Since they are reborn, they must be supported by the school beauties.

Chapter 148: Wouldn't there be a turning point?
Chen Cheng's sudden mention of the word "betting" caught Shen Luning off guard.

She looked up at Chen Cheng and asked suspiciously, "How did you know? I didn't even tell Zishan the details."

"My guess."

Chen Cheng said calmly, "If it's just your own business running into trouble, there's no need to keep running to Guangzhou. The most likely thing is to go see the investors."

Shen Luning was quite surprised, but considering that Chen Cheng always saw things more deeply than the average person, it wasn't surprising that he could see it. So she frankly said, "It is indeed a problem with the performance-based agreement. In April of 99, my father raised a sum of money from Tianyun Pharmaceutical in Yangcheng to expand his business. At that time, he signed a performance-based agreement with Tianyun Pharmaceutical. Now it seems that he will not be able to fulfill the terms of the agreement, and we are negotiating a solution with them."

Chen Cheng asked, "How was the performance-based agreement signed?"

Shen Luning said, "At that time, Tianyun Pharmaceutical gave 40 million yuan, accounting for 25% of the shares. The agreement was that the performance growth within three years should reach 100%. If it was achieved, everything would be fine. If it was not achieved, a repurchase would be triggered."

Chen Cheng then asked her, "How were the repurchase terms signed?"

Shen Luning thought for a moment and said, "If we repurchase it, we need to pay 64 million, because there is a 20% annualized return rate each year, and the interest over three years will be 24 million."

Chen Cheng was somewhat surprised: "Isn't this annualized rate a bit too high?"

Shen Luning said helplessly, "My dad thought it was a once-in-a-lifetime opportunity. He believed that with 40 million, we could do a lot of things and definitely fulfill the bet. But now, it seems he was too optimistic and too aggressive."

At this point, Shen Luning sighed and said with emotion, "The reason why the bet couldn't be completed is because the business has been bad these past two years and the performance targets haven't been met. Under these circumstances, how could we possibly come up with 64 million to repurchase their shares? The company only has a little over 10 million in cash on hand right now. My dad and the other shareholders can only make up the remaining 40 million by personally paying out of their own pockets, but that amount is too big, and we really can't come up with that much money."

Chen Cheng nodded: "To put it bluntly, a performance-based agreement is like a marriage without any emotional foundation, bought entirely by the bride price. The core logic is very cruel. If the performance target is met, the couple can continue living together; if the target is not met, the other party will definitely take advantage of the situation and wish to leave you with nothing."

Shen Luning then said, "Now they have offered two options. One is to ask us to give them an additional 20% of the shares in exchange for terminating the performance-based agreement early. The other is for them to invest 50 million to buy out all the remaining shares of the company."

Chen Cheng frowned slightly and analyzed carefully: "The first option is tantamount to admitting defeat in advance and ceding territory and paying reparations; the second option is even more ruthless, directly driving out the founding team. The key is that you gave up 25% three years ago and raised 40 million, which valued you at 160 million. Now you still have 75% of the shares left, but they only offer 50 million, which is less than 70 million in valuation. They directly discounted it by 40%, which is too ruthless."

"Yes!"

Shen Luning took a sip of beer and said indignantly, "This company is the culmination of my father's hard work over many years. He doesn't want to sell all his shares and hand the company over to someone else, so he wants to discuss the 20% share issue again. If the other party accepts 15%, he might sign the contract immediately."

"However, their contact person is very tough and unwilling to compromise at all. They are convinced that we cannot fulfill the performance agreement and that we dare not falsify performance data. If we falsify performance data, the compensation will be higher, and there may even be legal risks."

Chen Cheng then asked, "What are the penalties stipulated in the agreement if the performance target isn't met by the deadline?"

Shen Luning said, "If we wait until the betting agreement officially expires and it is confirmed that we have failed in our bet, we only have two options: either we use 64 million to buy back their shares, or they come forward to sell our shares to make up for their 64 million principal plus returns."

"The former has a clear price, while the latter has many unknowns. If it doesn't sell for a high price, we might lose much more than 20% of the shares. If the company only sells for 80 million, and they take 64 million, my dad and the other shareholders will only get back a little over 10 million."

Chen Cheng asked in surprise, "They have the right to sell?"

Shen Luning was also surprised: "You know all this?"

Chen Cheng casually replied, "I've seen it in a book."

Shen Luning exclaimed, "Weren't you busy with the college entrance exam? How did you find time to read extracurricular books?"

Chen Cheng smiled and said, "I love studying too much."

In layman's terms, a lead-ahead right is simply the right of an investor to sell company shares to recoup losses when the investee fails to meet the performance-based agreement or pay the compensation for failure.

Similar to how banks have the right to auction off a debtor's property if they cannot repay a loan.

If investors actually exercise this right to sell company shares, the company's valuation will generally be drastically reduced.

So Chen Cheng asked her, "You've gone to Guangzhou with your uncle so many times, you must have wanted to talk to them about the 20% share issue, right?"

"Correct."

Shen Luning said, "My dad wants to keep it at 10%, no more than 15%, but they are very firm on it. It has to be 20%, not even a fraction less. They also said that the 20% proposal is only valid for October. If it is delayed until November, 20% will not be allowed."

Chen Cheng pondered for a moment and asked her, "Is the deadline for the betting agreement next April?"

Shen Luning said, "March 31st."

"I understand." Chen Cheng pondered for a moment, then continued, "Are you sure there's no chance to turn things around in terms of business?"

Shen Luning shook her head and said, "Our business has been very difficult for the past year or so because we mainly deal with common Chinese patent medicine granules and oral liquids. These categories do not require much investment in research and development and have no patent protection, so the competition is particularly fierce. Each category has several well-known big brands, and we only have some sales in our province. Moreover, in the past year or so, other big brands have been advertising on TV one after another, especially Yuntian Pharmaceutical. Their advertisements are everywhere in our province, which has made our sales worse and worse."

Chen Cheng sighed, "The big companies in the same industry invest in you and even sign performance-based agreements with you. They're actually laying an ambush for you."

Shen Luning asked in surprise, "You mean, they knew we would lose?"

"correct."

Chen Cheng said seriously, "He has the ability to make you lose. You received investment from industry giants and signed a performance-based agreement, which makes you like a sparrow in their hands. They can decide whether you're alive or dead, and they can crush you at any time."

"To put it bluntly, with them around, you simply won't be able to achieve the performance targets stipulated in the performance agreement. Because once you do well and show signs of reaching your goals, they will directly invest a lot of money to compete with you. The simplest way is to advertise their own competitors' products, or even directly advertise in your market, and then engage in a price war with you. They can easily suppress your momentum and revenue, and finally reap the benefits from you."

"Indeed it is……"

Shen Luning sighed, "Ever since we expanded our production lines and increased our capacity, Tianyun Pharmaceutical's advertisements have been appearing on our provincial TV station. Moreover, they've been making all the products we make, and they've been driving down the retail prices, which has put us in a very passive position."

Chen Cheng then asked, "So what is your current shareholding structure? Besides your uncle and Tianyun Pharmaceutical, how many shares do the other shareholders hold?"

Shen Luning thought for a moment and said, "The minority shareholders hold a total of 22.5% of the shares, but my father still holds the controlling stake at 52.5%."

Chen Cheng said warily, "He's asking you for 20% of the shares now. If you give it to him, he'll have 45%. The other shareholders have a total of 22.5%. Diluting that by 20% will leave them with about 18%. In that case, they won't need to consult with Uncle at all. They can just acquire another 6% from the other shareholders and basically complete their controlling stake."

"If they initiate an auction process, have a shell company or other company cooperate to buy the shares, and then take them back later, they can still achieve control. So you need to take precautions against the risk of being controlled by them."

After listening to Chen Cheng's analysis, Shen Luning asked nervously, "In that case, no matter which option we choose, they will eventually control us, right?"

"correct."

Chen Cheng nodded and said frankly, "The end of business competition is mergers and acquisitions, big fish eat small fish. In the end, only a few giants will remain in the market, and other small brands will have a hard time surviving. They will either struggle to survive in the cracks or be acquired by large companies. The same is true for the pharmaceutical industry. In the future, a few giants will definitely control the vast majority of the market, and it will be increasingly difficult for small brands to survive."

Chen Cheng spoke very directly because he knew very well that this principle would be fully reflected in the domestic beer market in the future.

Previously, every city with a population of over one million had its own brewery, and likely more than one.

But in the end, they all became part of big brands like a certain island or a certain flower. Those who did well might be able to keep their original brand names, while those who did poorly lost their own brand names and simply became a production line for big brands.

Pharmaceutical companies are similar in some ways.

Especially for traditional Chinese medicine, what kind of competitive advantage do they have?

Take the simplest Banlangen granules as an example. That medicine has no patent, and any qualified company can produce it.

So when pharmacies have seven, eight, or even a dozen brands of Banlangen granules, and the prices are similar, people will definitely prioritize buying the well-known big brands, and the survival space for small brands will only become smaller and smaller.

Thinking of this, Chen Cheng's eyes lit up.

When reviewing the trend of taxi quota market, he thought that SARS would have a great impact on China and even the world next year.

During the most tense period, taxi drivers' income and the price of taxi license plates will be greatly affected.

Internet cafes, bars, karaoke bars, and nightclubs will also be required to close down.

However, he suddenly remembered that during the SARS outbreak, there was a medicine that was sold out, and that medicine was Banlangen granules, a traditional Chinese medicine.

So he immediately asked Shen Luning, "Sister Ning, what kinds of powdered medicines does your company produce?"

Shen Luning thought for a moment, then listed them off one by one as if she knew them well: "Cold Relief Granules, Xiao Chai Hu Granules, Shuang Huang Lian Granules, and Ban Lan Gen Granules, these are the most common Chinese patent medicine granules on the market."

There's Banlangen (Isatis root) in it?

Wouldn't that create a turning point?

(End of this chapter)