Chapter 10: Med-Ferry Acquisition (Part 1)

Chapter 10: The Med-Ferry Acquisition (I)

After the Entrepreneurship and Innovation Competition, Kunpeng and HW Micro began to integrate.

Although they knew they had been tricked—HW Micro's "AI lending" project had merely been for show—Fanhai still officially pulled the plug on AI lending R&D.

Apart from that merger, however, everything went smoothly.

Hong Xu had just come on board at Fanhai when he began tackling difficult problems across several AI healthcare projects, and Jing Hong had high hopes.

The next time he heard the name "Qinghui" was a month later, over a cross-border acquisition.

Earlier, the investment division of Fanhai Group had identified a medical device company in Sweden as a target, with Zhao Hanqing leading the acquisition, J.P. Morgan Sweden serving as financial advisor, and Mannheimer Swartling as legal counsel.

Sweden was also a long-time powerhouse in heavy and light industry, having produced companies like Volvo, Ericsson, IKEA, and H&M. The country's medical device technology was also among the world's best—it had invented pacemakers, ventilators, artificial kidneys, ultrasound, and local anesthesia. Though Sweden had faded somewhat in recent years, some of its companies still held tremendous acquisition value.

Fanhai first acquired 8.9% of the company's shares, then proposed acquiring 100% of the company to make it a wholly-owned off-balance-sheet subsidiary, issuing a good-faith tender offer to all shareholders with a total consideration of up to €3.5 billion—the per-share offer price was roughly 20% higher than the company's average stock price over the past month, and also represented a significant premium over the average price over the past 12 months.

Fanhai never lowballed when it made a move.

After several rounds of negotiations, Fanhai Group committed to tough conditions such as "no layoffs for five years," "no salary cuts," and "ensuring the independence and autonomy of unions and other organizations." The target company's board reviewed the offer, accepted Fanhai's tender, and both parties signed the relevant agreements.

The target company's board recommended that all shareholders sell their shares to Fanhai and vote in favor of the acquisition at the upcoming extraordinary general meeting.

However, as with typical acquisitions, the agreement included a 40-day go-shop period (during which the seller could shop around for better offers), with either side able to walk away from the transaction without notice.

In other words, if another buyer came forward with better terms—such as a higher price—within those 40 days, the agreement with Fanhai would be off.

Throughout this period, both Jing Hong and Zhao Hanqing didn't see much to worry about.

Although the United States and Germany had recently been attempting to curb Chinese enterprises' cross-border acquisitions, unwilling to see core national technologies fall into foreign hands, at least Sweden hadn't made any such moves yet. Jing Hong and Zhao Hanqing were not worried about the acquisition failing.

Then, out of nowhere, things changed.

"Mr. Jing," Zhao Hanqing said, "there's something you should know."

"Hmm?" Jing Hong sat up straighter. "What is it?"

"The Med-Ferry acquisition," Zhao Hanqing said. "Qinghui jumped in yesterday. We're at each other's throats again."

"..." Jing Hong wasn't all that surprised.

Sure enough, Fanhai and Qinghui were once again butting heads over the acquisition of Med-Ferry.

Only one week into the 40-day go-shop period.

Over the past six months, Fanhai and Qinghui had both set their sights on several of the same targets, and every time it turned into a war. Med-Ferry was one of those rare companies that was a perfect fit for a Chinese giant—and once this opportunity was missed, the next one wouldn't come around again for a long time.

First, Med-Ferry was a long-established European medical device maker with extensive hospital resources. Both Fanhai and Qinghui were developing AI healthcare products—such as surgical robots in development, intelligent exoskeletons, and the hottest area, medical imaging AI. China still had a price advantage, but if these products were to enter overseas markets in the future, they would need solid sales channels and extensive hospital resources. As the saying goes, a dying camel is still bigger than a horse. Med-Ferry had been a powerhouse in its day, and though it had weakened in recent years, its resources remained.

Second, although its main business was on the decline, Med-Ferry had previously acquired an "AI drug discovery" company, and that company's technology was now outstanding—both in target identification and compound discovery. It had just announced the discovery of a new disease target and a corresponding compound. Several pharmaceutical giants were already looking to collaborate with it and sign deals. This company was a cash cow that could offset the acquisition cost. And as always, spending less when you can is the way to go.

Finally, it was obvious that European and American countries were tightening scrutiny of cross-border acquisitions. Both healthcare and AI were highly sensitive industries, and both Fanhai and Qinghui wanted to secure a European or American company while they still could.

Zhao Hanqing said, "Qinghui's offer is slightly higher. Med-Ferry has already said that if Fanhai doesn't raise its bid, they intend to drop their recommendation and go with Qinghui."

"Hmm." Jing Hong asked Zhao Hanqing, "How confident are we on this deal?"

"We should be able to win it," Zhao Hanqing said. "Fanhai and Qinghui are evenly matched financially. If Qinghui raises its bid, we can raise ours too—our budgets are about the same. In the past, when it came down purely to bidding, it always came down to a hair."

Jing Hong listened quietly.

Zhao Hanqing continued his analysis: "But Med-Ferry makes orthopedic implant devices, and Qinghui once acquired a company that makes 3D-printed metal implants—"

"I know," Jing Hong said. "Weikang Medical, right?"

"Correct," Zhao Hanqing nodded. "This year, several of Weikang Medical's products—such as artificial vertebrae for the spine—have already received FDA and CFDA² registration certificates. The company plans to apply for a Hong Kong listing next year, aiming to be the first 3D-printing company to go public. My guess is, Qinghui will likely want to split Med-Ferry immediately after the acquisition, dividing it into two independent companies—one handling the main business, and the other specializing in distribution. Right now, Med-Ferry's distribution arm is limited. But if it were spun off, it could grow on its own and sell other companies' products without being tied to Med-Ferry's own line. Qinghui is probably eager to use Med-Ferry's existing orthopedic device sales channels to quickly crack into the European market for Weikang Medical's products."

Jing Hong said, "Go on."

Zhao Hanqing continued: "Qinghui might also want to reorganize and integrate the two companies—for example, cutting Med-Ferry's weaker product lines and converting the idle factories directly into Weikang Medical's manufacturing facilities in the European market, since the temperature and humidity control equipment is already in place, and the warehouses are already there too." Zhao Hanqing gestured as he spoke. "This would save Weikang Medical a ton of money and fully support its Hong Kong listing. In my view, a major reason Qinghui entered the Med-Ferry acquisition is to help Weikang go public as the first 3D-printing stock, dominate the 3D printing sector, lock down the market, and add leverage for Qinghui's future acquisitions."

Jing Hong nodded. "That's right."

"But," Zhao Hanqing added, "Fanhai doesn't have to split things up right away. From our negotiations, we could tell that Med-Ferry's owner still wants to preserve certain aspects of the company—he doesn't want it gutted. Otherwise, he wouldn't have demanded terms like 'no layoffs, no salary cuts' and 'maintaining union independence.' No one wants to see their life's work ripped to shreds after a takeover. Qinghui can't agree to those demands, because splitting and reorganizing is the whole point of this acquisition. Once Qinghui gets involved, Med-Ferry will inevitably be torn apart. And Zhou Chang's style is quite different from ours—very aggressive, my-way-or-the-highway. So, with roughly the same price tag, Fanhai naturally has the edge."

"Got it." Jing Hong nodded. "Keep going. Thanks for the hard work."

Zhao Hanqing said, "Will do."

However, despite saying "will do," Jing Hong had a gut feeling that this acquisition would not go as smoothly as Zhao Hanqing expected.

How would Zhou Chang play this?

...

After Zhao Hanqing left, Jing Hong felt a little wiped out.

Fanhai still needed a CSO—Chief Strategy Officer. He was serving as the group's President while also acting as the President of the Corporate Development Group, and it was a real grind.

Fortunately, the general manager of human resources was already in talks with a strong candidate—a managing director from Goldman Sachs headquarters who ran global internet investing.

When word got out, the industry joked that Fanhai Group's investment division was the Haidian outpost of Goldman Sachs.

Jing Hong worked until past ten o'clock but didn't go straight home. Instead, he arranged to play a few sets of tennis at Fanhai's courts with a retired pro tennis player.

Fanhai had its own tennis courts, and the courts were in great shape.

Jing Hong had a villa on the outskirts of Beijing with a tennis court in its yard, and Jing Haiping had one too, but Jing Hong rarely went there—he usually stayed at his big apartment in "Zhuxiang Qingyun." So the courts he used most often were actually Fanhai's.

Tennis was also Jing Hong's strongest sport. He had started learning at age six, first from a tennis coach at a Beijing sports school his father knew, and later, after his father struck it rich, from professional coaches with the Beijing municipal team. Jing Hong was extremely patient and persistent. He had long realized that against opponents he couldn't beat outright, he could simply play a grinding game, rally after rally, until the other guy cracked.

In fact, Jing Hong rarely had casual hobbies—if he practiced something, he wanted to win trophies.

Because of his skill level, he was on the college team. However, his teammates were way too good—many of them would likely turn professional after graduation. He knew when to pick his battles and didn't get upset when he couldn't win. Later, he teamed up with a teammate for doubles, working on their chemistry every day, and in his junior year, he won an NCAA national team championship with the school.

Tennis also taught Jing Hong that there's always a bigger fish. Years later, he discovered that the teammates he could never beat back then—such as their number one seed, who had been a force of nature at the time—had reached a career-high ATP ranking of 141.

Besides tennis, Jing Hong also trained in taekwondo. When he started, he set a goal of reaching a certain black-belt level—anything beyond that would have been too difficult—and he did eventually achieve that rank.

He set goals, but he never shot for the moon.

Jing Hong was a sucker for dopamine and endorphins, so he loved sports, and he loved success.

As for the arts, Jing Hong had never been interested. He liked things with clear winners and losers.

He also seemed to have no talent for art, and he basically never micromanaged product UI design.

After his match, Jing Hong didn't shower at Fanhai. He went straight back to "Zhuxiang Qingyun."

Once home, he closed the door and tossed his light tennis clothes into the bathroom laundry basket before stepping into the shower and turning on the nozzle.

Warm water cascaded down his back with considerable force.

In that empty stretch of time, Jing Hong, letting the water stream over him, unconsciously thought again about the progress of the Med-Ferry acquisition.

Running into Zhou Chang again... Jing Hong thought: that guy is so annoying.

Last time he ran into Zhou Chang, it was over a major strategic investment—in Kunpeng; this time, it was over another major strategic investment—in Med-Ferry.

Jing Hong didn't want to lose again. Not for himself, and not for Fanhai either.

He hated feeling overshadowed.

Jing Hong recalled that last night, his cousin had just said the two of them were like fire and water—he was like water, and Zhou Chang was like fire.

That remark made Jing Hong think of the ancient myth of the great battle between Zhurong and Gonggong—in which the water god Gonggong had lost. Gonggong had slammed his head into Mount Buzhou—but Buzhou was the pillar that held up the sky, and in the end, heaven and earth collapsed, saved only by Nüwa's repair.

After his shower, Jing Hong stepped out, dried off, wrapped a towel around his waist, and walked to the sink. He pressed his hands against the marble countertop and quietly gazed at his reflection.

Would he lose again?

Again?

Was he not as good as Zhou Chang?

Probably not.

Because the mirror was fogged with steam, Jing Hong's reflection wasn't particularly clear.

In the mirror, his upper body was bare, his skin on the fairer side, with the lines of his chest, abs, and arms faintly visible—young and strong, in the prime of his life.

The other man was also in his prime.

Without realizing it, Jing Hong reached out and wrote the characters for "Zhou Chang" on the fogged mirror.

The writing matched the man—there was a faint, deadly sharpness to it.

As his finger slid across the glass, the mist cleared where his fingertip passed, and within the strokes of Zhou Chang's name, Jing Hong's reflection appeared.

And there, within those seventeen strokes, Jing Hong stared at his own naked body.

Because of the steam, everything else in the mirror was blurred—only within those seventeen strokes was he clearly visible.

Jing Hong seemed to be looking at himself through that man, scrutinizing himself.

Or rather, it was through the other that he saw himself most clearly.

After a long moment, Jing Hong suddenly snapped out of it, swiped his finger across the mirror, and hastily wiped away Zhou Chang's name and every trace of it.

His heart thumped like a drum.

Beat after beat, shattering the calm that had been there before.

Author's Note:

One-sentence summary: The lead and the rival are both bidding for the same company—both want to buy it, but the lead plans to dismantle it after the purchase, so at equal prices, the rival has the edge.

That said, this business battle probably has the most jargon of any of them... If you can understand this one, you'll be able to follow all the business battles after it~ And if you only half-understand it, no worries—the later ones are easier...

The last few chapters of this arc, with the two leads' scenes together, are my personal favorite =w=

Also, President Jing—Honghong—what are you doing...!

[Notes]:

①Tender Offer: A tender offer is an offer by an acquirer to all shareholders of a listed company to purchase all or part of their shares. It can specify the percentage of shares to be acquired (in China, the minimum is 5%; if the total tendered exceeds that, the acquirer buys on a pro-rata basis—e.g., if the acquirer only wants 100,000 shares but 200,000 are tendered, each shareholder can only sell half of what they offered). It can also be open-ended. Generally, the target company's board evaluates each tender offer and issues a "recommend" or "do not recommend" opinion. Offers made directly to shareholders without going through the board constitute a hostile takeover—which is rare, especially in China.

Total consideration: The total acquisition price.

②FDA: U.S. Food and Drug Administration. CFDA: China Food and Drug Administration, later renamed NMPA after the 2018 institutional reform.

I still have a bit of time today, so let me also explain "board of directors" and "supervisory board" for fun—this is unrelated to the main story.

Currently, there are two main models worldwide. Countries like the U.S. prioritize efficiency over oversight, with no supervisory board or inspectors—all power rests with the board and its subcommittees, such as the audit committee for oversight and the executive committee for operations. But countries like Germany prioritize safety and oversight, emphasizing co-determination, with the supervisory board holding significant power above the board of directors, operating under a system where the supervisory board leads and the board of directors is responsible to it. For example, Mercedes' supervisory board has 20 members, with social luminaries and employee representatives making up half—capital doesn't have as much power.

China, meanwhile, is a bit chaotic, having both a supervisory board and a board of directors, plus various committees under the board, with an unclear division of functions... But overall, the supervisory board is largely a formality.

Finally, back to President Jing, I still have to say:

President Jing, Honghong, what are you doing...!