Chapter 42 The Big Short (29)

The first week of October passed like this. The Dow Jones index repeatedly adjusted around the 310-point center. It climbed up, fell down, climbed up again, and fell again... This period of time was also the most enjoyable time for Livermore to cut leeks. At that time, although the daily harvest was only 20 to 30 million U.S. dollars, this trickle actually supported the liquidity of United Bank-because in theory, United Trust customers’ money came from United Bank. Obtained.

Contini also fulfilled his promise and returned US$600 million in loan facilities to the Federal Reserve in advance, and even took the initiative to return US$200 million in loan facilities to banks such as Citigroup and Manhattan. Give them money, and when the United Group wants to run away later, how can anyone take over?

Due to such stimulation, market optimism has rebounded, as if the fuse of the United Bank that caused the market changes suddenly disappeared. At the press conference on October 12, Contini personally admitted that he was still negotiating with large companies. , to see if the contract is restored, the mood of the good days seems to have returned. Many small and medium-sized investors abandoned the small-cap stocks that had fallen into scum and began to fanatically pursue those big blue chips, while those small stocks did not They were willing to sit back and wait for death, and began to merge with other industries, hoping to build a large enterprise.

The most typical of them are Curtiss Company and Wright Company. These two companies were typical big bull stocks in the beginning as aviation stocks. Agnes made a fortune from them, but in fact so far, they have There are not many products. Even if there are products that equip the army, the order volume is very rare - now is peacetime, and orders of more than 50 aircraft are considered large orders, but how can these orders support the huge market value? So the two companies began to consider a merger. Although they were considering a merger in July, it was not until October that the merger came to an end and Curtiss-Wright Company was formed. However, after the share exchange, the stock prices of both parties have fallen to only the highest level. Less than a third of the value.

The merger of Curtiss and Wright was successful because they were already relatively large giants in this field and well-known. However, another aviation industry merger was abruptly disrupted by Contini. The content of this merger is that Boeing, Pratt & Whitney Engine Company, Hamilton, Sikorsky and other companies are preparing to jointly establish United Aircraft & Transport Company (united-aircraft&transport). If this company is established, it may overwhelm Coty. The giant of S. Wright Corporation.

Contini was well aware of the power of this merger. Boeing, Pratt & Whitney, and Sikorsky were not the giants in the aviation industry later, so he could not let this company merge. The approach he adopted was very clever. On the one hand, he asked the exchange Objections: First, they believe that the names of United Aircraft and Transportation Corporation and United Airlines are difficult to distinguish and can easily cause confusion among stock investors, and hope to reconsider; second, such a merger may create a monopoly, which is not conducive to market competition, and must be reviewed. Monopoly Law Review—This latter objection was seconded by Curtiss-Wright Corporation, which feared the emergence of a giant oligopoly.

This is an official move, but the private move is to discuss with Pratt & Whitney in an effort to merge the company with United Power, a subsidiary of the United Group. Currently, United Power has a strong presence in the fields of aviation liquid-cooled engines, automobiles, and tank engines. It has certain advantages. It is the second largest engine manufacturer in Italy (the first is Fiat), but it is still relatively weak in the field of aviation air-cooled engines, and Pratt & Whitney's Wasp engine is very good. In order to merge with Pratt & Whitney, Contini offered three attractive bargaining chips:

The first bargaining chip: Starting from 1930, United Group purchased no less than 3,000 aero engines from Pratt & Whitney, to be completed within 5 years;

The second bargaining chip: jointly research a new generation of air-cooled engines based on the current single-row 9-cylinder engine - including dual-row 14-cylinder and double-row 18-cylinder engines. Italy will invest no less than 10 million US dollars, and the results will be shared by both parties in the future;

The third bargaining chip: Both parties jointly control 30% of each other's shares in the form of stock exchange - that is, Pratt & Whitney will obtain 30% of United Power's shares, and United Group will control 30% of Pratt & Whitney's shares.

These few bargaining chips were much stronger than cooperating with Boeing and other companies to form the United Aircraft and Transportation Corporation. Pratt & Whitney's executives immediately agreed without saying a word.

Once Pratt & Whitney withdrew, United Aircraft and Transportation Company no longer had a monopoly. After they changed their name to North American Aircraft Company, both United Group and Curtiss-Wright Company recognized it, so a tripartite alliance emerged. The whole market looks very harmonious.

But Contini knows this harmony is fake:

First, although United Dynamics is expected to go public in 1930 on the schedule, in fact it will never arrange to be listed in the United States. Therefore, Pratt & Whitney's 30% stake has reached its maximum and cannot be moved further. United Group will never They are all major shareholders, but Pratt & Whitney's shares are very dispersed. In addition to the 30% in its hands, United Group can also search for other public stocks after the stock market crash, so it is relatively easy to control the controlling stake;

Second, there are two giants in the US air-cooled engine industry, Pratt & Whitney and Wright. But in history, Wright began to lose its momentum after entering the 1930s, and only Pratt & Whitney dominated the US air-cooled industry. So if Pratt & Whitney is now in control, the future development foundation of Italian air-cooled engines will be in hand.

Third, as long as Pratt & Whitney agrees to joint research and development, once the US falls into a great depression in the future, Contini can use the rights of a major shareholder to move Pratt & Whitney out of the US as a whole and let engineers and technicians go to Italy to work. Although it will not block the supply of engines to the US, it can block the supply of the most advanced engine technology in the future. In wartime, this is of great value and significance! In terms of production, five Italys are not the opponent of the US, but if the technology is blocked, when the US can only use P-36\P-40, Italy can use P-47. How ironic is that?

United Group actually has two engine manufacturing areas, one in United Power and one in United Aviation. In fact, it is taking the route of liquid cooling and air cooling going hand in hand. At present, Pratt & Whitney has won the air cooling. Contini is also optimistic about the target, which is Rolls-Royce of the United Kingdom. As soon as the Great Depression begins, he will go there to poach people. At that time, the core of Rolls-Royce will be merged with the core of Mercedes-Benz, and then the BF-109 equipped with the Griffin engine can be used. In the future, we can also look forward to the TA-152 equipped with the Sabre engine, which is the leader of the doomsday propeller.

This method is still tolerated by the US authorities. Americans are not stupid. They will not watch you take away or destroy all the companies related to national defense. There must be a reasonable scene, such as Pratt & Whitney joint development, setting up scientific research in Italy, and manufacturing in the United States. That makes sense. In addition to Pratt & Whitney, the United States also has Wright and a bunch of small companies, so there is naturally no uniqueness.

However, the contract extension negotiations with several large companies did not go as smoothly as the market expected: some companies put forward additional requirements, meaning that the equipment contract of the United Group can be maintained, but a certain compensation must be given for delayed payment, which means that the deposit will be confiscated and the full amount must be paid later - Contini naturally doesn't bother to pay attention to such greedy companies, which means that the negotiations will break down directly - even Hoover couldn't say this; the second is to continue to recognize that the deposit is valid, but require a one-time payment of the entire balance, which is a pretense; the third is the most polite and the worst bargaining power, still saying that it can be performed according to the original contract.

However, the United Group put forward a counter-request, requiring all companies to reduce prices, with a high-sounding reason: the prices of raw materials, agricultural products and other commodities in the market have fallen, especially bulk commodities, which have fallen more, and prices should be reduced.

After this reminder, everyone realized that the price of silver has fallen by one-third, common metals such as steel, copper, and aluminum have fallen by 25%, oil has fallen by 20%, and agricultural products have basically fallen by 10-15%. Because the United Group's breach of contract only involves heavy industrial equipment, and the society is not so intense, but there are actually many order contracts that are also in the state of breach of contract. Many individuals and businesses are reducing their contracts, and even the Christmas stock has been reduced a lot. It is not surprising that Contini made this request.

This is stuck. For these Wall Street tycoons, being able to swallow their anger and sit down to re-recognize the validity of the original deposit is already a big concession. You, United Group, want to lower the price again? This seemed to have greatly violated their bottom line, so both sides were in a stalemate. Dozens of companies seemed to have agreed on it, and no one was willing to make concessions first, but no one said that they would refuse to recognize these contracts - after all, raw material prices are falling now, and if they can perform according to the original contract, their profit margin will be greater - no one thought that Contini had no intention of performing the contract at all. He was still waiting for the collapse to buy the bottom, so how could he intervene now?

Hoover was the most anxious about this matter, but Contini's reply was also reasonable. Because of the Fed's mess, he had suffered a lot of losses in other places, and he had to take back some of it. The price of raw materials fell and I still had to perform according to the original contract? - Then why didn't I sign a new contract?