by Russell Fine
“Okay. You’ve been using these power modules for over two months. Have you had any problems?”
“No, we haven’t had any problems whatsoever. Every device we have has functioned perfectly since they were turned on.”
“That’s amazing, but the devices do look rather simple in design. The key is the alloy rod you’re using to create the magnetic field. How did you discover it?”
Albert proceeded to give Dr. Foster the history of the product. Just as he was finishing, a waiter came in with the coffee. Albert poured two cups and passed one to Dr. Foster and asked her if she would like cream or sugar with it.
“Thank you, black is fine.” She said as she smiled at him. “I’m sure you’re aware that Flexton Chapman is very interested in obtaining the manufacturing rights to the power modules. Unfortunately, we’re not in a position to offer you what the product is worth in cash, but we have an offer for you to consider. I don’t know if you’re aware that we’ve been buying back shares of stock for about a year. We currently own fifty-three percent of the outstanding shares. We’re prepared to offer you a ten percent ownership in Chapman and a seat on the board as compensation. That would make you the largest personal stockholder in the company.”
Albert tugged at his left earlobe for a few seconds while he thought about what Dr. Foster said. “That’s an interesting offer. Do you have the manufacturing capacity to build the power modules for both automotive and home use? I want to be sure the power modules will be available for both applications.”
“Chapman has facilities in North America, South America, Europe, Africa, and Asia. In less than three months, we could have manufacturing and production in every major market. We don’t have a retail marketing system in place, but I’m certain that could be done very quickly. I can’t imagine any large retailer that would not be interested in selling the products.”
“You’re probably correct, but you can’t sell them at discount stores because the ‘whole house’ units have to be professionally installed. In any case, those are problems that should be fairly easy to resolve. I have a question for you: Since Flexton Chapman stock doesn’t pay a dividend, would you also be willing to pay five million in advance?”
Dr. Foster paused for a few seconds and then she said, “Yes, I think that could be arranged, but if we acquire the manufacturing rights to the power modules, the stock would increase in value substantially.”
“Yes, I realize that. That’s the reason why your offer is financially sound. I would like you to make your offer in writing and include a marketing plan. Please try to have that back to me in within ten days so we can review it and make our decision within the next thirty days.”
“That won’t be a problem. I’ll call you as soon as we’re ready.”
“Perfect. Also, I have a prototype for you to take with you. I’m sure you’ll want to evaluate it.”
“Yes, thank you. I’ll call you in a few days. Goodbye Mr. Simpson,” Dr. Foster said as she stood up to leave.
After Dr. Foster left Albert went back up to his room and called Tim to ask him if he was at the office.
“Yes, and the crowds are still here. How did things go with Chapman?”
“They made an interesting offer. Please get Susan and put your phone on speaker and I’ll tell both of you about it.”
“Okay, give me a minute.” There was a pause, and then he said, “Okay Albert, Susan and I are both here.”
“Flexton Chapman offered us a ten percent stake in the corporation, a seat on the board of directors, and five million dollars up front. That seems to be a very attractive offer because, if they have the rights to the power modules, the stock will very likely double or triple in value. Susan, since you have some contacts in the financial industry, please try to find somebody who knows more about this than we do. Perhaps they could give us some idea of how much the value of the stock would change. I realize it would only be a guess, but it would be an informed guess.”
“I agree, that sounds very attractive. I do know somebody who might be able to help us with an estimate. I’ll call him this afternoon,” Susan replied.
“Does the stock pay a dividend?” Tim asked.
“No, it doesn’t, but that could change. I also don’t know how many shares are involved. Anyway, they’re putting everything in writing. Why don’t we meet here at the hotel at 5:30 and we can have dinner together? We can continue our conversation then.”
“That sounds good. Tim’s nodding so I guess it’s okay with him too. See you soon,” Susan said and ended the call.
They met right on time and went out to the best steakhouse in town for dinner. It was lavish and expensive, but they knew that soon each of them would be wealthier than they ever dreamed was possible, so the cost was not an issue.
The dinner conversation was primarily about what they were going to do with the money. They all agreed some of their new-found wealth would go to setting up a charity that would provide educational benefits to children who, for financial reasons, were unable to attend either college or a trade school. Albert surprised them by saying he wanted to get into politics, and that he was going to run for Congress. Because of the money needed to run a political campaign, virtually every candidate for public office would owe favors to somebody. However, he would be able to fund his own campaign and would be free to do what he thought was right. Both Susan and Tim thought it was a good idea.
APRIL 16, 2024
After breakfast, Albert went back to his room. He checked his e-mail and was surprised to find a message from Kingsman containing a complete marketing plan and a contract. Albert read the document and was very impressed. The message said David Becker, the Vice President of Technology, would be there this morning. It also appeared Kingman had put together an excellent marketing plan that not only covered the use of the power modules in cars, but also the home and business applications. However, the thing that impressed him the most was that Kingman was going to license the automotive version of the power modules to other car companies one year after the first Kingman car powered by a power module was released.
The contract indicated they would receive an upfront payment of ten million dollars when the contract was signed and an unspecified royalty for each module that was manufactured by either Kingman or any other company Kingman licensed to build the power modules. The royalty amount would be negotiated after Albert and his attorney had an opportunity to thoroughly review all of the material.
Albert decided to go to the conference room prior to the meeting, so at 9:30 he asked the clerk at the front desk to send David Becker from Kingman to the conference room when he arrived, where Albert would be waiting for him. He also asked the clerk to send over coffee for two.
A minute or two after 10:00 there was a knock at the door. Albert got up, opened the door, and said, “Good morning. Mr. Becker, I presume?”
“Yes, I am. It’s a pleasure to meet you, Mr. Simpson.”
The two men shook hands and Albert offered coffee.
Once they sat down, Mr. Becker asked Albert if he had seen the e-mail from his company.
“Yes, I did. I was very impressed with your marketing plan. I really liked your idea to market the ‘whole house’ units through the major hardware store chains. I was also pleased with the idea to allow other car companies access to the technology.”
“While it would be nice from a financial standpoint to have an electric car monopoly, it isn’t practical. Kingman would not be able to meet the demand for electric cars and we want people to like us, so they keep buying our products. Besides that, we feel we could find ourselves in trouble over some antitrust statute. The federal government wasn’t happy with Kingman anyway because, unlike VM and Chapman, we were able to get through the last recession without government assistance.”
“I agree completely. Do you have any questions regarding the power modules? I have a prototype here for you to take with you.”
“I guess I cheated a little bit. Matt Brewer
is a friend of mine and he and I partially disassembled the power module you gave him. I was actually surprised how simple the design is and I’m sure that simplicity will result in excellent reliability. From a manufacturing standpoint, the only potential problem is the positioning of the alloy rod and the transformer. We’ll need a design that will withstand the rigors inherent with placement in a car. We have to be sure sudden movements or low-speed accidents won’t affect the power module. But that won’t be very difficult. In fact, I already have an engineer working on it. It must have been a real ‘Eureka’ moment when you saw the results of your test.”
Albert allowed himself a chuckle. “I must admit I was very surprised. Perhaps even more surprising was the fact we could have easily missed finding that alloy because a change in the composition of the alloy by one-tenth of a gram of one of the component materials completely changes its magnetic properties.”
“That will increase the manufacturing cost a little. What do you think would be a reasonable price for a ‘whole house’ unit?”
“With installation, I would think the cost should be in the five hundred to the seven-hundred-and-fifty-dollar range. One consideration should be the cost of the alloy materials. The principal material in the alloy rod is silver, and each rod contains 1.5 troy ounces. When these devices go into full production, the cost could rise from twenty dollars per troy ounce to two hundred, or perhaps more. That should be factored into the retail price for the device.”
“I don’t believe we considered a potential increase in the cost of silver to be a factor, primarily because I wasn’t aware of the amount of silver in each rod. I think we should have a retail price based on silver at two hundred fifty dollars per troy ounce. We would make some extra profit at the beginning, but that will change very quickly.”
“How many units will Kingman be able to manufacture per month?”
“We’re planning to make them in six locations: two in the United States, one in
Germany, one in South Korea, one in Australia, and one in South Africa. Once we’re in full production I believe each facility would be able to produce between two and three million units per month, so a total of about fifteen million units.”
“So, at one hundred eighty million units per year, or in terms of silver, two hundred seventy million troy ounces, that’s about forty percent of the annual worldwide silver production. I don’t know much about precious metal trading, but Kingman might want to consider investing in some silver mines,” Albert said.
“I see your point, but we don’t know the size of the worldwide market. Eventually, the market will become saturated and demand will decrease substantially. Of course, that could take twenty or thirty years, and there’s a potential for a silver shortage before the saturation occurs. That would really drive up the price. I’ll have to discuss this with our procurement group.”
“That’s a good idea. I don’t think the people who want these devices, and that includes almost everybody, will be happy about material shortages pushing up the price. They’ll probably think Kingman is doing it on purpose just to increase profits.”
“Are there any other potential problems you’re aware of?”
Albert thought for a moment and said “Not that I can think of currently. I want you to know Kingman was the only company that presented me with a full marketing plan and an agreement for the rights to the power modules.” Then Albert smiled and continued, “So far, I’m very impressed with your presentation leaning in your direction. I’ll give the contract to my attorney, so he can review it.”
They talked for another half hour or so and made plans to talk again in a day or two. After David left, Albert stayed in the conference room going over the conversation in his mind. He was almost certain he was going to give Kingman the manufacturing rights, but he would discuss it with Tim and Susan before making a final decision. He gathered up his papers and went back to his room.
Albert called Tim and Susan and told them he would be in the office in the morning, so they could discuss all the offers. Before going to bed he set his alarm for 5:30 and tried to sleep, but he had so much on his mind he found sleep almost impossible. He finally got out of bed at 4:30, and left to go to the office by 5:15. When he got there he found twenty people milling around in the parking lot. As he got out of his car several of them began shouting questions at him. He decided he should say something, so just before going into the office he spoke to them.
“A decision will be made in the next ten days regarding which company will receive the manufacturing rights to the power modules. All the contenders are US automobile companies. Each of them has promised they will make power modules for both car and home use. Additionally, they should be able to make the products available to the public in about ninety days after receiving the manufacturing rights. There will be more details regarding the availability of the products in the next two weeks. There’s no point in staying here because we have no products for sale. I urge you to go home. I realize there’s a great need for these products, and we’re doing everything we can to make them available as soon as possible.”
Albert went into the office. The first thing he did was scan the documents he had received from Kingman and e-mailed them to his attorney for review. Then he made a pot of coffee and sat down in his office to relax. He looked outside. It appeared that a few of the people had gone home. He wanted to go home too because he was tired of living in a hotel. He wanted to make the decision quickly so his life could get back to a semblance of being normal.
Susan arrived at the office by 7:00. She stopped briefly at Albert’s office to say good morning, got a cup of coffee, went back to Albert’s office, and sat down. “So, what happened with Kingman?” she asked.
“They were prepared, unlike VM. They had a preliminary marketing plan, a contract, and a manufacturing plan as well. They realized they would be unable to meet the demand for the product so they planned on granting manufacturing rights to other companies after a year. I think that’s a good idea. Overall, I was impressed.”
“Did they specify how they were going to pay us?”
“That also surprised me. The contract calls for a ten-million-dollar payment up front and royalty payments for each device that’s manufactured, by either Kingman or any other manufacturer they license, but the amount of the payments was left blank on the contract. That’s something we need to discuss this morning when Tim gets here.”
Tim arrived a few minutes later, and after getting his coffee joined Albert and Susan.
“Now that we’re all here, I would like to discuss the offers we’ve received. Financially, any of the offers will make us very wealthy. Kingman made us the best offer. They’ll give us ten-million up front and royalty payments that we must specify. But I think there are other considerations besides the financial ones. Needless to say, these companies are not altruistic. They’re primarily interested in making money, and I can’t blame them for that. However, I think the company we choose has to look beyond the obvious automotive applications. There’s probably not as much profit potential in manufacturing power modules for home and business use, but I think that’s very important. I want to bring electricity to the remotest parts of the world and improve the lives of the people who live there. We have the ability to do that now and the company we select has to agree,” Albert said.
“I agree with you,” Susan said.
“Yeah, I think that’s important too,” Tim agreed. “But there’s no way we could force the company we select to do that.”
“The offer from Flexton Chapman includes a position on the board of directors and that would give us some ability to push them in the direction we want them to go. But my concern is that they’re not as financially sound as either Kingman or VM. Of course, if we gave them the rights to the power modules, their financial position would change dramatically. At this point, I’m inclined to eliminate VM for several reasons. First, they tried to take advantage of us by making a ridiculous offer, and sec
ond, they were totally unprepared for our meeting. Flexton Chapman and Kingman made reasonable offers and they were better prepared for the meeting.”
“Is there any reason we couldn’t give the rights to both Flexton Chapman and Kingman?” Tim asked.
“That’s an interesting option. Legally I’m sure there’s no problem, but I’m fairly certain both companies would alter their offers if they didn’t have exclusive rights. However, I’ll call them this morning and discuss it with them. On a different subject: Tim, did you come up with any ideas on how to minimize the silver usage?”
Tim nodded. “I thought perhaps we might be able to reduce the amount of silver required by reducing the diameter of the alloy rods. So, I reduced each component by forty percent and made a few smaller rods and tried them. You’d think the size of the rod wouldn’t matter, but it does. The smaller rods didn’t exhibit the same magnetic properties as the larger rods. Since I made these rods with a smaller diameter, now I’m going to try making them shorter. I should have the results by tomorrow morning.”
“Thanks, that was a good idea. I believe the availability of silver is going to become a problem very soon. Please keep me informed. Susan, did you get any answers to our Flexton Chapman stock questions?”
“Not yet, it was late Monday when I asked about it. The people I asked have only had one day to work on it. We probably won’t get an answer until next week,” Susan replied.
“OK, I guess we can wait a few more days. I sent our attorney a copy of the materials I received from Kingman this morning. I suspect we’ll have documents from VM and Flexton Chapman before the end of the week.”
The meeting broke up. Tim went to the lab to work on the shorter alloy rods and Susan went back to her office. It was too early to call his contacts at Kingman and Flexton Chapman, so Albert sat in his office and thought about how his conversations would go.