novelraw #471 - Long-term thinking
#471 - Long-term thinking
Rolls-Royce headquarters in Westminster.
A high-level meeting was prolonged by heated debate.
"Robert, I think it's acceptable. Although our automotive business isn't currently losing money, it's not making much either. It's making, at most, twenty to thirty million pounds a year, and it's not stable. We can receive two hundred million pounds in one lump sum. This premium already shows great sincerity," said Oliver, the vigorous Vice President.
"No, I personally strongly object. This is a betrayal of the Rolls-Royce tradition. We have never accepted investment from foreign investors, let alone from the Far East," Sir Martin, the white-haired director, retorted directly, his neck stiff.
"We are the last pride of the Empire on which the sun never sets. If people were to know that we are reduced to selling assets to survive, it would undoubtedly be a disgrace to the Empire."
"Sir Martin, speaking of disgrace, if we don't raise funds by selling part of the automotive business's equity, the aviation division will probably go bankrupt and close down in less than a year, given the current business situation. Will you, Sir Martin, be responsible when that worst-case scenario occurs?" Vice President Oliver countered directly.
"We are discussing matters of life and death, not the glory of the Empire. Can those empty names bring us a hundred million pounds in life-saving money? Or is Sir Martin, in his old age, omnipotent enough to bring us this hundred million pounds?" Oliver's words hit the nail on the head.
Sir Martin, who strongly opposed, felt unwilling but helpless.
"Regardless, we shouldn't think about selling off these ancestral assets. Every business of our Rolls-Royce company is a light of the Empire. If they are sold, then the soul of our Rolls-Royce company will be gone. If we really do that, then we will be the true sinners in the development history of Rolls-Royce."
Sir Martin said loudly, placing a huge hat on everyone's head, as if the Rolls-Royce company was facing an overwhelming disaster.
"Gentlemen, gentlemen, please be quiet!" Seeing the increasingly strong smell of gunpowder in the meeting, Robert had to call a halt.
Whether they advocated selling or not selling, no one had put forward constructive suggestions on how Rolls-Royce could develop after losing the aviation engine business.
Everyone was now mainly focused on various ways to overcome the current difficulties.
The mainstream idea was to reduce staff and increase efficiency, starting a major layoff!
However, as the Rolls-Royce Group has evolved to its current state, almost all the remaining employees are either on the front line of production or on the front line of sales. Although cutting these people can reduce labor costs for a while, the lack of talent to productize the current technology leads to a weakening of the blood-making ability, and eventually the company will continue to weaken and move towards destruction.
"Mr. Alexander, you are the Chief Financial Officer, what is your opinion?" Robert began to call the roll.
"Mr. Robert, from a financial perspective, with these two hundred million pounds, our aviation research and development will not have much of a problem even if it doesn't start for three years. Our cash flow will become very abundant. Our new generation of engine development costs about two hundred million pounds, but this time our research will be jointly borne by the Far East side, so in fact, our investment is roughly around one hundred million pounds. We can completely cover this part of the cost increase, and then the surplus of one hundred million can at least allow the aviation business production line to persist for more than three years without income. We may be able to hold on until the receipt of passenger aircraft sales, allowing the aviation business to get on the right track," said Mr. Alexander, the company's CFO.
"Without other segments supplementing this gap in revenue, we will have a budget shortfall of fifty million pounds per year that needs to be filled. We have previously sought help from Downing Street, applying for financial subsidies or interest-free long-term loans, but Downing Street rejected our request, claiming that as a company, Rolls-Royce needs to rely on itself to solve the financial gap rather than using the authorities' financial budget, unless we want to be nationalized."
Elker truthfully stated the recent events. Some of the board members present knew about it, some were not clear, but after hearing these, everyone's face turned dark.
If it were nationalized, the annual income of every director present would be greatly affected. After all, as a state-owned enterprise, there are regulations on the upper limit of compensation. The highest income cannot exceed 30 times the average salary, but in private enterprises, the upper limit of compensation is basically unlimited. You can have a hundred times, two hundred times, as long as it is approved by the company's shareholders' committee.
Therefore, once nationalized, these executives of Rolls-Royce would face a round of major pay cuts.
In this way, even Sir Martin, who was most opposed, was silenced.
Even if he is not short of money, he cannot block the road for the thirteen board members present to make money, otherwise his days on the board would be numbered.
"Our automotive business is generally running well, but profits are also relatively limited. Under the current development strategy, we also have no way to quickly expand the automotive business to make up for the loss caused by our aviation business revenue. After all, the Rolls-Royce brand mainly targets the ultra-high-end market, and the number of customers in this market each year is quite limited. Our customers also do not want the brand's cars to become mass-market models."
"As a symbol of status, once our automotive business moves towards mass production, it will lose the widely recognized value of prestigious Rolls-Royce users. I don't think we can take such a risk."
After Elker simply explained the Rolls-Royce company's predicament, everyone continued to remain silent.
"Does anyone else need to speak and add anything?" Chairman Robert swept his gaze across the crowd in the room and continued to ask in a deep voice.
"If not, we will vote on this matter," Robert continued, "Those who agree to cooperate with Far East Motors and accept Far East Motors' investment, please raise your hands."
After speaking, Robert took the lead in raising his hand.
Soon, the other 8 directors in the room immediately raised their hands. The remaining 4 looked at their colleagues, and after a moment of contemplation, three more raised their hands in agreement. "I abstain," Sir Martin said helplessly, seeing the overwhelming trend. There was no point in opposing it now.
However, Sir Martin had his own final stubbornness.
"Alright, with 12 votes in favor and 1 abstention, the board of directors agrees to cooperate with Dongda Motors," Robert declared, bringing the gavel down.
"Mr. Elk, the following negotiation work will be led by you. We need to find a way to obtain enough funds to overcome our difficulties with the least amount of equity transfer. Mr. Elk, this important task is entrusted to you," Robert said. As CEO, this was Elk's responsibility, so no one objected.
"Rolls-Royce has agreed to our intention to invest, but in terms of negotiating the equity transfer, they hope to control 66.7% of the shares, giving us 33.3%, while the financing price remains unchanged at 200 million pounds." Chief Ye brought Qi Tongsheng, the president of Passat Automotive Industry Corporation, which represents Dongda Motors' investment, to ask Ren Zhong about the bottom line for cooperation.
"Our bottom line is not to seek a controlling stake in Rolls-Royce, and we can even give up voting rights," Ren Zhong said. He knew very well that although the British Empire was somewhat declining, the John Bull mentality was still strong, especially among the older generation of managers. "However, in terms of valuation, we must stick to the valuation of 400 million pounds. In fact, based on Rolls-Royce's current revenue and profit, the valuation we offer exceeds the stock valuation of listed automobile companies in the United States. We have the confidence in this regard, so our insistence on this will not waver."
"On the other hand, what we seek is the opportunity for in-depth cooperation with Rolls-Royce in the future, but we should not bring up this issue now to avoid adding variables to the current cooperation. However, we need to demonstrate our sincerity in this cooperation, treat people with sincerity, and let Rolls-Royce believe that we are not here to stir things up, but to increase their strength, while also solving the current financial difficulties of Rolls-Royce."
"The Rolls-Royce Group is a very special company in the UK. Our in-depth cooperation with them is a very meaningful thing in itself, which should not be evaluated solely by economic benefits, but as a way to open up cooperation with strong domestic enterprises in powerful countries. In the future, it is very necessary for us to cooperate deeply with countries like France, Germany, and Switzerland, which have strong technologies, to further integrate our current competitive industries into the world and form a situation where we are interdependent."
"Especially the automotive industry, future cooperation with Germany is also a must. In addition, we also have strong complementary and win-win opportunities in engines, machine tools, precision instruments and meters, materials industry, optical industry, and chemical industry."
"In the overall consideration of cooperation, we must focus on the big picture. After establishing a good reputation among the powerful countries, we will use market-driven methods to stimulate them to compete with us for future cooperation. We adhere to the idea of peaceful development and common development to cooperate with all countries, so what we have to do in this matter is to have both concessions and insistence. We must insist on what we should insist on, so that they understand our bottom line, and not think that we can cooperate well by simply catering to them."
"On the contrary, let them see our commercial considerations, our insistence on valuation, and our abandonment of equity voting rights. This clearly expresses our sincerity in commercial cooperation and that we are not here to seek control of Rolls-Royce. They don't even need to make any changes to the company's business, because that's not our goal."
Ren Zhong revealed his thoughts on this matter. Chief Ye and Qi Tongsheng fell into deep thought after listening.
After all, in this regard, they did not think as deeply as Ren Zhong.
In terms of long-term development vision, Chief Ye and Qi Tongsheng did not dare to compare with Ren Zhong. For them, the most important thing was to accurately understand Ren Zhong's ideas, so as to avoid deviations at the implementation level. If they could not deeply and accurately understand Ren Zhong's thinking, even if the work seemed similar, the actual operation process would involve many people, and even a small deviation might lead to a large deviation in the implementation.
This was also the reason why Chief Ye brought Qi Tongsheng to personally consult Ren Zhong. It was too easy to generate misunderstandings through the understanding and retelling of an intermediary. Only by fully communicating and understanding with the person concerned, as well as timely questioning and dialectics, could major misunderstandings be avoided.
"Dean Ren, do you mean that our approach is not limited to obtaining a certain amount of equity? If they are only willing to transfer 33.3%, we can also accept it. It's just that in terms of consideration, we will give 133.2 million according to the value of 400 million, and everything else remains the same, right? If they are willing to transfer 49%, we can give 196 million, which is also acceptable," Qi Tongsheng asked after pondering for a while.
"Yes, we have no intention of controlling the shares. Our goal is to invest in it, to improve the relationship with the Rolls-Royce Group, and to develop our own luxury car with the cooperation opportunity between Rolls-Royce and Dongda in the future. Now the Passat brand is positioned at the level of business cars. If we want to develop in the direction of luxury cars, it will be very difficult. So in this regard, my idea is to create a new sub-brand, such as a brand like Cullinan, and it is best to pull Rolls-Royce to do it together, so that it will be easier to create a new luxury brand."
"Our competitive products in this luxury brand are not the ultra-high-end like Rolls-Royce, but the mass elite luxury brands like BMW, Mercedes-Benz, and Lincoln," Ren Zhong added.
The Bright Sword era did not yet have the concept of Cullinan. Ren Zhong said it casually, and Qi Tongsheng and Chief Ye just listened casually. They never thought that they would really use this name to create a luxury car in the future.
However, the two finally understood Ren Zhong's core idea. Now that they are connected with Rolls-Royce, what they are planning is the future creation of Dongda's luxury cars. Now that Dongda Motors has just started, it is too difficult to handle this matter on its own. The most difficult thing in creating a luxury brand is the potential customers' sense of identity, which cannot be achieved overnight by throwing money at it.
Tying up with Rolls-Royce, a top luxury car brand even in the Bright Sword world, has many backgrounds and origins that can be boasted about and told stories about.
Therefore, in the cooperation with Rolls-Royce, they seem to be making a lot of money now, but in the long run, Dongda will definitely not lose out.