This article from the public number: cast the net (ID: China-Venture), Author: Tao Huidong
“Half-life” is always in the other’s hands, which is an eternal problem for minority equity investments. However, in the Gree case, he has become a major shareholder, and Gao Yong still has to surrender “half-life”, which is somewhat surprising.
Who is Gree’s new owner? The answer given by the mixed reform plan is “no actual controller”, which is not even understood by the Shenzhen Stock Exchange. On January 18, Gree responded to the inquiry letter of Shenzhen Stock Exchange, and gave a very detailed secondary explanation on the distribution of decision-making power of Gree Electric and the largest shareholder.
Gree states that Zhuhai Yuxiu’s decision-making power distribution is three-legged, but there is an additional requirement in the mixed reform plan: “Zhuhai Mingjun should maintain at least two director candidates among the three director candidates nominated by listed companies as Gzheng Investing in a recognized person. ”
The Shenzhen Stock Exchange is also very confused about this: “Can you think that GZ Investment actually has 2/3 of Zhuhai Yuxiu’s voting rights?” Gree’s answer was a slang saying: “(The above terms) refer to the board seats of listed companies This arrangement is not related to the basic rights of Zhuhai Yuxiu Tripartite shareholders to each have a Zhuhai Yuxiu director nomination right. “
It is well known that one of the main rights of Zhuhai Yuxiu is the right to nominate directors of Gree Electric. If “three-legged stand” cannot be achieved in this right, then Zhuhai Yuxiu’s so-called three-legged stand is nothing more than a manifestation.
In other words, Gao Ling only got the “three-legged stand” face, but lost the “lizi”. Gao Zheng’s “foot” is obviously weaker than Dong Mingzhu.
According to this statement, we also know that of the three director seats in Yuxiu of Zhuhai, Gao Yong originally occupied two seats, but gave up one seat for Dong Mingzhu, thus losing most of the seats. From the majority of seats, to the “three-legged stand”, to the last one, it was incomplete, and Gao Yong gave way to Dong Mingzhu. This is really the weakest PE in Buyout history.
Unprecedented treaty on inequality
In the case of Gree, the media have already labelled the words “historical” and “landmark”. These comments are not excessive. Buyout never really took root in ChinaBud, and PE in leveraged mergers and acquisitions in China, Gao Yong is not only the “most cattle”, but also almost “the only one.” From Belle to Gree, Gao Yong took China’s leveraged mergers and acquisitions to a new height with his own strength.
But the Gree case is not a typical Buyout. Focusing on Zhuhai Mingjun, which holds a 15% stake in Gree Electric, Gao Yan would share cakes with two partners, Dong Mingzhu and Cao Junsheng. The detailed plan of Gree’s mixed reform is not repeated, and a brief list of the rights that Gao Yong finally holds.
1. Among Zhuhai Mingjun, Dong Mingzhu’s Gezhen Investment enjoys an 11% share, Cao Junsheng’s Zhuhai Yihui enjoys a 3.6% share, and Gao Yan needs to raise the remaining 85%. According to reports, Dong Mingzhu’s shares are exempt from fund management fees.
2. Zhuhai Mingjun’s GP is Zhuhai Xianying and it is also a limited partnership structure. Gao Yi enjoys a 24% LP share, Gezhen Investment enjoys a 20% LP share, and Cao Junsheng enjoys a 5% share. The remaining 51% is held by GP Zhuhai Yuxiu.
3. Among Zhuhai Yuxiu, Gao’s share is 49%, Gezhen Investment is 41%, and Cao Junsheng is 10%.
This is a line mainly for the distribution of income rights of Zhuhai Mingjun. In the end, under the condition that 85% of Zhuhai Mingjun’s funds were raised, Gao Ye only allocated about half of the GP’s income right.
The other is the distribution of decision-making power. The trading scheme declared that Gree had no actual controller. In response to this, the exchange just sent an inquiry letter. Gree gave a reply on January 17. According to Gree’s reply, the distribution of decision-making power has been very clear.
1. Zhuhai Yuxiu has three seats on the board of directors, and Gao Yong, Cao Junsheng, and Gezhen Investment have each nominated one seat.
2. Zhuhai Mingjun can nominate three seats on Gree’s board of directors. This nomination right is evenly distributed among the three parties, Gao Yong, Cao Junsheng, and Gzhen Investment. However, at least one of Gao Ye and Cao Junsheng’s nominations must be approved by Gezhen Investment.
According to this structure, the role played by Gao Yan in Gree is basically a large shareholder who only pays for money, with little decision-making power. And this structure has been strictly solidified, and Gao Yong promised in writing that he would maintain the state of Gree without actual control and would not seek control in the future.
Overview of Buyout at home and abroad, such weak PEs are rare. For PE, Gree’s final plan for reform is an “inequality treaty” that can be recorded in history. As soon as the plan came out, PE people commented: If entrepreneurs ask to talk like this in the future, it will be troublesome.
Gao’s openness and generosity,This is also evident in the arrangement of Cao Junsheng’s rights. Cao Junsheng invested only 3.6% in Zhuhai Mingjun, but he was allocated 10% of the GP’s income right, and he was completely equal to Gao in terms of decision-making power.
Cao’s “C-bit theory”
Gao’s early fame was to invest in Tencent, and to have a deep friendship with Ma Huateng. Tencent used investment to make its way from closed to open. Ma Huateng claimed that Tencent had only retained half of his life and “give the other half to his partners.”
In contrast, PE investment, in fact, “half-life” is the norm, and the other half-life is always in the other’s hands. This is an eternal problem for minority equity investments. However, in the Gree case, the 20 billion yuan investment has become a major shareholder, and Gao Ling still has to surrender half his life, which is somewhat surprising.
Although in terms of capital and fame, Gao Yong is already the most powerful PE in China. However, Zhang Lei has always faced entrepreneurs with a low-key attitude, repeatedly saying, “We are the icing on the cake, and we do not want to subvert”, “Let the entrepreneur sit in the C position,” and “We cannot match the accumulation of entrepreneurs for decades.”
“Let entrepreneurs sit in position C. This is the first principle that Gao Capital Capital adheres to.” At the Wuzhen Internet Conference in October 2019, Zhang Lei talked about the “digital transformation” of enterprises on the stage. At that time Gao Ye was in the final negotiations with Dong Mingzhu. Zhang Lei did not mention Gree in his speech, but his words were quickly interpreted by the media as a statement to Dong Mingzhu.
Not long after Zhang Lei finished his “C-position” theory, the Gree mixed reform case was settled. Dong Mingzhu did get the “C” position as he wished.
Gao Ying wants Dong Mingzhu to sit in the C position, guarantees the stability of Dong Mingzhu’s team, bundles management, and gives a big gift package of equity incentives, which are all expected. But Gao Yong raised his hands and completely surrendered his dominance, which far exceeded the expectations of the outside world. After all, in the Belle case, Zhang Lei also said that the entrepreneur should be allowed to take the C position, but the dominant power was still firmly in his own hands.
In 2017, Gao Yuan ’s second-stage RMB fund of RMB 15 billion was invested in Gree. This is not enough. The remaining 17.2 billion yuan comes from abroad. It is also a large sum of money for Gao Ye-Gao Ye raised a new Asian fund of 10.6 billion US dollars in 2018, and 17.2 billion yuan is about it. 23%.
These figures alone are enough to see how important this case is to Gao Yi, not to mention the strong demonstration effect of this case. And such an unforgivable case, Gao Yong completely turned over to Dong Mingzhu.
After the successful bid was announced, public opinion was envious first, but after the final plan was released, there was a little bit more rumor: Gao Gao originally worked for Dong Mingzhu. This precedent is not what PE peers want. Was Gao Ling paying a little too much to win Gree?
Gao has been “good at” causing controversy for years, from Jingdong to Belle. Zhang Lei also knew this well. After the acquisition of Belle, Zhang Lei himself was joking: “Everyone else said that this would be Gao Ling’s Waterloo.”
Zhang Lei likes to say “Shouzheng uses odd”, and does not conceal his gambling. He publicly said that Shizukura Tencent had a “gambling element.” Investment is the art of risk. There is no 100% certainty. For Gao Yong, Gree’s case is not only worth a “gamble”, but even a “gamble”.
Sun Zhengyi in China? Or Kravis?
One year before the Gree case, Gao Ying raised the latest fund of US $ 10.6 billion, setting a record for the scale of fundraising of a single fund in the entire Asian PE industry, bringing Gao’s total asset management to 600 One hundred million U.S. dollars.
The fact that Gao Ling is already the largest PE institution in China by assets explains why Gao Ling has to win Gree, even if it accepts such harsh conditions. Because scale is pressure, super funds have to invest in super cases. How many Gree can China have? After this village, Gao Yong is almost impossible to find a similar store.
Similarly, it was used to describe Sun Zhengyi and his vision fund not long ago. The failure of Wework’s IPO in 2019 and the collapse of valuations have brought an earthquake to the entire venture capital industry. Even in the Pacific Ocean, China still feels strong. If you ask what is the most shocking event in 2019, it is estimated that most investors will blurt out Wework.
Since 2017, Sun Zhengyi has basically taken over Wework’s financing and invested more than $ 6 billion. After the failure of the Wework IPO, Sun Zhengyi still chose to invest a lot of money for blood transfusion, raising SoftBank’s shareholding to 80%. This also directly led to Softbank’s historic huge loss of billions of dollars in 2019.
Back in 2017, why did SoftBank Vision Fund choose Wework? This question can be answered with another question: If you don’t invest in the world’s largest unicorn, what will the world’s largest VC fund invest in?
In terms of fund size, SoftBank Vision Fund is the number one in the world, and Gao Ling has already achieved the number one in Asia.Zhang Lei refused to let him be the person closest to Sun Zhengyi in China. The scale is the “curse” that super funds have to face. Of course, apart from scale, Gao Yan and SoftBank have nothing in common. It is too far-fetched to refer to Gao Yong as China’s SoftBank, or Zhang Lei as China’s Sun Zhengyi.
Inspecting Gao Yong, in addition to the $ 10.6 billion super fund, it is impressive that it has doubled in size. As we all know, Zhang Lei founded Gao Yong in 2005 with a $ 20 million Yale University Endowment Fund. By 2010, Gao Yong’s management scale had grown to 2.5 billion US dollars. This number was 16 billion US dollars in 2014, 30 billion US dollars in 2017, and 60 billion US dollars in 2019.
The growth of Gao Ling’s management scale has been one of the biggest cases. The 2017 HKD 53.1 billion Belle merger and acquisition directly allowed Gao Ye to raise a super fund of USD 10.6 billion in 2018. Then, in 2019 Gao Ye became a major shareholder of Gree with a market value of 400 billion yuan.
This “bigger case-bigger fund” spiral appears a bit abrupt in the private equity market dominated by domestic growth-stage investments. Although it is not uncommon for a star project to achieve a fund, in general, VC funds are based on investment volume and hit rate, and are not dependent on individual cases.
But in leveraged M & A, this is a common spiral. A typical example is the pioneer of the leveraged M & A model, KKR in the 1980s, starting from $ 10 million in 1976 and raising $ 5.6 billion in funds in 1987.
In 1978, raised 30 million US dollars fund;
Holldale was acquired for $ 400 million in 1979;
In 1980, raised 75 million US dollars;
In 1981, $ 425 million was acquired by Fred Meyer;
1982, raised 316 million US dollars fund;