reel in their profits!"
"Understood, I'll act immediately!" Chambers affirmed.
The following day, major U.S. media outlets disseminated a slew of negative reports concerning Cisco—claims of a $200 million loss in the previous quarter, a tragic incident at one of their factories resulting in casualties, and infighting amongst company leadership. The barrage of negative coverage implied that Sequoia, Citibank, and Morgan were hastily selling off shares to "flee." Statistical evidence was provided to substantiate the story, making it appear likely that Sequoia Capital was indeed divesting their Cisco stocks!
As a consequence, Cisco's share price plummeted!
Sequoia, Citibank, and Morgan transitioned from secret transactions to overt sell-offs, suffering significant losses as a result. In stark contrast, AOL profited from short-selling Cisco shares, benefitting from the fallout.
Ultimately, the majority of investors suffered losses.
For Henry, the declining valuation of Cisco was inconsequential. He didn't care about short-term fluctuations. A lower stock price would serve his interests better, as it would facilitate his efforts to reclaim shares! Meanwhile, those holding onto their investments, believing in Cisco's potential for long-term growth, would ultimately see their fortunes rise!
Over the course of two weeks, Cisco's market value plummeted to $31 billion—a staggering loss of $20 billion in value! Yet Henry managed to recover 15.6% of the company's shares.
After the market turmoil, Henry's shareholding in Cisco exceeded 73%, while the Nicholas Group owned 7%. Citibank, Morgan, and Sequoia Capital had all divested their shares, severing all ties with Cisco!
Now, however, both Cisco and Nicholas faced significant capital shortages, and Henry was left with only $100 million in cash at hand!
Acquiring MCI seemed ever more elusive.