Chapter 14

When I got home, I was a little cranky. I got questioned as to why I got home so late by my mother and I had to admit to the confrontation with Tim. I didn’t get into any real trouble but was lectured for my aggressive attitude.

My mood got better when I realized that Mom had taught my Philly grandparents to milk the cows. No afternoon chores! I went upstairs to work on my homework. There was a knock on the door. It was Granddad.

‘Tommy, some point soon we’ll have to sit down with your dad, your Uncle Steve and Lars to determine what role Steve and Lars will have with PASCO,”

“What do you mean, Granddad?”

“For the moment you are the sole owner of The Pennsylvania Automotive Surety Company. Monday afternoon, that company had assets of five-hundred-thousand dollars in cash borrowed from your trust fund. As of Tuesday afternoon, PASCO owned a debt assets portfolio, valued roughly at 1.2 million dollars and two-hundred and fifty thousand dollars in cash. Today you are the sole owner of an entity that owns three companies that are worth almost a combined million dollars. This value is added to the debt portfolio but you must take into account that the asset is reduced to about seven hundred-thousand dollars because the debt portfolio owns the debt for your new companies. Still, add all of that to the remaining fifty-thousand dollars in cash, and in theory, PASCO’s value has increased by more than two-hundred percent since Monday.”

I was shocked and I think it showed on my face.

“Don’t count your chickens before they hatch, Farmer Tom,” he teased. “The debt portfolio valuation is greatly overstated. The original value I cited takes into account that the borrowers will pay back all principal and interest that is owed to PASCO.”

“Doesn’t seem likely, right?”

“Absolutely. You’ll be lucky to get a quarter of what is owed you.”

“Then what good is that all that debt?”

“Well, we did leverage some of that debt, along with Edgar Blanton’s bad acts to pay only two-hundred thousand dollars for a block of companies that are worth almost five times as much. If you retire their debt of course.”

“That’s pretty incredible!” I exclaimed.

“It is. While there are always situations for a savvy businessman to capitalize on the greed and illegal acts of others, this was truly a unique opportunity. The cost of the portfolio of debt to PASCO was a mere two-hundred and fifty-thousand dollars. We were able to convert close to half of the unstable debt portfolio and two-hundred-thousand dollars, in cash, into three stable businesses worth more than what you’ll wind up losing when you retire the debt on those companies. That in itself was a neat trick. Overall, the acquisition of the companies and external factors have made you a hefty profit, but it gets better still.”

“How?”

“Remember, part of the debt portfolio includes your Uncle Steve’s debt. This is where we have to get into that discussion,” he said before continuing. “You, Steve and Lars have several options to consider. You could keep the status quo, which would be Steve continuing to pay back his monthly loan payment, Instead of paying back the bank, he would be making his payments to PASCO, as now you hold his debt.”

“Couldn’t I change his payment schedule or forgive his debt?”

“You could, but there might be tax implications for him and for you. You’ll need to sit down with a good money man to discuss this.”

“What other options would we have?”

“As we discussed before, if all parties are agreeable, you could fold Johansson Automotive Garage into PASCO. In that scenario, since it is a merger, forgiving the debt could be part of the cost of the merger.”

“Isn’t that what we were talking about earlier with Uncle Steve wanting to keep the family name for the garage?”

“Yes, but there is more to it than that. Steve has worked hard to build up his business and except for a small loan from his father-in-law, he’s done it on his own. He’s a proud man. Still, he has to consider Lars’s aspirations.”

“You mean restoring classic cars?” I asked.

Granddad nodded. “The auto restoration business is really a niche industry and it’s expensive, so it’s hard to establish a foothold. Your uncle knows that it would take Lars a long time to earn enough money to go out on his own.”

“Isn’t Uncle Steve helping Lars with that?”

“A little, but Steve is not prepared to make the restoration piece the primary focus of the garage. So far, they have taken a few restoration jobs, but Steve knows that they don’t have the resources to expand on that much. By throwing in with you, it would make things easier for Lars’s dream because the body shop could help by handling the bodywork part of the restoration process. This would allow Lars the chance to eventually get the business established full time. Likewise, merging with PASCO could help the garage because Steve would be able to gain access to a distribution network via the commercial parts store. This not only means getting parts on a discount basis but also, improving his turnaround time for repairs because he can get parts quicker.”

What Granddad was telling me was interesting, but I was worried that I was in way over my head. That made me realize that this deal could really affect my family and not necessarily in a good way. It didn’t mean that I couldn’t trust Granddad, but since I didn’t understand all of this, I figured that I probably shouldn’t make any decisions until I did.

“Granddad, I’m not sure I want to change anything with Uncle Steve’s company, at least until I understand all of this,” I said, fearing that it might upset Granddad.

My grandfather smiled at me instead. “That’s a very wise and thoughtful position to take, Tommy. I’m afraid that I might have started a runaway freight train and you may need to stop its momentum.”

“I’m not sure I understand,” I said.

Granddad sighed. “Tommy, I have big hopes for your future. Those hopes may not align with what you want to do and I will never push you into doing something that you don’t feel comfortable doing. This whole PASCO deal could be a huge benefit for your family. It also might not work at all. There are hundreds of reasons why businesses work or don’t work. I, by nature, am a builder and a bit of a risk-taker. I don’t consider myself reckless and wouldn’t have been as successful if I was. Still, I believe in taking calculated risks,” he sighed. “Your father has always been more conservative in his approach to business. That’s not entirely a bad thing. He’s not entirely risk-averse. He’s just generally more cautious than I am.”

“Risk averse?”

“Unwilling to take risks.”

“Oh.”

“Tommy, my point is that I see a great deal of potential in folding your Uncle Steve’s business into PASCO. On paper, the businesses align almost perfectly. Most importantly, it allows for a career opportunity for Lars, as it will be easier for him to start an auto restoration business. I think that is the overriding consideration for why Uncle Steve might agree to participate.”

“Why would he not want to participate?”

“Aside from his pride, he would be giving up a great deal of control of his company to you and your father, who will act as your proxy.”

“I wouldn’t want to take away Uncle Steve’s business.”

Granddad smiled. “You wouldn’t be doing that. You would be trading him his business for part of a larger business. You would own controlling interest in the larger company but you can also agree to a ‘sweat equity clause’ that will allow your uncle to gain more shares of the larger company over time. That would be my advice anyway. You could even allow for a buyout clause after a certain number of years to allow Steve to gain controlling interest in PASCO if he wants it.”

“Sweat Equity?”

“Since your Uncle Steve works in the industry and has the time, knowledge, expertise, and experience that you, as a fourteen year-old don’t, he would be the one doing most of the work and handling most of the day-to-day decisions that impact the car-related side of the business. That would include the garage, body shop, and auto parts companies. This would be the part of PASCO that he would oversee. Your father would probably hire someone to manage the laundromat operations and a banker to oversee the debt portion of the business, though he’ll probably want you to liquidate those parts.”

“That would put a lot more pressure on Uncle Steve.”

“It would. He might need to hire more mechanics, to free him up for the more administrative parts of his job, which will greatly increase due to the merger. As far as ‘sweat equity’ is concerned, it will be like the horse business that your Grandpa Sven and I are building. He has the know-how, time and facilities, I have the money and some contacts. It has been a dream of both of us to breed and train racehorses. Now we can become equal partners in a business. He’s the CEO. I’m the CFO and we are both tickled pink to be working together.”

I felt better about the proposal now that I understood it better. Still, I did not see a need to rush to get it off the ground.

My granddad agreed to a degree, but then put things in a way that I understood.

“The problem with delaying is that you may have people in positions of power that are loyal to Edgar Blanton. Since you don’t understand the businesses and Steve does, he could be a big help to you. Instead of starting the merger immediately, you could always hire Steve as a consultant and give him the resources to make sure that the auto-related businesses are running properly. Your dad and I agree that you need to get rid of the laundromat business as soon as possible, after selling off the older equipment and properly installing the newer, dormant equipment. All of these considerations are why we want to meet Sunday afternoon before Gran and I go back to Philadelphia.”

I nodded. I got a lot of what he was talking about, but would lean heavily on my dad at Sunday’s meeting.

“How did the appointment go?” I asked into the phone receiver.

“It went okay. I really like Jane. She asked me a lot of questions that made me think about some things and why I feel the way that I do about myself,” said Janie.

“Do you think it helped?”

“Yeah. She said I may need to see another doctor and I may have to go on medications. She did tell me about some things that may help including diet and herbal supplements. For now, we will keep meeting and see if it helps. Then we would talk about going to another doctor if she thinks I need to.”

“Well you know that I’m here for you in any way you need me.”

Janie sighed. “That is both a good thing and not such a good thing.”

I didn’t like the sound of that. “Why would it be bad? I love you, Janie. I want to help in any way that I can...” and then it occurred to me what she needed to hear. “Even if that means just being there and not doing anything.”

“That’s part of why I love you, Tommy. You understand me so well and you’re so mature,” she said before a pause. “You understand that part of me getting well means that I need to do a lot of this on my own. Jenny doesn’t get this. We’ve been so close for so long that she thinks you and she can make all of the bad stuff go away. Jane got me to understand that I’m the only one who can make me better. Others can help in some ways, but it has to be me to make it happen. Can you talk to her and get her to see that?”