After hearing Barron say that he was going to acquire O2, Rolf was surprised and his expression became cautious.
After looking up the information of O2, he said:
"According to the current situation of O2, although it was spun off from British Telecom, its current development is also quite good. If we want to acquire it now, it is estimated that it will not be less than 4.5-5 billion pounds. Your Highness, even if you use leverage to acquire it, you will need at least 500-1000 million pounds of free funds to convince the consortium including our Barclays Bank to support your acquisition. The question now is, can you come up with this amount of money?"
Why are some companies able to carry out leveraged buyouts and complete the acquisition with only one-fifth or even one-tenth of the total acquisition amount?
Just like the Sinclair Group, in the original time and space, their market value was only more than 2 billion US dollars. They formed a consortium and carried out leveraged buyout. When Disney acquired the 21st Century Fox Group, they bid more than 10 billion US dollars from them and acquired 21 regional sports networks from the original Fox Group.
It is done through a leveraged buyout.
For example, this time Baron planned to acquire O2. The process was that he first announced the acquisition of O2 and negotiated with the other party.
Once the final acquisition price is determined, the financing consortium cooperating with Barron can come on stage. Barron will lend money to these financing consortiums using the O2 Group shares to be acquired in the future as collateral.
Using these loans, plus his own funds, he completed the acquisition of O2 - the other party's mortgage loan could not be given 100% according to the purchase price, so Barron needed to come up with part of the funds himself.
In this case, if Barron is ultimately unable to repay these loans with interest rates above the market rate, the O2 shares used as collateral will belong to these financing consortiums.
This meant that the financing consortium acquired O2 at a discount price - because Barron's own funds would not have been able to be recovered at that time.
These financing consortiums can choose to sell O2 to others, or sell it at a higher valuation after they run the company.
Now for Rolf, Barron wants to cooperate with them and let Barclays Bank join its financing consortium to acquire O2. There is no problem with this.
But what he was concerned about was how much of his own funds Barron could come up with to carry out this acquisition.
According to Rolf's understanding of Barron, although his DS Capital's investment performance during this period was very impressive, based on his valuation of O2, Barron would need to put up at least one-tenth of the acquisition price with his own funds - this ratio is not a particularly safe ratio for the consortium involved in the financing, because if the other party defaults, they would be getting O2 at a 10% discount. For this kind of communications company, the change in market value is still very large.
Even this lowest one-tenth of his own funds would require nearly 500 million pounds. Rolf did not think that Barron could come up with this money now, unless he mortgaged all his assets, which would be a gamble.
Inevitably, in this kind of leveraged buyout, the more free funds you can put out, the easier it will be to convince the banking consortium to join the financing consortium, because relatively speaking, the risk of default will be smaller and more secure.
"If I can come up with £500 million, would Barclays be willing to join me in financing this acquisition?"
Barron asked back.
"If that's the case, Your Highness, I can try my best to convince the board of directors. Basically, there won't be any problem. But I need to remind you that for such a high-leverage acquisition, we cannot provide all the funds alone. Therefore, you will need to find one or more financing partners to join your financing consortium."
"Okay, now we can talk about another thing, which is that I need to mortgage some of my assets to get a loan."
Baron certainly cannot come up with 500 million pounds now. The reason why he dared to propose the "snake swallowing an elephant" plan to acquire O2 lies in his grasp of the recent international oil prices.
Since the first half of last year, the United States has been constantly increasing its public opinion and sharpening its knife against Iraq.
Until December last year, it could be said that not many people questioned their determination to use force against Iraq, which led to widespread concern about the supply of crude oil in the Middle East. Coupled with the disruption of oil production and supply caused by the oil workers' strike in Venezuela, the Israeli-Palestinian conflict and terrorist activities, oil prices soared and continued to rise.
When Barron initially began to use funds to build a bullish position on international oil prices, the price of oil was still around $20 per barrel, but by January 3 of this year, the price of London North Sea Brent crude oil had climbed to a "high" of $31, an increase of 50%!
There is a question: if the United States really uses force against Iraq, will international oil prices continue to soar?
It seems so. After all, by 2003, Iraq's proven oil reserves were about 15.7534 billion tons, ranking fourth in the world; its proven natural gas reserves were about 3114.87 billion cubic meters, ranking 10th in the world.
According to the speculation of relevant institutions, if Iraq strengthens exploration, its oil reserves will more than double, making it the world's largest.
Therefore, if the United States and its allies use force against Iraq and plunge it into war, it will inevitably affect the supply of international crude oil and ultimately lead to rising oil prices. This logic seems to be correct.
But the fact is, through his experience in his previous life, Baron knew that after reaching a high of $36 in early February this year, the international oil price actually stabilized, and until June after the end of the war and the formation of the Iraqi transitional government, the international oil price never returned to the price of $36 per barrel.
The reason for this is that although America's "rule" in Iraq was not smooth later, the end of the Iraq War was too quick. Many people believed that the American coalition forces would be trapped in the stubborn resistance of the Iraqi army, but this did not happen. Instead, they ended Saddam's rule with a crushing victory.
This reality has led to the mainstream optimism among international capital that Iraq's oil production will recover quickly. After a brief rise in the two days after the outbreak of the war, international oil prices began to stabilize and even fell.
Although Barron knew that the overall trend of international oil prices in these five years was still upward - from 2002 to 2008, international oil prices rose from US$20 to nearly US$150!
Finally, on July 14, 2008, oil prices reached a high of $147.27 per barrel.
But in the short term, Barron has the opportunity to make excess profits on international oil prices by relying on the fluctuations during this period.
Therefore, before the beginning of February, DS Capital will close all its long investments in international oil prices, raise funds through mortgage financing, and then start a short-term short-selling of international oil prices.
When this wave ends, Barron will have enough capital to acquire O2.