Setting a Trap with Preferred Stock

Chapter 367 Setting a Trap with Preferred Stock (Part 1)

For some reason, many successful American corporations in later generations have had successful cases of "sons-in-law taking over." And the sons-in-law's influence over their fathers-in-law is often quite significant. In cases Larry knows of, Goldman Sachs ultimately entrusted its leadership to its son-in-law, Samuel Sachs; the same is true for Cargill today.

Larry had met William Gargill before; to put it mildly, he was old and stubborn. Even discussing futures settlement with him had drawn open ridicule from the old man, so Larry figured he wouldn't gain anything by facing him again.

But just the next day, news came from McMillan that old Cargill had agreed to Larry's "50" proposal.

The proposal to "control 5 million bushels of wheat stocks for $10 million" was conditional, on the condition that they first see the $500,000 in collateral.

Larry marveled at the immense influence his son-in-law had on his father-in-law, while also organizing all the money he had on hand.

The $15 bank draft provided by Kennedy was from Citibank, and there was also $1 in cash in the Citibank account, totaling $16.

In addition, $200,000 was unfrozen from the judicial betting account, bringing the total to $240,000, including the $40,000 balance in the previous New York bank account. Goldman Sachs also gave him a bonus of $116,000, and he also had $15,000 of money withdrawn from his Boston apartment.

So the total amount of money available now is $53.1. The reason why the previous calculation was less than $50 was because it did not include the remaining funds in the bank.

Larry found the Chicago branch of Citibank and gathered all the money there. But trouble arose; Citibank and other Eastern banks had little influence in Chicago, and the locals didn't accept Citibank's promissory notes.

However, withdrawing this money would take a long time and involve complicated procedures due to the large amount involved.

Ultimately, Citibank's proposed solution was a bank credit certificate, which is what later became known as a negotiable fixed deposit.

By the late 19th century, the United States had a mature bill market. Large commercial banks would issue large-sum time deposit certificates to creditworthy clients.

These certificates are endorsed by banks, have high creditworthiness, and can be used as collateral or payment guarantees.

Larry has now deposited all $53.1 into a Citibank account. The bank has then issued him a 12-month fixed deposit certificate for $50.

Larry then took his $50 bank credit certificate and went to Cargill again.

Today is Tuesday, September 6th.

William Gaggi rushed over from Minnesota. When he saw Larry arrive, his gaze paused for a moment, clearly recognizing Larry, with whom he had previously had a heated argument.

Larry greeted him nonchalantly, "Hello! Mr. William Wallace Cargill, I've heard so much about you, it's a great honor to meet you today."

"Hello—hello!" Cargill's face slowly relaxed.

McMillan didn't think too much about it. Instead, he called his hired lawyer to draft and sign the "forward spot contract" and the collateral for Larry.

This process was very meticulous, and Larry's bank credit credentials were affirmed by the lawyer. Larry also repeated what he had said before to Cargill.

Perhaps persuaded by his son-in-law, William Gargill did not raise any questions.

After the forward spot contract was signed, Larry's $500,000 Citibank letter of credit was also pledged to Cargill.

"Cargill can use this certificate to apply for a discounted loan from a bank, immediately obtaining approximately $45 to $48 in working capital to solve your immediate needs. Of course, this will be subject to deduction of discount interest."

The lawyer continued, "You two can also sign a conditional transfer agreement. If Mr. Livingston completes the disposal of the wheat before the delivery date, the deposit will be released from the pledge; if he defaults, the bank can directly transfer the funds to Cargill."

The father-in-law and son-in-law looked at each other, unsure of what to choose.

Larry generously said, "Write it all down! Just so you can have peace of mind. Anyway, my money is here. If you really get into an emergency with the bank demanding payment, just use it."

Old Cargill thought for a moment and nodded in agreement. After the contract was signed and the bank credit certificate was settled, and both parties had signed their names, Old Cargill asked hesitantly, "The deadline for the short-term bank loan is October 3rd, Mr. Livingston. Can you really save Cargill from its predicament?"

Larry smiled. "If I can't—you can't either! What you need to do now is cooperate with me unconditionally. Remember! This is the only way to get Cargill out of this predicament."

Old Cargill paused for a moment, then nodded again. McMillan immediately said that he was on standby in Chicago and would obey Mr. Livingston's orders at any time with just a phone call or a telegram.

"If I can help you out of this predicament—what are your thoughts on the equity aspect?" Larry asked.

"As you said, 25%!" Cargill's face trembled slightly.

"This can't just be talk—we need concrete results." Larry's face remained calm. "I've heard that your goal has always been to keep Cargill a private company forever, without seeking diversification of ownership."

"This—" Old Cargill hesitated slightly, because this was his true thought.

Larry emphasized this point because Cargill never went public, maintaining its private company status and quietly accumulating wealth. Even later, when Cargill's size rivaled that of world-class companies like Apple and Microsoft, it remained a private company and never went public.

This is all to avoid diluting the family's equity.

Larry could easily guess that Cargill couldn't have existed without other investors in its history; they were simply "squeezed out" by them later on.

The food industry is, after all, a field requiring specialized expertise and resource control. If Larry were to run it himself, he would absolutely fail. The problem is, Larry doesn't want to let the long-term opportunity to acquire a stake in Cargill slip away and instead just help them out of trouble for some immediate cash gains.

Therefore, this matter needs to be discussed in advance—in fact, Larry had been considering this issue for two days after meeting McMillan.

Hearing Larry's question, old Cargill hesitated for a long time before finally saying, "Right now—I can only give you a promise! Or I can write it down. You must understand, I cannot sign a specific agreement with you until the company is truly out of trouble."

"But once you're out of trouble, you'll probably be even less likely to sign," Larry retorted sharply.

McMillan walked up to the two of them, trying to interject—but ultimately refrained from saying much due to his status as their son-in-law.

Larry chuckled, pulling out an Eagle Gold Coin and fiddling with it in his hand, watching the two men remain silent. After a full minute, he spoke in a relaxed tone, "Mr. Cargill, how about this? We don't need to argue about this 25% stake right now. I propose a clearer solution: we'll sign a preferred stock subscription agreement and a debt conversion option, attached to the contract."

Old Cargill immediately became alert, his gaze sharp. "What are you referring to as preferred stock?"

"Here's the deal. If I succeed, a portion of this $50 mortgage will be converted into preferred stock at the price we agreed upon. It won't interfere with your operations, but it will enjoy dividend returns and priority liquidation rights. This will protect my fundamental interests and is also entirely in line with your desire to keep the company private."

Cargill and McMillan exchanged a glance; clearly, this was more acceptable than simply taking away common stock.

Larry pressed his advantage, adding, "Furthermore, I need a board observer status. This isn't about coveting your power, but rather about needing transparency to coordinate market operations. How can we work together if you keep even your accounts secret from me?"

After thinking for a long time, Cargill nodded and said, "————Okay, but the preferred stock conversion price you mentioned must be fairly evaluated."

McMillan suddenly interrupted, "Wait, this matter—we need to discuss it again!" As he spoke, he nudged his father-in-law with his elbow.

Cargill immediately snapped out of his daze, his gaze darting quickly across Larry and his son-in-law's faces before he hurriedly added, "Yes! This is very important; we need to discuss it carefully."

Larry smiled and nodded. "No rush! I'm going to eat—I'll give you all lunch to discuss this. We'll continue writing the second half of this chapter this afternoon."