2003: Starting with Foreign Trade

Chapter 941: Leveraging the greatest resources with the least amount of capital.

At the end of April, the core component supply mechanism of Weilai was officially changed from just-in-time to safety stock mode. Subsequently, this mechanism was officially promoted in three major companies, including Orange Group, Flash Group and Meizu Mobile.

Changes in internal mechanisms have led to very obvious changes within the company.

Alongside the crucial supply chain transformation, the internal changes at Weilai are also very noticeable. Firstly, to ensure the stability of logistics and transportation, Weilai has established new strategic transit warehouses in Chongqing and Zhengzhou.

In addition, Wei Lai unexpectedly signed an agreement with the China-Europe Railway Express, adding rail transport while retaining sea transport. This move is truly incomprehensible to outsiders, because rail transport is much more expensive than sea transport.

Under normal circumstances, the freight cost of a 40HQ container on the China-Europe Railway Express is approximately US$4000 to US$8000, while sea freight only costs US$1500 to US$3500. Taking the route from Chongqing to Duisburg as an example, the transportation cost of the China-Europe Railway Express is two to three times that of sea freight.

In addition to increasing rail transport, Weilai has also made considerable arrangements in air transport, establishing its own air transport whitelist. However, while ensuring safety in the transport sector, it has also increased Weilai's costs significantly.

It was even considered political speculation to some extent, because on April 25th of this month, the Belt and Road Forum for International Cooperation was successfully held in Beijing, with more than 6000 foreign guests from 150 countries and 92 international organizations participating, marking the beginning of a new phase for the Belt and Road Initiative.

The signing of the China-Europe special train cooperation agreement in Weilai took place on the second working day after the Belt and Road Initiative conference.

“There are certainly controversies, but we also have our reasons. Ensuring the safety of the supply chain and transportation is our top priority going forward. Let the board of directors have their reasons.”

There were other voices in the board of directors of Weilai. The shareholders might understand Tan Jincheng's approach to the reform of "security" from the outset, but they also had their opinions on the increased costs and reduced profits.

Wanting both—that's the attitude of capital. Tan Jincheng couldn't be bothered with this attitude, since he had absolute control over both shares and board members.

When it comes to matters at the company's operational level, investors can express their opinions, but whether or not they listen is up to them.

All changes come at a cost and require harming the interests of some people, but Tan Jincheng and his company had no choice but to do so in order to prepare for the media.

After reforming the supply chain system, Boss Tan set about transforming the production line. This time, the task was taken over by Zhang Yong, the manufacturing manager in charge of production, which led the company's senior management to jokingly say that the boss was taking advantage of the couple.

The factory's transformation is a seemingly useless industrialization transformation for epidemic prevention. The welding workshop has been converted into a negative pressure ventilation system, which is currently the most advanced epidemic prevention standard in the world. In addition, it has begun to reserve replaceable modular production lines.

This modular production line is modeled after Volkswagen's MEB platform production line. Switching to it only takes 72 hours. In addition, one-third of the employees need to be trained to master cross-process operations. This series of modifications will more or less affect the existing production plan.

However, compared to his wife, Zhang Li, who had known Tan Jincheng for longer, clearly understood the boss better and did his job almost perfectly, gradually modifying the production line without affecting production.

Zhang Li has been spending almost all his time in the workshop lately, and he rarely even has the chance to meet his wife, who also works at the same company.

Unfortunately, the boss only gave him eight months, and the renovation had to be completed before January 2020. This timeframe was already very tight. In addition, the boss also mentioned a flexible production capacity plan.

For example, to reserve nighttime production shifts, before Wei came, a 24-hour two-shift system was implemented, and the workload of grassroots employees was relatively high. During this transformation, some departments began to pilot a three-shift mechanism.

On the one hand, it's to give employees more rest time, and on the other hand, Weilai is currently expanding its recruitment, including plans to expand recruitment of entry-level employees. However, doing so will definitely affect the income of some entry-level employees.

Tan Jincheng, who has long been in contact with grassroots workers, knows that while rest and promotion are important, real income is what they value most. Sometimes people don't hate the competition itself, but rather that the competition doesn't match their income.

Weilai's grassroots employees work 12-hour shifts, but their income is nearly 30% higher than the industry average. They also have a very comprehensive logistical support system, including social security, accommodation, assistance with family employment, and children's education, which eliminates their worries.

After switching to three shifts, employee income was inevitably affected, and management didn't have any good solutions. However, since it only affected some production departments, management suggested encouraging these employees to learn and master cross-process operations.

Being able to adapt to multiple processes means being able to rotate between different production lines, making it easier to increase income.

Three companies?

While Weilai was undergoing renovations, Tan Jincheng himself was also busy. In addition to inspecting various production parks recently, he also signed power supply guarantee agreements with the local governments where the parks were located. Summer is approaching, and Zhejiang Province has been experiencing a power shortage in recent years.

Take Ningbo and Beicang as examples. In the past few years, there were frequent power outages. Weilai is a key enterprise in the district and is definitely a priority in terms of power supply, but it is obviously impossible to say that it had no impact.

Fortunately, Wei Lai renovated the factory, installing solar panels on many of the factory roofs, which provided some electricity to the factory and solved a lot of problems for himself and the district.

However, just in case, Tan Jincheng still wanted to add some insurance for the company.

However, apart from these, his biggest concern recently is acquiring a private healthcare company that deals in disposable gloves, masks, and other products. He remembers that Dizi converted some of his production lines into mask production lines, providing a large supply of masks.

Although Dizi is often criticized and its factory is also complained about for its treatment of employees, from a social and corporate perspective, Brother Chuanfu has a great vision, sacrificing production capacity to transform a mask production line.

Furthermore, during the chip crisis, Dizi, which had its own semiconductor company, generously borrowed chips from its peers.

That's right, it's a loan, not a sale at a high price.

There's really no denying this; of course, doing so also brought huge returns to both Boatman and Dizi. Reaching the top spot in the global mask market brought Dizi considerable profits.

As a leading domestic enterprise, Weilai is equally determined not to lag behind in this regard.

However, Tan Jincheng did not want to modify the production line like BYD did, because although this thing is quite profitable, it will more or less affect some production capacity. In addition, modification also requires time and the right timing.

We can't exactly start making changes now, can we? That wouldn't just be a matter of shareholders not understanding; they'd just think you're crazy.

Therefore, Tan Jincheng's idea is to acquire such a company, and then increase production capacity to provide supply to society. In addition to corporate-level responses, individual-level responses are also very important.

The most important thing is these basic medical equipment, which are the most useful and cost-effective for individuals and families.

"Yes, these three are the most suitable at the moment, but Lanfan is probably the worst choice."

In recent years, ByteDance's investment platform, Ocean Engine, has increased its holdings of healthcare stocks in the secondary market. However, this was not actually guided by Tan Jincheng, but rather by Cheng Linfeng. The surge in healthcare investment has drawn Cheng Linfeng's attention to this sector.

In particular, the field of innovative drugs has been booming in recent years, and ByteDance's secondary investment department has also established two funds focused on medical investment.

However, at the beginning of the year, their boss asked them to collect companies with personal healthcare services and seek acquisition opportunities, which really puzzled them; the reason is that the profit margin is too low and it has not received much attention in the A-share market.

"Tell me why."

The three companies Huang Ming provided were Inco, Lanfan, and Wenjian Medical. The first two are listed companies, while Wenjian Medical is not yet listed, but its valuation is the highest.

"Although the founder of Lanfan has a lower shareholding, which is conducive to the acquisition, his strategic focus is on high-end medical devices, not personal healthcare. Considering our actual acquisition objectives, this company is not very suitable."

"In addition, the company's synergy is relatively low, and its market value is around 60 billion yuan, which is not very cost-effective."

"In comparison, although the founder of Inco holds more than 41% of the shares, from our acquisition perspective, this company is the most suitable; of course, the most important thing is that it is cheap enough."

Inco, which went public in 2017, currently has a founder holding 41.57% of the shares, giving him a firm grip on the company. However, this listed company, with a market value of around 30 billion yuan, is currently facing a difficult period in its development.

In the first quarter, Inco's revenue was less than 5 million yuan, and its net profit was just over 3000 million yuan. In the whole of 2018, its revenue was only 18.93 billion yuan, and its net profit was 1.79 million yuan. Of course, the most crucial point is that Inco's gross profit margin is only 25%, which is far below the industry average.

This medical device company, listed on the ChiNext board, is virtually unknown in the A-share market. Its main business is mediocre, and its stock price is low.

From a stock-buying perspective, this company is like a chicken bone—something neither here nor there. Cheng Linfeng wouldn't really want to allocate any of his holdings to such a company. However, since the boss wants to acquire this type of company...

Therefore, he has invested in all of them, including Inco, Lanfan, and other medical companies with related businesses, but the proportion of each in his portfolio is relatively low.

"With a market value of 3 billion, how much do you want to buy? Buying 30 million would give you a 10% stake."

Another company, Wenjian Medical, is not currently listed, but it has listing plans. According to Huang Ming's information, Wenjian Medical is already planning to go public and plans to list on the A-share market in the second half of 2020.

The cost of acquiring a company with highly concentrated founder equity and plans to go public would be too high. Currently, Wenjian Medical's overall valuation is 100 billion yuan, with projected revenue of 40 billion yuan and net profit of around 5 million yuan for the entire year of 2019.

“For acquisitions of non-listed companies, once you've secured the founders and major shareholders, you've got everything sorted out. But 100 billion plus a premium is just too expensive and completely unnecessary.”

A medical device company with an expected annual revenue of 40 billion is already quite large, and it's in the early stages of its IPO. If you were to suggest acquiring it at this point, even with a 500% premium, the boss probably wouldn't agree.

At a normal pace, it wouldn't be unreasonable for a company with such sound operations and excellent revenue and net profit to triple in its first year after listing, right? That would be a market value of 300 billion.

No company owner would be so short-sighted, and the shareholders wouldn't agree to it.

"So, acquiring Inco Medical seems to be the best option?"

Putting yourself in his shoes, even he wouldn't give up a company that's striving for an IPO. If he just waited a year or two, his wealth would be incomparable to what it is now.

According to shareholder information, the founding family currently holds a 77.14% stake in Wenjian. Given the valuation of 77 billion yuan, how would they choose between a net worth of over 20 billion yuan in two or three years? Besides, with such a high shareholding, it's practically a joint venture acquisition. He's just trying to prepare for what's to come, but spending 10 or 20 billion yuan isn't really necessary.

"Okay, let's go with Inco. You set up an acquisition team, contact their actual controller, and come up with a feasible acquisition plan as soon as possible. Remember to be quick."

In the case of equity transfers of listed companies, premiums are quite common, usually around 30%. Based on a 30% premium, that would be a market value of approximately 39 billion yuan.

Since it is a listed company, Tan Jincheng does not need to acquire the entire company. He only needs to acquire the largest or second largest shareholder. Therefore, the acquisition cost is approximately 10 billion yuan.

Spending 10 billion yuan to control a small listed company to produce necessities eight months from now not only solves social problems but also avoids any connection with Wei Lai. This deal seems like a great deal no matter how you look at it.

Furthermore, even if it's an essential item sold domestically, he doesn't seek any profit, but this thing is needed globally, which will inevitably push up the stock price of the listing.

That's how the capital market works. Whether a product or even a business makes money or not doesn't matter. As long as there's a story to tell, it can drive up the stock price.

"Boss, why did you acquire such a seemingly unremarkable company?"

Cheng Linfeng, who had come along, finally couldn't help but ask: Although Inco has a certain market share in the global personal healthcare market, it doesn't seem like this industry has much of a future.

Admittedly, the company's current market value is somewhat undervalued, and the overall healthcare industry is booming. However, the problem is that this company is at the bottom of the industry, and its valuation should not exceed 60 billion yuan, no matter how high it is.

A high-profile acquisition, just to double the value? Cheng Linfeng didn't believe his boss had such a low vision.

If the boss really wanted to make this money, he wouldn't have merged Yangzi Automobile into Yuechi Automobile; he would have made even more money by pushing Yangzi Automobile to go public.

"That's normal. We've invested in quite a few companies in the healthcare industry, but we're still relatively new to this field. All our investments are in the secondary market. If we're not informed in time at crucial moments, our investments could easily be taken advantage of."

"Oh, so the boss means you're talking about spending 10 billion yuan to buy an admission ticket, right?"

"Pretty much, you can understand it that way too."

From a purely investment perspective, Tan Jincheng's statement makes sense. The best and fastest way to enter a certain industry is to control a listed company, even if it is the lowest-level, most inconspicuous listed company.

Controlling a listed company allows you to interact with established capital in the industry, but more importantly, it enables you to leverage the supply chain relationships of the listed company's business to create a certain level of interaction within the industry.

Using minimal capital to leverage maximum resources is Tan Jincheng's ultimate goal. Personal healthcare products are only the most basic need for the next three years, while other higher-level needs exist for individuals, businesses, and even governments.

Tan Jincheng can't possibly stockpile everything; he still needs to buy what he needs. With this connection, it will be much more convenient to procure medical supplies in the future.

You need my medicines and medical devices, and I need your personal care products, which creates a positive interaction.

In fact, amid the booming investment in healthcare, as of the first quarter of this year, there were only three healthcare stocks with a market capitalization of less than 40 billion yuan. Two of them are pharmaceutical companies, and only one is Inco Medical, which is engaged in medical devices.

Under Tan Jincheng's acquisition philosophy, Inco was not so much the best choice, but rather the only choice.

"That's good too. We can focus all our energy on this one company and save time."

For Tan Jincheng, time is the most precious thing; by the end of the year, no one will sell.

"Understood, then we'll go prepare."

The key to acquiring Inco lies in the founder's attitude. While Huang Ming and others were formulating the acquisition plan, Tan Jincheng contacted Inco's current actual controller through various key channels.

"Is President Tan trying to cross over into a new field?"

Liu Fangyi, 49, was born in Shanghai. He went abroad to study at the age of 19, majoring in electronic engineering, which is different from other medical company bosses. It was an extreme career change.

In addition, his way of making his fortune is somewhat similar to that of Tan Jincheng. Both started with import and export trade, and then started factories and eventually went public.

He is from Shanghai, but his main career is in Shandong Province, which is similar to Tan Jincheng.

Therefore, even though there was a significant difference in their social status, Liu Fangyi still felt a strange sense of identification with Tan Jincheng.

However, this young man, who is now at the height of his career in China, suddenly said he wanted to acquire his company, which was quite unexpected for him.

"Mr. Liu should also know that ByteDance has invested in a lot of medical companies over the years, but so far we have not figured out the way to succeed and are only doing secondary market investments."

On May 1st, at a coffee shop in Shanghai, Tan Jincheng personally met with Liu Fangyi. He had secretly come all the way from Ningbo and went straight to the point, showing great sincerity.

Liu Fangyi nodded and said, "I have some understanding of this, and the returns have been quite good in recent years."

Before understanding Tan Jincheng's intentions, Liu Fangyi decided to continue along with the other party's topic.

"The healthcare industry is a very complex industry. Like Mr. Liu, I am an outsider. There are also few professionals in our company's investment team, so we plan to buy a ticket to enter the market."

"Then why us? There are many companies that are better or more promising than ours."

"It's very simple. Your company's market value is cheap enough. In the A-share market, companies with a similar market value to yours are all in the pharmaceutical industry, which is something we can't handle right now. Medical devices are the most suitable."

Tan Jincheng's directness surprised Liu Fangyi for a moment, then he smiled wryly and said, "There have always been rumors that President Tan doesn't like to play tricks when negotiating and always goes straight to the point. Now I can see for myself."

Good heavens, I never expected it to be for this reason. Actually, Liu Fangyi was also quite helpless about this. Their company was not well-regarded in the fund industry due to both industry factors and the company's own circumstances.

Almost the entire industry is rising, but the performance of their niche stock is just so-so. If you were to select the worst-performing medical device company in the entire A-share market, they would definitely take the top spot.

"Sincerity is the most important thing in interpersonal relationships. There can be various kinds of competition in business, but I don't think it's necessary in business negotiations."

To use an internet meme, high-level business battles are often simple and unpretentious, and Tan Jincheng believes this most in the realm of business negotiations.

"Indeed, that makes sense. May I hear Mr. Tan's sincere quote and proposal?"

Putting aside the question of whether to sell or not, let's hear what the other party has to say first. Judging from what he said, he seems to think that his side is the cheapest, and he probably has other alternatives. The first company that comes to Liu Fangyi's mind is Lanfan Medical, which has similar attributes.

Unlike their company, Lanfan's founder only holds 15% of the shares, making the equity very dispersed. However, it is precisely this dispersed equity that makes it easier for him to become the largest shareholder.

Given Tan Jincheng's personal influence and that of ByteDance's advertising platform in the capital market, it wouldn't be difficult for him to find a few major shareholders and funds to negotiate a transfer agreement.

The other party said it was because they were cheap, but you should also know that this person is really rich and has a healthy cash flow.

To some extent, Tan Jincheng's image of being well-off in the capital circle over the years has brought him great convenience in his investments and acquisitions, much like how Tencent is viewed in the internet industry.

They have plenty of money; if they acquire a company, they won't worry about subsequent investments, and if they invest, they won't cause any trouble.

Of course, the most crucial factor is that Tan Jincheng's real-world experience in reviving well-known companies such as Yangzi Motors and Meizu Mobile has reassured many idealistic but somewhat helpless founders who want to entrust their companies to him.

When Tan Jincheng directly expressed his intention to acquire the company, Liu Fangyi couldn't help but wonder if this charismatic young man could actually lead the company to new heights.

He definitely made a profit. As the founder of a company, even if he sells his shares and relinquishes his position as the largest shareholder, he would not transfer all of them.

“I need to acquire 25% of the shares held by Mr. Liu. I can offer 10 billion yuan for this portion of the shares. We will increase our holdings in other shareholders and through the secondary market for the remainder.”

"After the acquisition, Mr. Liu will retain the management rights of the company. In addition, after the acquisition is completed, I will try to introduce some industrial capital and strive to increase Inco's global market share to 10%."

Offering money and making empty promises are all common tactics, but it depends on who's making those promises.

A bid of 10 billion yuan for 25% of the shares amounts to a valuation of 40 billion yuan, which is indeed very sincere. However, what surprised Liu Fangyi was Tan Jincheng's next sentence.

"It should be noted that this acquisition was my personal decision, and all the funds came from my own pocket. It has nothing to do with ByteDance's advertising platform."

Is there any explanation for this?

He naturally understood the significance of personal acquisitions versus corporate mergers, but he didn't understand why Tan Jincheng was emphasizing this point separately.

(End of this chapter)