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    Michael Saylor
Microstrategy co-founder Sanju K. Bansal and Saylor celebrate the company's public launch in June.
(By Dudley M. Brooks – The Washington Post)
Pricing the Deal
Continued from previous page
In a boardroom overlooking San Francisco Bay, Saylor stood at a picture window, waiting for his audience and feeling nostalgic. This was the morning of Day 10 and one of the last investor meetings. He had slept four hours the night before, per roadshow regimen.

He broke into his pitch for the 70th time in two weeks ("We're so focused, we'll burn a hole in the ceiling") while the Merrill Lynch bankers nervously shuttled in and out of the room to check the market and book.

The key discussions that day were between Saylor, Lynch and Merrill Lynch's bankers. After much subtle posturing, they would finally discuss how to price the shares.

Back in April, when Microstrategy declared its intention to make a public offering, the opening price range was set at $8 to $10. But strong response on the road meant the company could ask for more. Every additional dollar translated into another $4.6 million for Microstrategy.

Pricing an IPO is one of Wall Street's high arts. The final offering price is determined by both the company and the underwriters, often after much haggling. While both parties ultimately benefit from a higher price – the company raises more money, the underwriter gets a bigger commission – the underwriter wants its big investor clients to pay as little for the stock as possible. This way, they are more likely to get a good first-day "bounce" on the deal as shares enter the true public market. If, as often happens, a buying frenzy greets the new stock, the price goes up fast and many of those big investor clients who bought shares at the IPO price can sell at a quick profit.

Before the roadshow had begun, Saylor and Lynch plotted their negotiating strategy. Saylor, they decided, should not talk price until the very end.

Now the moment had arrived. Shortly after the morning investor meeting, Lynch took a call on his cellular phone from Scott Ryles. Ryles said the book was strong and asked Lynch if they would consider pricing at $11.

"We would have a real problem with $11," Lynch said. He and Saylor wanted $12.

The conversation continued later that morning at the Hyatt-Park Hotel in San Francisco. Merrill Lynch bankers did most of the talking. They mentioned $11 again and cited the volatility of the market. They reminded Saylor that eight months before, when prospective underwriters auditioned in Vienna, Merrill Lynch was the only firm willing to put the range over $8. Why risk pricing too high?

But Merrill Lynch didn't want to pressure Saylor to the point of alienation. Microstrategy could be worth significant future business, in managing secondary offerings, mergers and acquisitions.

By the same token, Saylor wanted to make a good first impression on Wall Street. If the nation's most powerful investors turned a quick profit on the Microstrategy IPO, it would engender goodwill toward the stock and the company in the future.

And Saylor knew the Merrill Lynch team had worked to earn his respect. Back in October, Saylor had initially passed over Merrill Lynch and chosen Goldman, Sachs & Co., the elite of Wall Street bankers, to lead the IPO. But from the outset, he clashed with the Goldman bankers. They disagreed on the value of the company, how the deal would be structured and how Microstrategy should be positioned in the market.

Saylor fired Goldman in March. A few days later, he named Merrill Lynch to the lead underwriter position – he had always been impressed that Ryles had personally flown to Vienna to pitch Merrill Lynch's services – and named Arlington-based Friedman, Billings, Ramsey Group Inc. to the position of "co-manager," joining Hambrecht & Quist of San Francisco. Microstrategy would pay its underwriters $3.9 million for their services, with Merrill Lynch receiving roughly half of that.

Still, Saylor wasn't willing to back down on the price. He had been working back channels to Wall Street, talking to non-Merrill Lynch bankers to get other views of what he could ask for. He was convinced he should get $12.

Everyone else had spoken. It was time for Saylor's close. "I want the price at $12," Saylor said. "I will not be satisfied unless this deal is priced at $12."

Stare-Down in San Francisco


Saylor's leverage increased as the day progressed and orders for shares kept coming. When the group met again after lunch, the Merrill Lynch bankers started saying they were "comfortable" pricing in "the $11 to $12 range."

Other key indicators were coming in solid. Inktomi Corp, an Internet data-search company, had made a strong debut that morning. Pili said that more than 90 percent of the people who had heard Saylor on the roadshow had ordered shares of stock, a tremendous "hit rate." The book showed overflow demand: 11 times the amount being sold.

Everyone reconvened for a final pricing meeting at 3 p.m. with a speaker-phone hookup to Merrill Lynch book managers in New York. Ryles ran the meeting. He gushed to Saylor: "All of us are ecstatic. We have a stellar book here. If you looked at people's body language when they were hearing you speak, it was clear they were absorbing the story."

Saylor commended Merrill Lynch for "running the roadshow very efficiently."

One of the managers in New York mentioned that the stock market was down 78 points – Alan Greenspan had said something about slowing economic growth.

Then they discussed which funds would receive the right to buy how many shares – one of the supreme secrets in any deal. Merrill Lynch, which largely controlled the allotments, would not permit the publication of the names of the funds.

Mary Ann Deignan, another book manager, then broke whatever suspense remained: Merrill Lynch would agree to a $12 pricing.

"Sounds like a good transaction," Saylor said.

The group dispersed into waiting limousines. They headed to the San Francisco airport for a return flight to New York, where the stock would be unveiled the next day.

Saylor and Lynch opened cell phones. "Call my mom and dad and tell them we priced at $12," Lynch said to his wife. Saylor addressed a Microstrategy board meeting in Vienna by speaker phone (Washington Post Chief Technology Officer Ralph Terkowitz is a member of Microstrategy's board of directors). Saylor told Sanju Bansal, Microstrategy's president and co-founder, to keep everyone focused, not to be distracted by the IPO – and to organize a company celebration for that Friday.

Saylor and Lynch ended their calls simultaneously. Saylor took a deep breath. "The really scary thing is," he said to Lynch, "I have absolutely no idea what happens next."

Michael Saylor
Saylor was a busy man two years ago, when this photo was taken upon his being named Washington's high-tech entrepreneur of the year.
(File/By Margaret Thomas – The Post)
   
Highfliers


"It's not every day you go public," Lynch said, trying to persuade Saylor, who rarely drinks, to have a glass of the $160-a-bottle scotch aboard the Gulfstream II jet as it flew over the Sierra Nevada mountains. Saylor joked that the last time he got drunk, on a company cruise last winter, he gave everybody a raise. He declined the scotch in favor of Moet et Chandon champagne, and a flight attendant brought him Hostess Snowballs on a tray.

Everyone mugged for pictures over Utah, wearing bright red "IPO of the Year 1998" baseball caps with "Microstrategy" stitched on the back. Ryles held court like a counselor at a campfire. "People looked at the world in a different way when they heard your pitch, Michael. That's exciting for us."

Then, while everyone else watched "Caddyshack" on a video screen, Saylor took a seat in the back of the jet, picked at a brick-size piece of filet mignon, and took personal inventory.

He rarely thinks about getting rich, he said. "The first few million is important. You can buy a nice house. The rest gives you credibility to approach people to ask them for things. When you're worth a certain amount, you get the attention of everyone in the room."

He plans to be running Microstrategy for 30 years. He has refused five buyout offers, he said, the largest for $100 million. And, he said, if someone were to offer him $10 billion, he would still refuse. "I have an ethical obligation to the people who work for me."

He might be ready now to get married and start a family of his own, he said. "I didn't want to get married pre-IPO"; family would be "just another constituency to juggle."

Yet family was vital to his own development. Saylor frequently mentions his mother, Phyllis Ann Saylor, who used to work days and nights as a department store clerk to help support the family. On Sunday mornings, she would wake up at 5:30 a.m. to help her son deliver newspapers.

"If your parents tell you you will do great things, you will do great things," Saylor said. "I was lucky enough not to come out of high school with a lot of angst. It helps in this process not to lack confidence."

One day, he added, he might like to be a politician.

By the time the jet landed at New Jersey's Teeterboro Airport, Saylor had talked for 3½ consecutive hours.

'MSTR'


Michael Saylor began his first day as a public company CEO by getting stuck in an elevator.

His limo had pulled into the Palace Hotel in New York at 1:30 a.m. on Thursday, just eight hours before the Nasdaq market opened. There were no regular rooms available, so the desk manager put Saylor and Lynch in the $10,000-a-night penthouse suite.

Saylor was so excited he barely slept.

He got out of bed and zig-zagged the three-story suite, taking pictures of the Statue of Liberty and the Chrysler Building out of 20-foot bay windows.

He stood on the suite's roof deck, looming 55 floors over Manhattan.

Saylor then became fixated on the suite's private elevator. His friends would never believe this. He rode it up and down.

On his final ride, about an hour before the stock market opened, the doors jammed.

Several minutes passed. It occurred to Saylor that Microstrategy might open without him. Was this an omen? Finally, he pried open the door with his hands.

His limo sped across town to the Merrill Lynch headquarters, and he arrived in time to watch the "MSTR," Microstrategy's stock symbol, premiere on the trading floor.

"MSTR" was listed right after Microsoft ("MSFT") on the Nasdaq ticker. A message flashed overhead: "Warning," it said. "Do not confuse MSTR with MSFT."

By 10:40, Microstrategy was trading at $17. A Merrill Lynch manager told the group it was time to leave. Saylor asked if he could stay on the floor just a little longer. The man said no.

Heading up on the elevator, Saylor noted that "MSTR" was also an abbreviation for "master," as in "of the universe." Everyone laughed.

By midafternoon, Microstrategy was trading at $24, and Saylor's stake in his newly public company was worth $540 million.

A month later, on July 13, he became a stock-market billionaire for a half-hour, when Microstrategy hit $44.50.

The stock closed on Friday at $37.

© Copyright 1998 The Washington Post Company

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