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Extraordinary Genius
Chapter 1301 – Smaller Company Acquiring Bigger Companies
“Dear, I will be having dinner at Old Zhang’s place. Tell Mum and Dad not to wait for me.”
“Ok. You are so capable. Even our Provincial Mayor asks you for help.” Li Na proudly said.
Feng Yu kissed Li Na’s forehead and left after changing.
Feng Yu carried a roast duck he bought from Quanjude into Zhang Ruiqiang’s apartment.
“Why did you bring gifts every time you come over?” Zhang Ruiqiang’s wife grumbled with a smile.
“I cannot here empty-handed, and Quanjude is mine too. The duck is packed in a thermal bag, and we can eat it later.”
Zhang Ruiqiang’s wife knew Feng Yu will be coming over and has started preparing dinner.
When Feng Yu entered the apartment, he noticed there is another guest. He remembered this man as Xu Changyou’s former secretary. He is currently Bing City Government’s No. 2 official.
After Xu Changyou retires, all of his subordinates went under Zhang Ruiqiang. Zhang Ruiqiang and Zhao Guoliang stood up when Feng Yu enters.
“Come and wash your hands before dinner.”
Zhang Ruiqiang’s wife ate very fast and finished her dinner within ten minutes. She says the drama series she is following is starting soon, and she will be in the room to watch TV. Before she leaves, she prepared a pot of tea.
“Feng Yu, tell us how we can develop Bing City Beer stronger and faster? Guoliang is currently overseeing the City’s economy, and he will be executing the orders.”
Zhao Guoliang looks at Feng Yu. “Manager Feng, I look forward to your guidance.”
“This is only a discussion. I will be sharing how a smaller company acquire a bigger company from a businessman’s perspective.”
Smaller company acquiring a bigger company? Zhang Ruiqiang and Zhao Guoliang exchanged looks. How come this sounds similar to the proverb, ‘a snake tries to swallow an elephant?’
“It is very easy for a listed company to expand. When they require funds, they can just issue shares to raise funds. They can also exchange shares for having the controlling stake in the other company. When I was in the US, a company had used this strategy. It grew from a company worth a few hundred million USD into a conglomerate worth almost 20 billion USD within a few years.”
“What happens next?” Zhang Ruiqiang asked.
“Next? That company becomes bankrupt.” Feng Yu shrugged his shoulders.
Zhang Ruiqiang: “…….”
Zhao Guoliang is confused. The solution you are telling us is from a bankrupt company?!
“There are several reasons why that company went bust. Firstly, they want to become the world’s biggest company using this strategy. Before that, they are already one of the top three companies internationally. It is a miracle for them to achieve this result within a few years. The second reason is their management had made a mistake. They tried to complete it in one step and expanded beyond their abilities. They wasted their resources and did not receive the returns they should have gotten, resulting in cash flow issues. The third reason is they fabricated their financial report, and I got my men to expose them. Investors start to dump their shares, and their shares crashed.”
Zhao Guoliang thought to himself. You are using a company that went bankrupt because of you as an example?! Manager Feng doesn’t seem reliable.
“Putting these three main reasons aside, this company’s expansion model can be considered a classic because they didn’t spend any cash every time they expand. They either issue new shares or exchange shares for expansion. They did not buy out other companies completely. They only get the controlling stake of those companies, and it’s enough.”
“One thing we must take note of is we are not going to take over or monopolize the entire market. That’s why we will not face suppression, and we must not fabricate our accounts and financial reports. This is taboo for listed companies, and the company might bankrupt if anyone finds out.”
“Manager Feng, why can’t we think of taking over the entire market? I heard from the Leader that we would not acquire Qingdao Beer, Beijing Beer, etc. Why?”
“This is because these two companies are the best-selling beers in China previously. They are not only doing well in China, but they are also selling well overseas. Also, many State-level investment companies had invested in these two companies. Simply put it. These two companies don’t lack money, and they will ask for a ridiculous amount of money if we are going to acquire them. Even if we exchange shares, they will demand an astronomical number of shares from us. They will never allow us to owe the controlling stake. Most importantly, the higher-ups will interfere.”
Zhao Guoliang thought about it and nodded. If Qingdao Beer wants to merge with Bing City Beer, he will also stop them.
“There is another important reason. Such expansion will increase the company’s debts. It is not good for a company to have a high debt ratio, as the company might become bankrupt if they encounter cashflow issues.”
WorldCom has borrowed money to invest and borrow again to continue with their expansion. They might have expanded, but they don’t any cash in hand.
Although cash might not be necessary for a company’s growth, it is impossible to grow without cash.
“Then how should we expand? Start acquiring from the South to the North, and increase our issued shares?” Zhang Ruiqiang asked for more details.
“Why should we expand from the south to the North? We should target those bigger breweries and acquire them. Beidacang can continue to inject funds into Bing City Beer, and you all can get loans. Of course, issuing shares is the easiest way to raise funds, but you all should not issue shares blindly.”
“When you all are going to issue shares, let me have some private placement, or I can help you all find buyers. I believe many people will be interested in Bing City Beer’s expansion. You all must remember to be fast when you are acquiring other breweries, and don’t give them time to negotiate with other companies. This will raise the prices.”
“Try to buy out the brewery entirely if possible. If not, get the controlling stake. Even if you all cannot get the controlling stake, some shares will be fine, but they must agree to produce Bing City Beer. This way, Bing City Beer will be available in all provinces, and we will become the most famous beer with the most distribution channels.”
“Talking about sales distribution channels, you all can speak to Zhong Qingxian. I think if you allow Tai Hua Holdings to invest in Bing City Beer, Tai Hua Holdings will not mind sharing their beverage sales channels with you all. We have the best beverage sales channel in China, and no other companies can compete with us. With TV and online advertisements, Bing City Beer will become the most well-known beer brand in China.”
Zhang Ruiqiang looks at Zhao Guoliang. They could see the decision in each other’s eyes. They must write a detailed proposal and start Bing City Beer’s expansion as soon as possible.