Chapter 1171 – World’s downfall
Kameda Masao returned after a while. is satisfied to interview Kameda Masao, but it will be better to interview Feng Yu.
Although Feng Yu did not accept the interview, Kameda Masao revealed a piece of exclusive groundbreaking news. This news reminded about the bankrupt Enron.
Many shareholders of are wealthy and know how much money they can make from this news piece.
immediately send their reporters to San Francisco to interview Kameda Masao. If Kameda Masao had not told them that he is busy today, they would have flown over today.
Huang Jiansheng left after knowing that Nvidia’s issue had been settled. He is very busy as Nvidia is still in its developing stage.
Only Feng Yu, Ralph, and Kameda Masao are the only ones remaining in the office. Ralph brewed three cups of tea and brought them over. He had worked for Feng Yu for some time and got used to drinking this bitter green tea.
Kameda Masao is Japanese and loves to drink green tea.
Feng Yu took a sip and nodded. This tea... can quench his thirst!
Kameda Masao is anxious to know which pany was involved in accounting fraud. Still, he can only wait for Feng Yu patiently now.
Feng Yu puts down his teacup and asks. “Kameda, do you know about World?”
“World? I know about this pany. It is the second telemunication pany in the US. It is only behind AT&T. At its peak last year, World is worth more than 180 billion USD. But after the internet bubble burst, it is worth around 70 billion USD now. Boss, are you saying World is fabricating its accounts?”
Kameda Masao felt this is impossible. World is a bigger pany than Enron, and it is the World’s biggest internet service provider. If it is involved in an accounting scandal, its share prices will plunge like Enron. If no one acquires their shares, their only choice is to go bankrupt.
“That’s right. The pany is World. World’s development is very interesting. If you look carefully at World’s financial report, you will discover they had expanded quickly during the Dot crisis. They expanded by acquiring other panies, and the money used is not from their profits. It is by issuing shares. That means World is using their investors’ money to expand...”
World had not to pay a large amount of cash to acquire each pany. They exchanged shares to get the controlling stake, issuing new shares for the exchanges or used their existing shares. Even the cash they used is mainly from the funds raised by issuing new shares.
The benefit of doing this is easy management and using the lowest cost for their expansion. Such behavior is a tactic to raise cash and will not bring many benefits to the pany. But if the merger is big enough to form a monopoly, the pany will benefit from it.
Under normal circumstances, additional shares issuance is like adding water to wine. Most investors will dump their shares to avoid this risk. But World had been achieving ‘good results’ since they got listed. Many banks are backing them, and instead of dumping their shares, investors continued to buy them, pushing World share prices up.
In the end, World grew from a pany that’s worth slightly more than 1 billion to 180 billion within a few years. Feng Yu remembers World’s shares is worth almost 200 billion in his previous life. But in this life, Feng Yu had dumped Microsoft shares early, and Nasdaq did not reach the peak. This resulted in World’s market value, not reaching as high as Feng Yu’s previous life.
But the good thing is World’s share prices did not plunge as fast as Feng Yu’s previous life.
Although the dot crisis is very serious, World’s CEO gave its investors confidence with what he said earlier.
Our target is not to gain market share or globalization. Our target is to bee Wall Street’s No. 1 share!
This statement made many investors invest in their shares.
But the turning point is at the end of last year.
At the end of last year, World tried to merge with Sprint Corporation, the third biggest telemunication pany in the US. The merger is worth almost 130 billion USD!
This is the most expensive merger in history. If it succeeds, World will overtake AT&T as the world’s biggest telemunication pany.
But the merger was called off because of antitrust issues in Europe and the US. They felt this merger will bee a monopoly, and any panies that created monopolies must be broken up.
After the merger was called off, World was badly affected. As mentioned earlier, World had used acquisitions and mergers to maintain their share prices. If the merger with Sprint Corporation had succeeded, their share prices would shoot up.
During the merger, World was heavily in debt. Over 50 banks had issued more than 100 million USD loans to World each, and World continued to get loans from other banks. They discussed with some banks and will get an additional loan of over 2.5 billion USD from 25 banks.
Without additional loans, World cannot operate. Its debt ratio is very high, but those banks were forced to issue additional loans to them, or else World cannot repay their previous loans.
To maintain their share prices and to attract investors, World had to take risks. They used some accounting ‘tricks’ to inflate their earnings and give a false impression that they are making profits.
But the difference between World and Enron is the figure inflated. World had inflated its profits much higher. This figure is several times higher than what Enron did over the years.
After Feng Yu told Kameda Masao all these, he passed him the results from Ralph’s investigations.
“Here is the evidence.”
Kameda Masao looks at Feng Yu disbelievingly. “Boss, how did you know World might be involved in accounting fraud?”
Feng Yu pointed to World’s financial report. “Look carefully. The audit firm World hired is the same as Enron!”
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