Kuaishou launched the second round of negotiations with Zhonghe Group, and Su Hua offered $10 billion.
"10 billion US dollars~"
Zhang Yida muttered softly and frowned, looking very embarrassed.
Su Hua looked at Zhonghe Group's negotiating team with great interest, including CEO Lu Qi, investor Xu Xiaoming, and Zhang Yida, a total of three people.
On their Kuaishou side, it was him, Chen Yixiao, and angel investor Zhang Fei.
Exactly three against three!
As for Penguin, Blackshirt Capital, Qiandu, and Ruixiang, these institutions have not shown up, mainly to avoid suspicion.
"Too high."
After a while, Zhang Yida shook his head and said, "According to this price, the valuation of DouShi and Musical.ly can reach 50 billion US dollars."
He looked at Su Hua and said, "If you agree to exchange 5 Kuaishou shares for 1 share, I can agree to this plan!"
Zhang Fei's heart moved and he asked: "Does the package include Pinduoduo?"
"hehe!"
Zhang Yida glanced at Zhang Fei, what a beautiful thought.
He said with a smile: "Pinduoduo is valued at US$20 billion. If you include it, 7 shares of Kuaishou are worth 1 share of Zhonghe Group.
If you merge into a new company, you can exchange 8 shares for 1 share and issue 12.5% additional shares of the new company to you.
Of course, this refers to a full equity swap, no cash required."
Zhang Fei laughed and said, "I've heard that although Mr. Zhang majored in history, he is a top-notch man. I met him today and he is indeed well-deserved."
There was a thorn in these words, and Zhang Yida also heard it.
Over the years, major investment institutions have bet against him, but none of them has won. Rumors have spread in the venture capital circle, and his reputation for being "smart in calculations" has spread like wildfire.
This is not a disparagement, but the greatest compliment to oneself. No matter what others think, Zhang Yida thinks so anyway.
Investors often don't want the founder to lose, because that means a lose-lose situation, but the founder loses more.
To say he is "good at calculation" does not just mean calculating investors, but also refers to his keen sense of company development expectations, market trends, etc.
Zhang Yida chuckled, "If you do good math, you won't suffer losses. For shareholders and partners, they have someone to settle their accounts for them, so they can count their money in peace and peace of mind."
Xu Xiaoming also came out to help at the right time, “Yes, investing in Yida is the most correct thing I have done in my venture capital career.
He has never let us shareholders down. We can play Poker and go skiing in the background while he makes money for us in front of the stage.
It’s a bit embarrassing for investors to take it so easy.
Not two months after the investment, he told me that the next round of financing was going to be carried out and investors had been found...
After a while, he told me that the company was about to go public, and that underwriters and road shows were all arranged..."
Zhang Fei also heard another meaning. This was talking about Zhang Yida's past achievements, trying to convey a message to himself:
If Kuaishou is merged into Zhonghe Group, there will definitely be more generous returns on investment in the future.
Zhang Fei does not doubt that Zhonghe Group has a more brilliant future, but this does not become a reason to lower Kuaishou’s valuation.
On the contrary, it is precisely because Zhonghe Group may become the third pole of China's Internet in the future and has a bright future.
Therefore, he wants to raise Kuaishou's valuation in exchange for more shares of Zhonghe Group.
"Mr. Zhang, 80% or more of this merger and acquisition are share exchange transactions, and less than 20% are cash transactions.
You also know that valuation is something that is just blown out before it goes public.
Is $10 billion too much?”
Zhang Fei shook his head, "Not much at all. With the acquisition of Kuaishou, Zhonghe Group will no longer have any rivals in the domestic short video field.
This is of great strategic significance to Zhonghe Group.
In addition, a near-monopoly in the domestic short video market will also be more conducive for Zhonghe Group to tell good stories in the capital market.
Apart from anything else, hasn’t Pinduoduo been working in the market outside the Fifth Ring Road?
After Zhonghe Group acquired Kuaishou, it can make good use of Kuaishou's share and traffic in lower-tier markets, taking Pinduoduo's business to the next level."
These words are all correct. There are indeed endless benefits after Zhonghe Group acquired Kuaishou.
But given such a high valuation for Kuaishou, the shares of Zhonghe Group will be diluted, and the largest shareholder, Zhang Yida, will suffer the most.
The stuff is good, but who doesn’t want to buy it at a cheaper price?
When Zhang Yida was about to be reborn in his previous life, that is, in October 2019, Pinduoduo's market value was US$45 billion to US$50 billion, and Kuaishou was valued at US$25 billion to US$28 billion.
Douyin, Xigua Video, TikTok and a series of other short video software have valuations that account for at least half of ByteDance’s valuation of US$100 billion, which is US$50 billion.
In this life, it is expected that with Duoduo and Doushi, it will not be difficult for Musical.ly to reach a valuation or market value of about US$100 billion in two years.
If Kuaishou can achieve the same results as in its previous life, 4 shares are worth 1 share of Zhonghe Group.
Therefore, even if Kuaishou's valuation is quoted at 10 billion U.S. dollars and Zhonghe Group is valued at 40 billion U.S. dollars, it is still within Zhang Yida's psychological tolerance.
However, we must also consider that Douyin and Musical.ly in this generation started more than a year earlier and are much stronger than Douyin and TikTok at the same time.
So Kuaishou at this moment is definitely not worth a quarter of Zhonghe Group.
So no matter how much Zhang Fei touted Kuaishou and described the benefits of a successful acquisition, Zhang Yida just refused to let go.
“Kuaishou can be valued at US$10 billion, but Zhonghe Group will acquire Kuaishou at a valuation of US$70 billion.
That’s $2 billion in cash, plus $8 billion in PW Group stock.”
Cash is a minor issue, but the biggest controversy in mergers and acquisitions is equity.
Whether Zhonghe Group is valued at US$40 billion or US$70 billion will have a great impact on Kuaishou’s shareholders.
According to the former, in addition to cash, Kuaishou shareholders will also receive 16% of the shares after the additional issuance, while the latter will only receive 10% of the shares.
Su Hua, who had been silent until now, spoke, "Mr. Zhang, 9.5 billion U.S. dollars, this is our last concession.
In addition, Zhonghe Group’s valuation of US$70 billion is too outrageous. Just a short time after the last round of financing, the valuation has increased by US$30 billion.”
"Yes, Mr. Zhang, if you are sincere, you should come up with a sincere price." Chen Yi laughed and agreed.
Zhang Yida thought for a while and said: "Why don't you listen to my new plan.
What you are worried about is that Zhonghe Group is not worth US$70 billion, right?
After Zhonghe Group acquires Kuaishou, its valuation will reach US$80 billion.
In addition to US$2 billion in cash, we will also issue an additional 10% of shares to Kuaishou’s original shareholders.
What you are worried about is, is this 10% stake in the new group worth US$8 billion?"
Zhang Fei, Su Hua, and Chen Yixiao all nodded.
This is what they think. Although Kuaishou is not currently worth 10 billion U.S. dollars, the bubble is probably only a few billion U.S. dollars.
Even if Zhonghe Group's valuation has increased a bit recently, assuming it's 5 billion US dollars, the bubble still has 25 billion US dollars.
In terms of bubbles, it is much bigger than Kuaishou.
Zhang Yida smiled and said: "This dispute is easy to resolve. Let's make a round of bets on Zhonghe Group's next valuation being no less than US$80 billion.
If the valuation is lower than this amount, I will make up the difference for you."
Zhang Fei frowned. Seeing Zhang Yida so confident, he always felt that there was a conspiracy!
Su Hua quickly began to do mental calculations. If Kuaishou went according to the original plan, Kuaishou would be sold to Zhonghe Group for US$8 billion, receiving US$1.6 billion in cash, plus US$6.4 billion in stock.
If the pre-merger Zhonghe Group was valued at US$42 billion, the post-merger Zhonghe Group would be valued at US$50 billion, and the share they received would be approximately 12.8%.
This is the most ideal result!
According to the gambling plan proposed by Zhang Yida, they received US$2 billion in cash, plus "US$8 billion" in stocks.
These 8 billion U.S. dollars of stocks, accounting for 10% of Zhonghe Group, are somewhat frothy.
Based on a reliable valuation of US$50 billion, the real value is US$5 billion.
The difference of US$3 billion can be regarded as a call option, and it is an option with Zhang Yida covering the bottom.
To put it simply, US$7 billion is stable, and the other US$3 billion is not yet stable, but with Zhang Yida's promise to cover the bottom line, there should be no problem.
So what does Zhang Yida earn?
I had enough confidence and certainty in Zhonghe Group and felt that I could win, so I threw out this plan in exchange for less dilution of shares.
Su Hua analyzed the plan thoroughly.
This plan is very beneficial to our side. No matter how we calculate it, the target price of US$8 billion has been reached.
It can be done!
Su Hua and Zhang Fei looked at each other, but the latter shook his head gently, indicating that he should not agree.
Zhang Yida had a clear view of their expressions and small movements. It didn't matter whether they agreed or not. If they didn't agree, he had a plan B.
"Mr. Zhang, can we discuss this?" Zhang Fei looked at Zhang Yida and asked for the latter's opinion.
"Of course it's no problem!"
Zhang Fei nodded towards Zhang Yida and took Su Hua and Chen Yixiao to the next room.
After Su Hua and the others closed the door and walked out, Lu Qi, who had been silent until now, spoke up: "If you win the bet, you will earn at least 3 billion US dollars."
Zhang Yida shook his head, "How can there be so much? Didn't you see that Su Hua started to loosen his words to 9.5 billion US dollars?
I estimate that their base price should be between US$7.5 billion and US$8 billion.
Calculating it based on US$8 billion, we have to pay US$1.6 billion in cash, plus 12.8% of the shares.”
Xu Xiaoming looked at Zhang Yida and said with a smile: "So you would rather pay out an extra US$400 million in cash, or retain 2.8% more shares."
Zhang Yida nodded, "Based on the valuation of US$50 billion after the acquisition of Kuaishou, a 2.8% stake would be US$1.4 billion. With an extra US$400 million in cash, there is still a profit of US$1 billion!"
In fact, according to Zhang Yida's own estimate, this 2.8% stake is worth more than US$1.4 billion.
Based on a valuation of US$100 billion, it is worth at least US$2.8 billion, and may even be more.
As the major shareholder accounting for more than 60% of the shares, most of the shares earned from gambling will go into their pockets, and other shareholders will follow suit.
Lu Qi nodded, the logic here is very simple, it is to use betting to lower the purchase price.
On the surface, Kuaishou is valued at US$10 billion, but Zhonghe Group has also given itself a premium!
And because most transactions adopt equity swap plans, the equity dilution ratio is actually lowered.
There are risks, too, and that’s the $80 billion valuation.
If this valuation cannot be reached by then, assuming it only reaches a valuation of US$60 billion, the 10% equity held by Kuaishou's original shareholders is only worth US$6 billion, and Zhang Yida will need to make up the difference of US$2 billion.
“Time, to achieve this US$80 billion valuation, the most important thing is to bet on time.
If it takes one year, it will be a bit urgent, but if it takes two or even three years, it will not be so urgent."
Lu Qi hit the nail on the head and pointed out the core issue.
Zhang Yida nodded in agreement and said: "Yes, the main thing is time, I'm afraid one year is a bit uncertain.
One and a half years later, after entering 2019, the valuation will not be less than US$100 billion."
Xu Xiaoming looked overjoyed and asked: "100 billion US dollars? Is this true?
Damn it, I can brag about this project for the rest of my life.
When I get old, I will publish another book called "New Giants Emerging from the Mobile Internet Era"."
Zhang Yida laughed and said, "Mr. Xu, you can start writing now. The book has just been completed in a little more than a year or two, and it will be published just in time. At the same time, it will be popular with Zhonghe Group."
Seeing Zhang Yida so confident, Lu Qi also thought about it carefully and felt that winning the bet was not a big problem.
It mainly depends on the duration of the bet!
Apart from this, there is nothing else that can stop the rise of Zhonghe Group.