Chapter 12 - In Play, February 26 - May 28, 2002 - Episode 6Listen to podcast
“Larry, I shouldn’t be doing this,” says Rachel. They are in a noisy Italian pizza place in Dumbo under the lights of the Brooklyn Bridge.
“I won’t tell,” says Larry. “Trust me. What are we doing by the way?”
“I’m giving you a heads-up that I shouldn’t be giving you.”
“I was hoping we were having a … uh … another tryst.”
“We agreed that was a one time thing,” Rachel says.
“Before that we agreed that it was never going to happen,” Larry reminds her.
“Larry, we have a problem….”
“Ahmed found out? Louise found out?”
“Larry, this isn’t about us. You’re not going to want to hear this and, frankly, I shouldn’t be telling you.”
“Why are you?”
“Honestly, I’m not sure. I like you. I wanted things to come out differently. I hoped they would but…”
“Are you marrying Ahmed?”
“Larry, be serious. This isn’t about Ahmed.”
“Then it must be about us, right?”
“Not exactly. Look, this is hard enough. Please let me say what I have to say.”
Larry says nothing.
“Larry, you know we both hoped that, once hackoff was known to be in play, the stock would go up enough so we could get some bids that you’d consider attractive…”
“Well, it went up and it went down. Story of my life. Not your fault we didn’t get better bids. Now we’ve just got to go ahead and make the company the success it can be. I know it’s a disappointment for Barcourt that it won’t get the big commission but you get what — more than a million — just for the fairness opinion.”
“Larry, we have offers.”
“Nothing real. An offer for some shit antihack stock to let us go down the tubes with them and an offer from the junk dealers — what’s their name — Condor, for about ninety cents on the dollar for our hard assets. Look, it’s not your fault—”
“Larry, PLEASE let me say what I’ve got to say. This is the part I really shouldn’t be telling you yet, but you’ll know soon enough…” She tails off, but Larry says nothing.
“You know,” Rachel resumes, “we have a very formal policy we go through in giving these fairness opinions…”
Larry says nothing.
“We have to be very careful and very thorough in what we do. We are working for the Board of Directors and indirectly for the shareholders.”
“And?” asks Larry.
“Of course, I’ll be able to show you the details later, but how it come out … how the fairness opinion is going to come out is that the right thing for the shareholders is hackoff accepts one of these offers.”
“You’re shitting me?”
“Larry, I told you you wouldn’t like it. But there it is.”
“You’re telling me that Barcourt is going to say that best thing for our shareholders is we sell their assets to vultures for ninety-fucking-cents on the dollar, that we just throw away all the value of the intellectual property, the patents, all that?”
“At the current stock price we’d recommend going with the antihack deal.”
“Oh, is that what ‘we’ would recommend?” asks Larry, snarling now. “’We’ recommend that hackoff be part of that piece of shit antihack. That we let Georgie-boy Wrobly run both companies into the ground at the same time. That—”
“Larry, I’m sorry. I knew you wouldn’t like that. But it’s just numbers. With the stock where it is, the antihack offer is worth more to the shareholders than the Condor offer. If the stock goes down, maybe Condor is the better alternative. At this point, I think we want to get them both into a final round of bidding, hopefully improve both offers.”
“This isn’t going to happen,” says Larry. “This isn’t happening. We gave you the projections; we showed you what the company can be worth.”
“We can’t disregard the auction process we’ve been through. And we can’t disregard what the market is telling us through the stock price. We have to take all those things into consideration.”
“This is fucking circular. I’m not an idiot!”
Rachel leans across the table. “Larry, no one said… Please keep your voice down.”
“This is a con game to get a commission for Barcourt. You got two jobs. One: get us good bids. Didn’t happen. Two: figure out what is a fair price for the company in case there are no good bids. So what you’re saying is, since there’s no good bids, what the company is worth is something less than the bad bids. Bullshit! Didn’t you look at the numbers we gave you?”
“Of course we did, Larry. Of course we did. But, even if we accept them as gospel — and we all know that there’s risk in those projections — we’ve still got to look at how the market is likely to view those results. Equally important, we have to look at how the market is going to value the company in the interim. We’ve got to look at the stock price actually coming down further if we say there have been no good offers and we’re just going to do more of the same.”
“We showed you how this can be a company that makes lots of money even if the stock doesn’t go up again.”
“Even if we accept those as a starting point — and we did — the numbers would be even better in combination with antihack.”
“WHY?” demands Larry combatively.
“Not fucking obvious to ME!”
“Please don’t shout, Larry. You could be overheard — even in this place. If we put the two companies together, they dominate the industry — of course, we don’t use the D word with lawyers around, but you know what I mean. If we assume that the market will someday value this segment again, then a single major company is going to get more value than even the sum of two competitors beating their heads in—”
“There aren’t gonna be two competitors.”
“Not if you two combine. That’s why it makes sense. I know you understand.”
“antihack can’t stay in business,” says Larry. “They’re lucky they got as far as they did, mainly by copying us. They don’t have the technology; they don’t have the patents.”
“Larry, there’s perception and there’s reality and it’s perception that matters because that’s what people act on. I know you don’t like to hear it, but the one theme we’ve heard through this whole process is that no one sees any difference in the technology of the two companies.”
“So what happens next?”
“Larry, I want you to understand…”
“WHAT HAPPENS NEXT?”
“Well, it’ll be more than a week before we finish the preliminary fairness opinion and the recommendations. Another week to go through internal review at Barcourt. Then we can show them to the management team first, if you like, but we do have to show them to your Board.”
“And just to make sure I understand, what is your recommendation going to be?”
“Well, it depends some on the stock price at the time, but basically it’ll be that we attempt to solicit firm bids that are somewhat higher from both parties — don’t want to eliminate either one yet — and that we get into a final negotiation process, which is hopefully a bidding war.”
“Two weeks?” asks Larry.
“What? Yeah, about two weeks. If you want to schedule a Board Meeting then, it might be helpful. But, please, I shouldn’t have told you anything. There’s still a lot to go through at Barcourt. Please don’t tell anyone.”
“See ya,” he says and leaves Rachel alone in the noisy restaurant.
He puts on his coat as he leaves the restaurant and heads uphill to the subway. On the way to the station, he calls Donna and Dom and arranges to meet them at the office.
On April 18, 2002, a large number of e-commerce sites are attacked by a hacker who calls himself or herself “Paul Revere”. A significant number of credit card numbers and authorization codes are stolen and quickly used. Even traditional shopping is affected since so many people have to cancel their compromised credit cards.
For the first few days, neither antihack nor hackoff has anything to say publicly about the attacks. Initially, the stocks of both companies decline as analysts and chat groups alike speculate on what liability they have and how they will be affected by the general drop off in e-commerce. On April 23, hackoff closes at eighty-five cents, down from $2.05 the week before. antihack is down a slightly larger percentage.
“At this price, Larry,” Rachel says in a phone call, “it looks like the Condor offer will be the better one.”
“Is that right?” asks Larry.
“Yes, that’s right. You don’t sound interested. We’re ready to send you a draft of our report. Is there a date set when we can meet with the hackoff Board?”
“Not yet. We’ve been sort of busy with this virus thing.”
“That’s certainly not very helpful coming right now,” says Rachel. “I hope Condor doesn’t use this as an excuse to lower their bid. But, knowing them, they might. Exactly how many hackoff-protected sites were hit by Paul Revere?”
“We have nothing to say about that currently.”
“Larry, we’re your bankers. This could be something material to factor into our analysis.”
“We have nothing to say about that currently.”
“I’m sorry, but you’re being unreasonable. We can’t do our job unless we have all the relevant information.”
“Yeah, well,” says Larry, “being you’re a banker, you’re probably not a security expert, right?”
“Why does that matter to what we’re doing?”
“Because this is a security problem, not a banking problem. Hackers would like very much to know which sites have been hit and which haven’t, who’s vulnerable and who’s not. I tell you anything, you’d have to send it out over email at Barcourt. You think your email’s secure?”
“Well, I don’t know, but I would think so.”
“So did all the sites that got hit. Trust me, your email’s not secure. I wouldn’t even trust my phone if I were you. I’m not trusting any information to Barcourt that could be useful to hackers.”
“So how are we supposed to finish our job? How do we know how much damage this is going to do to your valuation?”
“That’s why you get paid the big bucks,” says Larry. “See ya.” He hangs up.
Chief Marketing Officer
212 555 1000
For Immediate Release
HACKOFF.COM CUSTOMERS PROTECTED FROM ‘PAUL REVERE’
April 29, 2002 — New York, NY — hackoff.com.® (NASDAQ: HOFC) has concluded an investigation of the effects of attacks by the hacker called “Paul Revere” on sites using hackaway™ software. Preliminary results indicate that no site which was using the software as instructed was penetrated by Paul Revere despite a large number of attempts.
The company investigated fully reports by several customers that they had been compromised. However, in each such case, it was clear that the customers were not using the software in accordance with hackoff documentation. hackoff is working with all customers to assure their understanding of the proper use of the software.
“I am very proud that our product withstood these relentless attacks,” said hackoff Chairman and CEO Larry Lazard. “The danger from hackers is clearly on the increase and we are dedicated to protecting our e-commerce customers and their customers from this danger.”
hackoff stock closes up twenty-six cents at $1.42 after trading as high as $1.67 during the day.
On April 30, antihack announces that “a large number of its customers’ sites” had been successfully penetrated by not only Paul Revere but a number of other hackers as well. A preliminary investigation by the company has revealed that there was rogue code called a “back door” in an emergency upgrade antihack distributed to its customers in mid-March. This back door allowed the hackers who discovered it easy access to the sites of antihack customers.
The preliminary investigation also found evidence that the antihack development facilities themselves had been hacked. The back door was apparently inserted during part of antihack’s software build process. Because security of the development site has been compromised and the exact compromise has not yet been found, antihack is unable to say when it will be able to deliver a fix to its customers. In the meantime, antihack advises customers not to assume that they are protected from Paul Revere and similar attackers.
antihack stock closes down fifty-percent on the day at less than a dollar. hackoff stock continues to climb and closes up thirty-eight cents at $1.80 after almost reaching two dollars during the trading day.
On May 6, hackoff announces a “competitive upgrade” program for licensed customers of antihack. The company will give a fifty-percent credit towards hackoff’’s hackaway software for those who pledge to remove the antihack product from their servers. Larry Lazard explains that the requirement that antihack software be removed is necessary for the safety of the customers since known and unknown problems with it might prove an end run around the hackaway protection.
On May 16, hackoff stock falls twenty-five cents to $2.08 when the company announces that it has decided that the best course for stockholders is NOT being acquired. The company reveals that it has had several offers — one of which was from antihack — but these offers are below the price the stock is trading at and do not reflect the fact that hackoff protection was not penetrated by the largest attack on e-commerce sites ever to have occurred while software provided by hackoff’s major competitor was badly compromised. The announcement includes the fact that the company’s bankers, Barcourt & Brotherson, have issued an opinion that declining these offers is “fair” to stockholders.
On May 28, antihack announces that it will not come anywhere near the sales or earnings which it had forecast for the second quarter. hackoff stock soars over $2.50 and closes at $2.47.