Strategic Alliance via Private Placement: Wu Changjiang and Dehao Runda to Become New Leaders of NVC Lighting

　　Acquiring Wu Changjiang's equity to directly control NVC Lighting! The non-public offering plan disclosed today by Dehao Runda ultimately confirmed this exciting news for the industry. Equally surprising is Wu Changjiang's choice — while giving up his position as the largest shareholder of NVC Lighting, he will make a strategic investment in Dehao Runda and become its second-largest shareholder.

　　According to the plan, Dehao Runda intends to issue no more than 230 million shares through a non-public offering at a price of RMB 5.86 per share, raising no more than RMB 1.348 billion to supplement working capital. The company has locked in two subscribers: the controlling shareholder, Wuhu Dehao Investment Co., Ltd., which will subscribe to 100 million shares, and Wu Changjiang, who will subscribe to 130 million shares.

　　Wu Changjiang is one of the most high-profile figures in the capital market this year — the founder, former chairman, executive director and CEO of NVC Lighting, and currently the head of NVC Lighting's interim board operations committee. As of now, he directly holds 25.281 million shares of NVC Lighting, and indirectly holds 560 million shares through NVC Inc., totaling 18.60% of NVC Lighting's total issued ordinary shares, and has stock options for 30.476 million shares. In the first half of this year, in the fight for the company's actual control, Wu Changjiang had intense conflicts with SAIF Partners' Yan Yan, causing the once-sensational NVC storm.

　　Now, Wu Changjiang has decided to sell most of his shares in NVC Lighting. According to an announcement, between December 11 and December 21, Elec-Tech International acquired a total of 260 million ordinary shares of NVC Lighting through on-exchange and off-exchange transactions on the Hong Kong Stock Exchange, accounting for 8.24% of its total issued ordinary shares, with a transaction amount of HK$703 million. Additionally, on December 25, the company's wholly-owned subsidiary Hong Kong Elec-Tech International signed a conditional Share Transfer Agreement with NVC Inc., which is wholly owned by Wu Changjiang. Hong Kong Elec-Tech International intends to purchase 373 million ordinary shares of NVC Lighting held by NVC Inc., accounting for 11.81% of NVC Lighting's total issued ordinary shares, with a transaction amount of HK$950 million.

　　After the acquisition, Hong Kong Elec-Tech International will hold a total of 633.3 million shares of NVC Lighting, accounting for 20.05% of its total issued ordinary shares, becoming the largest shareholder of NVC Lighting. For Wu Changjiang, since the proceeds from the equity sale will basically all be used to take a stake in Elec-Tech International, it is equivalent to exchanging 373 million shares of NVC Lighting for 130 million shares of Elec-Tech International equity. Judging from Elec-Tech International's existing shareholder list, after the acquisition, Wu Changjiang will hold approximately 9.3% of Elec-Tech International, becoming its second largest shareholder.

　　For Elec-Tech International, obtaining the controlling stake in NVC Lighting and subsequently completing industrial integration is clearly a very cost-effective deal. In the view of some industry insiders, it even has the flavor of a "snake swallowing an elephant." Although Elec-Tech International's current asset scale is larger than that of NVC Lighting (RMB 8.1 billion vs. USD 748 million), the latter has higher operating revenue. Data shows that in 2011, Elec-Tech International had revenue of RMB 3 billion, while NVC Lighting had USD 589 million. In terms of profitability, NVC Lighting was also stronger than Elec-Tech International. In 2011, NVC Lighting's profit was USD 86.5 million (approximately RMB 540 million), while Elec-Tech International's net profit for the same period was RMB 392 million.

　　It is difficult to fathom Wu Changjiang's true thoughts on giving up the controlling stake in NVC Lighting and instead taking a stake in Elec-Tech International. One speculation is that after experiencing the turmoil this summer, the environment of NVC Lighting has changed, and Wu Changjiang's situation and thinking have also changed. Of course, it cannot be ruled out that Wu Changjiang and Elec-Tech International have reached other agreements regarding corporate control and management, and that PE firms such as SAIF have played a matchmaking role in between.

　　There may be more to come on this deal. During the period when Elec-Tech International suspended trading to plan this private placement and acquisition, the company's largest state-owned shareholder, Wuhu Economic Development Zone Optoelectronic Industry Investment Development Co., Ltd., planned to transfer its 104 million shares, accounting for 8.92% of the company's total share capital, by agreement through public solicitation. With the news of successfully taking control of NVC Lighting, Wuhu Optoelectronic should be able to sell at a better price.