Debbie looked up from her Times. 'It's not that cold in here. No need to start a bonfire.'
'I just want to see if there is anything going on with this company,' I said.
'Typical Paul,' Debbie said. 'Anyone else would just have read the latest Valueline, and then sold the bonds.'
I smiled. Debbie was probably right. But then, as she well knew, I wouldn't be satisfied until I had analysed the accounts going back five years, and read all the press and analytical comment on the company I could find.
I spent the next three hours going over the material, stopping only for quarter of an hour to get a sandwich from the small shop over the road.
As I read, I began to build up a picture of a company which had started off mediocre and over the last two years had become a basket case. It wasn't all the company's fault. Its main product, wallboard, had been in less demand as housing construction had declined sharply. However, the company had not been helped by the actions of its chairman and 30 per cent owner, Nat Morrison. He had borrowed heavily to build factories which were now operating at half capacity. He had also fired a succession of chief operating officers over 'policy' differences. As the company's earnings had turned to losses, the prices of Gypsum's shares and bonds had fallen sharply. The market thought there was a strong likelihood the company would not survive.
The company had received a number of overtures from large conglomerates, looking to buy its modern factories cheaply in preparation for the upturn in the economy which must eventually occur. But Nat Morrison would not give up his chairmanship. And no buyer in his right mind would want the company with Nat Morrison in charge. But, since his support was crucial for any takeover to succeed, none could occur, and the company's position continued to deteriorate.
Then, going through the press reports, I came across a headline dated about a month ago: 'Wallboard King dies in Helicopter Crash'. 'Wallboard King' was perhaps a flattering term for Nat Morrison, but it did mean him. He had died in his helicopter whilst visiting one of his factories. I read the reports of the next few days closely. Not surprisingly, the share price had risen 10 per cent on the news. He had apparently left his money in a trust. His son, a successful Chicago lawyer with absolutely no interest in wallboard, was the trustee together with a local bank president.
I stood up from my cluttered desk, and wandered over to the window. I stared at the silver line of the Thames cutting its way through the tall black and grey buildings of the City, past the more sedate St Paul's Cathedral and Houses of Parliament and on towards the squat lump of Battersea Power Station. Why was Cash bidding so high for the bonds? Who was the ultimate buyer? And why?
With the old man Morrison gone, a takeover would be a possibility, especially since a lawyer and a banker would be more likely to see the financial sense in the sale of the family firm. I supposed that if Gypsum were taken over by a sounder company, then the bonds would move up in price. But a takeover was far from certain, and the company could easily go bankrupt in the meantime. If a speculator wanted to gamble on a takeover, it would make more sense for him to buy the stock, which could easily double. In comparison, however strong the acquiring company was, the bonds would always be redeemed at 100, which was just a 25 per cent profit on the price of 80 which Cash was bidding.
So who would want Gypsum bonds? Perhaps the company was buying back its own bonds cheaply? No, Gypsum didn't have the cash.
I watched a barge push its way under Blackfriars Bridge.
Of course! There was only one logical buyer! Someone was about to take over Gypsum. But before they made their intentions known to the market, they would gather as many Gypsum bonds at a discount as they could. There were $100 million Gypsum bonds outstanding. If they could buy them at an average price of 80, then that 25 per cent profit when the bonds were redeemed would be worth $20 million, a significant sum. The more I thought about it, the more I was sure that this was the most logical explanation. To work!
I strode back to my desk. I called David Barratt. 'Harrison Brothers,' I heard him say.
'David, have you heard of an issue for the Gypsum Company of America?' I began.
David had an excellent memory, and knew the details of most of the bonds still in existence.
'I certainly have,' he said. 'The 9 per cents of 1995. Last I saw, they were trading at 65, but that was six months ago.'
'I wonder if you could get hold of five million dollars for me?' I asked.
'It's going to be difficult,' David said. 'The issue hardly ever trades. I'll see what I can do.'
I put the phone down. Debbie, as usual, had heard it all. 'I thought you were supposed to be selling these bonds not buying them. Hamilton will have a fit when he finds out.'
I explained what I had discovered about Gypsum, and the conclusions I had drawn. 'If I'm right, and the bonds are being bought by someone who is about to take over the company, then they are going to trade right up to par. If I can buy any at 80, that's 20 points profit.'
Debbie listened carefully. 'Sounds like a great idea to me. I still think Hamilton will have a fit.'
I winced. She might be right. Technically I was not authorised to increase De Jong's exposure to any company that did not have the top credit ratings of AAA or AA, without Hamilton's permission. But I knew what I was doing made sense.
The phone flashed. It was Cash. 'Have you made up your mind on the Gypsums yet?'
'Not yet. Give me another half an hour.'
'OK. But my bid isn't going to be around for ever. Half an hour is all you have got.' Cash rang off. He was just a little tenser than usual. There had been none of the usual banter.
It was twenty-five minutes before David came back. 'There's something going on. There is an 80 bid in the street for these things, God knows why. Do you know what's happening, Paul?'
'I don't know, but I can guess,' I said.
'Well?'
'Sorry, David, I can't say. Did you find any bonds?'
'Only two million. We can offer them at 82.'
Harrison Brothers was probably taking at least a point out of the price, but now wasn't the time to quibble. 'I'll take them,' I said.
'You buy two million Gypsum of America nines of ninety-five at 82,' David said. 'Thanks for the trade.'
'Thank you,' I said. 'If you come across any more, let me know.'
'I will,' said David. 'But I think it unlikely. We had to scour Switzerland for these two. Someone has cleared up all the available bonds. Everyone we spoke to had sold in the last day or two.'
Still, at least I had amassed $2 million. That should make a tidy profit. I remembered my promise to call Cash back.
'Well?' he asked.
'I'm sorry, Cash. Thanks for the bid, but I think I would rather keep them.'
'Hey, Paul buddy. Think this through. Hamilton's going to be awful sore with you when he hears you didn't hit my bid.'
And when he finds out I bought two million more, I thought.
'Sorry, Cash, but we can't help you.'
There was silence for a moment. Then Cash's voice came back on the phone, disappointed, but friendly. 'That's your decision. Just remember the trouble I went to to help you out of a bad position. Speak to you later.'
As I put the phone down, I marvelled at Cash's ability to make you feel guilty, even when he was trying to rip you off.
'Did you get any?' Debbie asked.
'Only two million,' I said.
'That's not bad. You should make some decent money out of that.' She sat back in her chair. 'It's a shame we can't buy any of the bonds ourselves,' she said. 'It looks like easy money.'
'Of course you can,' I said. 'All you need to do is take a couple of million out of your building society account.'
'We could try and buy a smaller amount. An odd lot,' she said.
'Would that be ethical?'
'I don't know.'
'Well, you ought to know, you are the compliance officer after all,' I said. Every fund management company appointed a compliance officer to ensure that insider trading and conflicts of interest were avoided. With her legal background, Debbie had become ours.