I was forced to start the second round because I was raised in poverty

Chapter 385 Large-Scale Operations

The exam paper that Su Cheng received this time was from a shipyard called STX, a peninsula shipyard.

Formerly known as SsangYong Heavy Industries and Taitung Shipyard, it was renamed STX Group after being acquired in 01.

Looking back at the history of this Peninsula shipyard, it is not due to its own technological accumulation, but rather a complete "merger and acquisition driven" model.

During the super boom period of the global shipping and shipbuilding industry at the time, the STX Group embarked on a dazzling series of "David and Goliath" style mergers and acquisitions.

They first acquired another poorly managed shipping company, Pan Ocean Shipping, and transformed the group into a business model that integrates shipbuilding and shipping.

Following that, billions of dollars were invested in a grand project on Changxing Island in the northeastern part of Kyushu: the Changxing Shipbuilding Base.

The goal is to establish a "one-stop" production center integrating shipbuilding, engines, and marine equipment, intending to leverage Kyushu's cost advantages to challenge competitors on the peninsula.

This operation culminated in 08 when STX acquired Aker Shipyard, Norway's second-largest shipbuilding group, for a huge sum of money.

This acquisition instantly transformed STX's product line.

Not only did it acquire 18 shipyards in Europe owned by Norwegian company Aker, but more importantly, it mastered high-value-added shipbuilding technologies that it was not good at.

Examples include luxury cruise ships, large ferries, and high-end marine engineering equipment such as floating production storage and offloading (FPSO) units.

This acquisition caused its debt to balloon dramatically.

Even more unfortunately, the global financial crisis broke out in the same year the acquisition was completed, and the shipping and shipbuilding markets plummeted to rock bottom.

The STX Group's business structure is already highly concentrated, with over 80% of its sales revenue relying on its two main subsidiaries, STX Marine Shipbuilding and STX Pan Ocean Shipping.

When both the shipbuilding and shipping markets fell into a deep recession, the group lacked other profitable businesses to mitigate the risks, and the group's cash flow quickly dried up.

Ship prices plummeted.

New ship orders have plummeted.

The Changxing Island base has become a bottomless pit of continuous losses.

European shipyards are also struggling due to a lack of orders.

By the end of 2011, STX Group's debt ratio had exceeded 200%, far exceeding the internationally recognized warning level.

The huge debt brought a heavy interest burden, which continued to erode the group's profits and cash flow, and STX fell into serious operating losses.

Finally, the group's debt crisis erupted in full force.

Although since 2013, creditors led by Peninsula Industrial Bank have taken the lead in restructuring its debt and injected more than $30 billion in funds.

Despite three years of "blood transfusion" style rescue, STX's operations have not seen any substantial improvement.

The creditors ultimately determined that further financial assistance would be a bottomless pit and would not fundamentally save the company.

In May 2016, the main creditor, Peninsula Industrial Bank, announced that it would no longer provide additional financial support and decided to initiate court receivership proceedings, which became the final straw that broke STX's back.

Last month, STX Marine Shipbuilding filed for bankruptcy protection in the Peninsula courts.

Long Ruoli asked Su Cheng to judge whether the Emperor Group should take over the shipbuilding company based on the files of STX Marine Shipbuilding and all available information.

If we were to take over, how would we proceed? Please provide a concrete and feasible plan.

If you don't want to take over, give a sufficient reason.

The aftereffects of aggressive expansion and a fragile financial structure.

Su Cheng felt that STX's failure was inevitable.

However, whether or not to take over the business requires careful consideration.

Whether it's worth buying depends on its profitability.

STX's main products are medium-sized oil and chemical tankers.

This is STX's most competitive flagship product and the main source of its profits and cash flow, which once held the number one global market share.

Secondly, the main ship types for which we aim to secure orders are bulk carriers ranging from Capesize to Panamax.

Finally, there are various types of container ships, ranging from small to those with tens of thousands of TEUs.

Greek shipowners in Europe, shipping giants in Northern Europe, and shipping companies in Asia are the main buyers of bulk carriers, tankers, and container ships.

In addition, there are some high value-added products, which STX acquired from Norwegian shipyards.

LNG and LPG carriers have high technological barriers and are highly profitable.

There are also passenger roll-on/roll-off ships, drilling ships, platform supply ships, etc., which mainly serve offshore oil and gas exploration.

Shell, Anglo Petroleum and other international oil companies, as well as commodity traders such as Cargill, are the main customers of LNG carriers, LPG carriers and large oil tankers.

For financial investors seeking high returns, there are countless better options than saving a bankrupt shipyard.

However, as a global conglomerate, the Geely Group cannot be considered solely from the perspective of economic returns.
Whether an acquisition is worthwhile should be considered from the perspective of the entire group.

Supply chain, cost reduction, industry collaboration, future technology standards, and other factors must all be taken into consideration.
For example, the Dihao Group has a vast portfolio of businesses in the transportation and energy sectors.

Having an additional shipyard is equivalent to vertical integration technology.

STX can tailor the most advanced and energy-efficient fleet for the Dihao Group, freeing them from the constraints of shipyard schedules and prices.

During the transition to future fuels such as methanol and ammonia, we can also take the lead in technological routes and establish cost and technological advantages that competitors cannot match.

The Dihao Group's oil and chemical companies require a large number of LNG carriers, LPG carriers, VLECs, and even future liquid hydrogen transport ships.

By purchasing STX, you can perfectly combine energy production and transportation to create a seamless "energy-transportation" empire.

Any consultant specializing in the marine industry could talk about industry consolidation for three days and three nights, so it's not really the point.

Whether it's worth it or not, you'll know once you do the math.

First, pay off your debts.

When creditors first intervened in 2013, they injected more than $30 billion into the STX Group. It would take at least $38 billion to completely repay all interest-bearing debts and commercial arrears.

This is a debt problem that the Geely Group is directly facing.

But after spending the 38 billion, the group only got a clean financial shell shipyard with outdated equipment and no orders.

STX's shipyards and equipment are seriously lagging behind competitors like HD Hyundai Heavy Industries and Samsung Heavy Industries, which are pushing hard to develop "smart shipyards".

They need to upgrade the technology and equipment for STX.

This includes automated welding robots, high-precision laser cutting equipment, intelligent gantry cranes, 5G network coverage throughout the plant, and a central control system for digital management, among other things.

Upgrading a large traditional shipyard to a world-class smart shipyard is a huge capital expenditure.

Based on the investment scale of other companies in the industry, Su Cheng estimated that the cost would be around $20 billion.

But it's not over.

Years of turmoil have led to the loss of a large number of core engineers, project managers and skilled workers at STX.

We need to poach top talent from competitors with salaries and benefits far exceeding the market rate to rebuild a competitive team.

While this cost is difficult to calculate precisely, building an elite team of thousands and providing incredibly attractive long-term incentives could result in additional human resource costs in the first few years reaching hundreds of millions of dollars.
Only after spending these two sums of money can the Dihao Group acquire a modern shipyard that is "financially clean, equipped with advanced facilities, and full of talent."

But it remains fragile and cannot withstand the next industry downturn.

To gain a leading edge in the competition for next-generation ships—ammonia-powered, hydrogen-powered, and intelligent ships—requires substantial R&D investment, regardless of cost.

The Dihao Group needs to establish a world-class ship technology research institute.

Top shipyards invest hundreds of millions of dollars in research and development every year.

To achieve technological breakthroughs in the short term, a dedicated R&D fund of $500 million to $1 billion annually for at least five years is needed.

At least another $25 to $50 billion will need to be invested.

Shipbuilding is a highly cyclical industry.

STX Marine Shipbuilding needs strategic funding to allow the company to conduct research and development at its own pace during a prolonged industry downturn, without having to accept loss-making orders just to survive.

At the same time, when exploring new markets, this fund can be used to make strategic losses in exchange for valuable early results and core customers.

This strategic fund should be at least $20-30 billion.

If the company's value falls below $50 billion, it could very well repeat the mistakes of Peninsula Industrial Bank. Merely delaying its demise won't solve the fundamental problems.

so.

The cost of acquiring STX Group was not 38 billion.

而是38+20+5+50+30=143亿美元。

On paper, the Emperor Group will conservatively invest $150 billion.

Only a comprehensive investment of tens of billions can revitalize STX.

does it worth?
Su Cheng thought it was worthwhile.

First, in theory, the Geely Group can provide unlimited funding.

While all shipyards around the world are struggling with cash flow and the next order, STX can completely ignore such short-term market fluctuations.

This ability to achieve periodic immunity is an advantage that competitors cannot match.

The group can undertake research and development for up to ten years, can incur losses for strategic goals, and can calmly wait for the market to recover.

Secondly, the Geely Group itself has the world's best talent pool.

Core engineers, project managers, etc., so there's absolutely no need to spend money on this aspect.

The group has already spent the money that needed to be spent on its own system, so this expense can be saved. Most importantly, it saves time in building a team and training engineers.

Third, cost advantage.

Marine steel plates are the largest single cost item for shipyards, typically accounting for 20-30% of total costs.

It can be said that fluctuations in steel prices directly determine the profitability of shipyards.

The Dihao Group owns 42 large steel companies.

All competitors in this field, including Hyundai, Samsung, and Hanwha, have to purchase steel on the international market, while STX obtains steel at production cost.

In terms of raw materials alone, the acquired STX will gain a huge cost advantage of 15-25%.

They can sell at their competitors' cost price and still make a substantial profit.

This advantage allows STX to be a perpetual winner in price wars, and even to determine the profit level of the entire market by controlling the price of steel.

42 large steel companies can ensure STX's absolute supply chain security and control.

The group can instruct its steel mills to prioritize supplying STX with the highest quality steel at all times.

When market supply is tight, STX can operate at full capacity, while competitors may be forced to shut down due to a lack of steel.

By integrating this supply chain, steel becomes a strategic weapon that STX can readily utilize.

The group can form a collaborative R&D system integrating steel and shipbuilding.

Traditionally, shipyards submit their steel requests to steel mills, which then produce the steel using existing technology, creating a barrier between the two.

After the acquisition of STX by the Dihao Group, STX's ship designers and the steel company's metallurgical engineers were able to sit in an office together and jointly develop the next generation of ship materials.

This means that future ships built by STX will have a generational lead in materials science in terms of technical performance.

This is a core advantage that competitors cannot buy in the short term, even with money.

The 42 steel mills under the Dihao Group have a long-term, stable super customer, STX.

STX has the lowest-cost, most stable supply, and most technologically collaborative steel supplier.

The more orders STX wins, the more stable the steel mill's operating rate and profits will be, and the greater the steel mill's technological and cost advantages will be.

Conversely, this makes STX's ships more competitive, enabling them to secure more orders in the market.

Once this cycle starts, it will snowball and continuously widen the gap with all competitors.

This is simply a collaboration between the steel company and STX.

If we also consider the dozen or so large natural gas and oil companies owned by the Godwell Group, the situation becomes even more complex.

Energy extraction.

Iron and steel smelting.

Global transportation.

This is the core closed loop of modern industrial civilization.

Energy companies extract oil and natural gas, generating huge cash flows.

This energy and cash flow can be channeled to steel companies to produce the highest-grade specialty steel.

Specialty steel is then transported to the STX shipyard to build a fleet of transport vessels and mining platforms to serve energy companies.

This fleet, in turn, ensures the global transportation and sales of the Dihao Group's energy products, thereby generating more cash flow.

The Dihao Group can independently undertake projects that only state power can promote.

For example, developing a super-large gas field located in the deep sea, worth hundreds of billions of dollars.

The energy company is responsible for exploration and extraction.

STX was responsible for designing and building the production platform and subsea pipeline, and also tailored an LNGC fleet for the project.

The steel mill is responsible for providing high-specification, high-quality steel.

This mega-project, which typically takes 10 to 15 years, does not require subcontracting to a dozen or so contractors for construction, and it doesn't even require financing.

The Dihao Group can complete this independently within 5 to 7 years with the lowest cost and the highest efficiency.

This project delivery capability is unique in the world.

However, the risks are also very high.

Integrating a shipbuilding giant with 42 steel companies and a dozen oil and gas companies presents an exponentially greater challenge to management.

This integration is the ultimate test of management and execution capabilities, and every step could lead to fatal accidents and mistakes.

Breaking down organizational barriers and achieving genuine collaboration, rather than becoming a bloated and internally draining bureaucratic machine, remains a formidable challenge, even with the perfect system of the Geely Group.

Because the risks that the Geely Group will face in the future are more concentrated than those of the original STX.

A global economic recession would hit these three companies simultaneously, amplifying the impact and creating a triple whammy.

If the global transition to new energy sources is happening much faster than the group's growth rate, these three core assets will rapidly depreciate, potentially triggering the collapse of the entire group.

These things can be avoided.

The greatest risk may come from sovereign states with top-tier power like those in Europe and the United States.

If these three companies were to merge into one, they would form a vertical monopoly and become an industrial empire capable of influencing the global geopolitical landscape.

The cost and efficiency of global energy transportation are largely determined by the Dihao Group.

Su Cheng's Emperor Group can decide which country to prioritize supplying energy to and at what price.

The group's forces have grown powerful enough to challenge the existing world order, and the group's decisions will directly affect future international relations.

In the future, even the highest-level antitrust investigations will be minor.

The group will not face minor antitrust investigations, but rather economic, political, and even security threats that could lead to its downfall.

Su Cheng realized that the old man was trying to test him on something.

Does it possess a global strategic vision?

Does the individual possess the capability to command large-scale troop operations?

Does he possess the mindset and problem-solving logic of a group leader?

Does it possess the wisdom and political acumen to manage the immense power of the Geely Group?

(End of this chapter)