Chapter 12: Med-Ferry Acquisition (Part 3)

Chapter 12: The Med-Ferry Acquisition (III)

A few days later, out of the blue, Fanhai sweetened its offer again. This time, in addition to matching Qinghui's bid, Fanhai Group made a pretty unusual move—turning its conditional offer into an unconditional one.

Previously, Fanhai's offer had included a condition requiring the acquisition of at least "50% plus one" of the voting rights, and this type of "conditional tender offer" was the standard way of doing things. For an acquirer seeking control, you had to lock up more than 50% of the voting rights, because you need at least 50% of the votes to nominate a director. In other words, only by getting over 50% could you restructure the board and gain control of the company. Otherwise, if the final tally fell short, you'd have shelled out a fortune and still had no control.

This was a weird move, and Qinghui didn't follow Fanhai's lead.

Then, even more out of nowhere, Fanhai Group announced that it had increased its stake in Med-Ferry from 8.2% to 18.2%, and had already locked up 33.5% of the voting rights.

Fanhai Group didn't say who the seller was, but anyone in the know could see it right away: one of Med-Ferry's co-founders—the marketing guy—had "sold out" the company. Even though the board told everyone to "hold tight" and "not do anything for now," he'd accepted Fanhai Group's offer, selling his 10% stake in B-class shares to Fanhai.

Since Swedish law also allows dual-class share structures, Med-Ferry's stock was divided into A and B classes: A shares carried one vote per share, while B shares carried ten votes per share, mostly held by Med-Ferry's three founders.

America's dual-class structure gets a lot of hype, but in reality, not that many U.S. companies use it—only about 7% to 8% of public companies. "Unequal voting rights" is actually way more common in Northern Europe, and Sweden has the highest rate of "dual-class" structures, at over 80%.

As for China, both mainland A-shares and Hong Kong H-shares currently ban "unequal voting rights."① Consistent with countries like Germany, Chinese law says that if you own shares, you should have the rights that come with them. Having some stocks with ten votes per share, some with one, and some with zero is just unfair to minority shareholders.

Sweden's "dual-class" setup is also different from America's.

In the U.S., most companies flat-out say that "super-voting rights can't be transferred." If you try to transfer them, they automatically turn into regular shares. Among the big companies, only Facebook lets you pass them to family members, to set up for "succession." Shareholders trust the founders, but only the founders—they don't want to hand voting power to just anybody. Canada goes even further, straight-up recommending that companies add sunset clauses.

But Sweden's different. In Sweden, whether it's a negotiated deal or a tender offer, the shares keep their super-voting rights. Even Sweden's top ten companies don't have sunset clauses, and among the top twenty, only two or three have any restrictions. In this country, founding teams basically get free rein.

And that was exactly the angle Jing Hong wanted to work.

Med-Ferry had three founders. The R&D guy and the marketing guy each had a decent chunk—10% apiece—while the COO had less, only 5%. This time, Fanhai Group persuaded the marketing founder.

Fanhai Group made two arguments to win him over.

First, Fanhai Group's offer was an unconditional tender offer, whereas Qinghui Group's offer was still conditional, with the condition of acquiring at least 50% plus one of the voting rights. If the final count didn't hit half, the offer would be worthless.

Second, Fanhai was way more prepared for this acquisition—it had already gotten the green light from both governments before making the offer—whereas Qinghui had jumped in at the last minute and would still need several months to get approval after the deal. Germany next door had just amended its Foreign Economic Law, specifically to block non-EU companies from buying German companies. And after those "several months," who knows what the situation in Sweden might look like.

So basically, Qinghui's offer came with a lot of uncertainty. With Fanhai dropping its conditions, right now, only Fanhai's offer was a sure thing, while Qinghui's competing offer was not.

Earlier, during talks, Fanhai Group had figured out that this founder was super cautious and didn't want to take any risks. That personality was exactly why he'd butted heads with Med-Ferry at the company level—he and the other two founders had stopped being buddies a long time ago. Honestly, he'd already been pushed to the sidelines and cut out of the loop.

That said, everyone else was a tough sell. Which made sense—in a bidding war, the highest bidder wins.

…………

When Med-Ferry's board found out Fanhai had scooped up another 10%, they were pretty shocked, because at a time like this, Fanhai going around the board to get a shareholder to accept the offer felt a lot like a hostile takeover. But since Med-Ferry and Fanhai hadn't signed a standstill agreement before the offer, the board couldn't do anything to stop it.

At the time, Med-Ferry had obviously wanted to sign a standstill—saying that "without board approval, Fanhai Group can't buy any Med-Ferry shares"—to keep a friendly deal from going hostile. But Fanhai, like most buyers would be, didn't want to sign. In the end, after a back-and-forth, Fanhai won out.

Fanhai Group immediately said it wouldn't buy any more shares, claiming this wasn't a hostile takeover but a "friendly but firm" acquisition. Med-Ferry had never heard anyone call a hostile takeover a "friendly but firm" acquisition before, and they were stunned by how shameless that was.

Luckily, the whole thing about suddenly grabbing 10% of the B-class shares eventually blew over.

Because Fanhai had promised "no split-ups and no restructuring," Med-Ferry's board actually still leaned toward Fanhai. Plus, a lot of board members owned shares themselves—they wanted Fanhai to keep buying and put pressure on Qinghui, so both sides would push their bids higher. So they absolutely couldn't let their relationship with Fanhai go south.

At that point, hostile or not, it didn't matter anymore.

Qinghui, meanwhile, went quiet for a couple of days, like they were trying to figure out what Fanhai was up to, because Fanhai's move was definitely weird.

First, there was a huge risk—if they didn't get a majority of the voting rights, wouldn't all that money just go down the drain?

Second, this move obviously pissed off the board, and the board's final recommendation carried a ton of weight with shareholders. Fanhai Group seemed like it didn't give a damn about the Med-Ferry board anymore, like it was just throwing caution to the wind.

"President Jing," in the Fanhai Group CEO's office, Zhao Hanqing—who already knew what Jing Hong was up to—was sweating bullets. "President Jing, isn't this... still way too risky?"

"It's fine." Jing Hong thought for a moment. "Zhou Chang's got to be dead set on winning Med-Ferry. This plan's got maybe a ninety percent chance of working. Zhou Chang's always been sharp—he wouldn't do something that screws himself over for no reason."

"I hope so." Zhao Hanqing sighed again. "I hope it goes exactly the way you've got it scripted. If we land Med-Ferry, this deal's gonna blow way past our max budget—that hasn't happened in years."

"Nah, it won't." Jing Hong thought for a moment and said, "Zhou Chang's definitely gonna bump up his offer again."

…………

A few days later, just like Jing Hong called it, Qinghui Group raised the total value of its offer again.

That day was December 31st—2018 was right around the corner.

When he heard the news, Jing Hong didn't react at all. Instead, he took his assistant Tan Qian for a walk around the campus—this year, Fanhai Group had set up a gorgeous New Year's lantern display.

Fanhai's HQ was in Haidian District, with nine buildings on a big campus. Tonight, Fanhai Group was all lit up. The lantern display was in a specific part of the campus, with a path already set up—people came in through the side gate and headed north to get to the main area.

Fanhai's security team was keeping things orderly outside the side gate, lining people up and letting them in groups.

Jing Hong hadn't really cared about the lantern display at first, but after actually walking the whole thing, he caught the upbeat vibe from everyone around him.

Right inside the side gate, there was a long tunnel of lights. Yellow light chains curved the walkway into a tube that stretched way off into the distance, and underfoot was this special glass that looked like ice, with frost patterns baked into it. Inside the light chains, there were all these "snowflake" decorations—starlight and lamplight all blending together.

Coming out of the tunnel, on the way to the main area, the trees on both sides were covered in thick clusters of little bulbs, and the lawns were also decked out with colorful lights, like a sea of flowers in the dark. Little animals made of bulbs were tucked into the grass, and every so often there were round huts made of lights, with people lining up to go in and take pictures.

The display was actually set up on Fanhai Group's soccer field.

The field was split in two. One half was the display area—which was also a maze, with plant walls making a winding path, all strung with colorful lights in red, pink, blue, yellow, and purple, like walls of flowers. Tall "trees" made of white bulbs stood inside the walls, with snowflakes popping up here and there—it felt like you were in a fairy tale.

Inside the maze, there were nine "deer"—symbolizing "fortune"—also made of bulbs, beautiful and graceful, scattered around the maze. Fanhai employees could carry a little booklet and collect stamps at different spots, with each design reading "Fanhai Group, New Year's Day 2018."

At the maze's exit, there was this towering "sacred tree"—a pine surrounded by sharp "ice crystals," like they were guarding it.

The other half of the field was a big ice-skating rink. Unlike your usual rink, this one had a set, winding path with silver railings, lights on both sides—trees, snowflakes, animals—and in the middle, a stretch of dozens of pure white arches covered in long white feathers, like you were really in a fairy tale. The rink's exit also came out at that same sacred tree in the middle.

Jing Hong noticed that all the Fanhai employees along the way were totally hyped—gasping, squealing, taking photos and selfies, not wanting to miss a thing, with huge smiles of joy and pride on their faces.

All because they worked for Fanhai.

They'd fought their way through everything to get to where they were, as part of Fanhai.

Jing Hong also saw a bunch of employees posting on Weibo and WeChat Moments, all writing "Our company's lantern display~~~"

Every now and then, a Fanhai employee would say hi: "President Jing!"

And President Jing always smiled back.

Over the past few days, Fanhai Group's different business units had been taking turns holding their annual parties. Fanhai was so big that each division and each city had its own party. This year, the U.S. branch's annual party was on an aircraft carrier—a decommissioned one that's now a museum, keeping everything from its old days. Fanhai had rented out the whole carrier, and "Fanhai Annual Party Aircraft Carrier" even trended on Weibo.

Seeing all this, Jing Hong felt a ton of pressure.

He'd get anxious sometimes—scared that one day the empire might just crumble, scared that he'd be the one leading it into its twilight.

And when a dynasty falls, the afterglow is bound to be a sea of blood.

When those anxious moments hit, he felt lonely.

A few days earlier, Jing Haiping and Jiang Mei had brought up "marriage" again.

Jiang Mei said that Jing Hong's wife should ideally be successful in her career, gentle in temperament, and also in the IT industry. This way, she'd have both the wisdom and experience to understand the internet, big companies, and management, and also be able to understand and empathize with him.

Jing Hong knew his parents' words had some merit, but in reality, he believed that truly feeling what he felt was impossible.

This role was too complicated to put into words.

When facing his parents, Jing Hong couldn't even keep track of all the roundabout phrasing and subtle things he left unsaid. It was the same with his friends—many things, if spoken aloud, would come off as too dramatic, so all those little frictions, the awkwardness, and every mixed feeling had to be swallowed alone.

Jing Hong suddenly thought that maybe Zhou Chang would get it.

He'd always wanted to win against Zhou Chang, but at a time like this, maybe having such a friend might not be a bad thing.

But unfortunately, they'd never be friends.

Author's note:

To summarize in one sentence: The protagonist, against all odds, without the permission of Med-Ferry's board of directors, increased his stake in Med-Ferry to 18.9% and raised his voting rights to 33.5%, pissing off the other board, like he didn't even want to do the takeover properly anymore.

[Notes]:

①After 2019, the Shanghai and Shenzhen STAR Markets attempted to allow tech companies to have dual-class share structures, but the main boards still require one share, one vote.

②R&D: Research and Development

③COO: Chief Operating Officer

④Hostile Acquisition, also known as a hostile takeover, refers to acquisition activities conducted by an acquiring company without the permission of the target company's board of directors. Typically, it involves making a tender offer directly to all shareholders without board approval, urging them to sell their shares.

In the United States, founders' super-voting rights at companies like Google can't be transferred, except through personal trusts, and it's basically the same deal—even explicitly stating that "if a founder dies, super-voting shares convert to subordinated voting shares and cannot be inherited." However, in Sweden, transfer agreements do indeed carry super-voting rights.