NVC Lighting shareholders stage a "Three Kingdoms" drama
From a Two-Power Standoff to a Three-Power Balance.
Two weeks ago, after Elec-Tech announced its takeover of NVC Lighting, it entered NVC Lighting as a new force; from then on, internal struggles within NVC Lighting's board of directors will become even more byzantine.
On January 11, Wang Donglei (chairman of Elec-Tech), Wu Changjiang (founder and former chairman of NVC Lighting), Yan Yan (founding partner of SAIF Partners, NVC Lighting's second-largest shareholder), and others gathered in Shenzhen for an NVC Lighting board meeting to jointly discuss changes to the board's membership and NVC Lighting's future deployment in the LED field.
This newspaper's reporter has learned that at this board meeting, Wang Donglei joined NVC Lighting's board as a non-executive director, Wu Changjiang was appointed as NVC Lighting's CEO, and Yan Yan continued as non-executive chairman.
Wu Changjiang told this newspaper's reporter: "My purpose is to run NVC (Lighting) according to my ideas and my strategy." His gentleman's agreement with Wang Donglei is one of mutual non-interference: Wu will not interfere with Elec-Tech's operations, and Wang will not interfere with NVC Lighting's day-to-day management. He believes that he and Yan Yan have at times been too antagonistic, and that "Wang Donglei's joining can play a subtle balancing role."
Regardless of whether NVC Lighting's other shareholders are prepared, NVC Lighting is about to enter the era of the three giants—Wang Donglei, Wu Changjiang, and Yan Yan. Each of the three has his own calculations, yet they share common goals; while they constrain one another, flirtation between them is inevitable. In this "era of the three giants," can NVC Lighting carve out a place for itself in the LED field as swiftly as Wu Changjiang hopes?
Reconstructing the "share swap" transaction: as swift as thunder covering ears
On December 27, 2012, NVC Lighting and Elec-Tech both announced that Elec-Tech had purchased approximately 8% of NVC Lighting's shares from the open market, and had paid HK$950 million to acquire about 12% of NVC Lighting's equity from Wu Changjiang; at the same time, Wu Changjiang planned to invest approximately RMB 760 million to participate in Elec-Tech's private placement, and if completed successfully, would hold 9.3% of Elec-Tech's equity.
This series of transactions is considered to have effectively constituted a share-swap deal between Elec-Tech and Wu Changjiang. The transaction spanned HK-listed shares and A-shares; Wang Donglei personally invested RMB 586 million, and Elec-Tech contributed around RMB 560 million—for a price of less than RMB 1.2 billion, Elec-Tech preserved its own equity from dilution and gained control of NVC Lighting, thereby obtaining one of the most valuable channels in the LED field. For Elec-Tech, which seeks a full industry-chain layout, this was a brilliant and relatively low-cost move.
This transaction was not the result of careful deliberation between Wu Changjiang and Wang Donglei.
Wu Changjiang told reporters that he and Wang Donglei met for the first time last October. Deng Fei, board secretary of Elec-Tech, also stated that prior to this, Elec-Tech and NVC Lighting had only discussed cooperation in business and products, with no involvement of capital-market cooperation.
Elec-Tech is unquestionably a "fast" company. Before 2009, Wang Donglei and Elec-Tech had never ventured into the LED industry. In 2009, Elec-Tech began aggressively pouring money into the LED industry, completing two targeted private placements that raised over RMB 3 billion. Capitalizing on the willingness of local governments to provide lavish subsidies, Elec-Tech built out its presence in LED epitaxial wafers, chips, and packaging within three years, and its capacity is unquestionably top tier among companies in mainland China.
This time, Elec-Tech once again acquired a channel—by gaining control of NVC Lighting.
Wang Donglei is usually very low-key; few people inside the LED industry have even met him, and impressions of him are limited to: "He's been rolling out fast in the LED field." The subtext of moving fast is: if Wang Donglei bets correctly on the LED trend, he may achieve great success; if he bets wrongly, Elec-Tech—given its massive prior investments—will have very little room to maneuver and may face a severe crisis before the LED industry takes off.
On January 10, at Elec-Tech's new-LED-product launch, Wang Donglei declared: "The Chinese LED market will explode within 24 months—at the very least, Elec-Tech already has that capability."—In other words, whether Wang Donglei and Elec-Tech bet right or wrong, the answer will be clear within two years.
For this launch event, Elec-Tech invited Wang Jinsui, an independent director of NVC Lighting, to attend. Wang Jinsui is president of the China Illumination Association and a veteran expert in the lighting industry.
The reason Wu Changjiang has bound himself—and even the fate of NVC Lighting—to Elec-Tech and Wang Donglei is this: he felt he had no other choice.
On January 6, when asked why he sold his shares to Elec-Tech, thereby stepping away entirely from his position as a major shareholder of NVC Lighting, Wu Changjiang opened his heart: "In a sense, it was unavoidable; what can I do now? I still can't return to the board anyway. My purpose is to run NVC according to my ideas and my strategy. Today Andy (that is, Yan Yan) also expressed his support for me. I will abide by the rules of the board game; whatever the matter, we should all discuss more, the three of us should all discuss more."
At the same time, Wu Changjiang is keenly aware that NVC Lighting's deployment in the LED field is insufficient: "In our cooperation, Elec-Tech certainly stands to benefit more. From the current perspective, their input-output ratio is more favorable. But NVC also faces a hurdle—it has to transform and produce a lot of LED products. If I develop on my own, lacking chips, I'd be at others' mercy; but if I do R&D, there may not be enough time; and if I develop on my own and don't do it well, that's even worse. Although the (LED) upstream is in surplus, there are still opportunities—let's see who can break through."
In addition, Wu Changjiang believes Elec-Tech's technology and products are good, and that "Elec-Tech's prior investments were all personally guaranteed by Wang Donglei, which shows he has a lot of boldness—he dares to take such big risks."—When Elec-Tech previously carried out its private placement, one of the placement targets was Wang Donglei himself.
Can 1+1 > 2?
On January 6, the first meeting among representatives of the parties—Wu Changjiang, Yan Yan, Wang Donglei, and Schneider—took place in Beijing.
On January 11, the parties again gathered in Shenzhen for the board meeting. This newspaper's reporter has learned that at this board meeting, Wang Donglei joined NVC Lighting's board as a non-executive director, Wu Changjiang was appointed as NVC Lighting's CEO, and Yan Yan continued as non-executive chairman.
At 1 p.m. that afternoon, NVC Lighting announced a brief trading halt pending the company's issuance of an announcement concerning inside information.
Wu Changjiang was thus able to legitimately take the helm of NVC Lighting, putting an end to his days of managing NVC Lighting's day-to-day operations in his capacity as "Head of the Interim Operations Committee."
Deng Fei is optimistic: "NVC Lighting's shareholding isn't complicated; once we joined, it isn't anymore. We currently control 20.05%, making us the largest single shareholder at present. In addition, Wu Changjiang still holds nearly 7%; cooperating with Wu Changjiang, we will at least be aligned in opinion and voting rights."
In the share-swap transaction between Elec-Tech and NVC Lighting, there is a clause allowing Elec-Tech, at any time, to purchase the remaining nearly 7% of NVC Lighting shares held by Wu Changjiang at HK$2.95 per share.
Deng Fei told reporters that under the terms, Elec-Tech does not have to purchase all the equity in one go and can do so in batches. "We considered that in an extreme case, if other capital wants to meddle in this matter, we can buy shares from Mr. Wu at any time, which actually leaves room for the unpredictability of the next step." The implication is that Elec-Tech will firmly hold its position as NVC Lighting's largest shareholder. #p#page-title#e#
Deng Fei emphasized that Elec-Tech's controlling stake in NVC Lighting is an industrial investment. His reasoning is that, even if someone today spent HK$1.6 billion, they could not recreate NVC Lighting's brand and channel. Both Elec-Tech and Mr. Wu Changjiang hope to grow the brand and channel, bringing greater profits to both Elec-Tech and NVC Lighting. He believes that Elec-Tech and NVC Lighting have significant complementary strengths and is confident they can achieve 1+1 > 2.
Wu Changjiang's vision for the cooperation is: "From the standpoint of my future strategy, NVC does lighting fixtures, Elec-Tech does light sources. Even if Elec-Tech later comes to control NVC, I'll still be the second-largest shareholder on the Elec-Tech side—we're the ones in control—so both sides of ours can operate as dual brands. I can sell Elec-Tech's light sources to other companies—Philips, OPple, anyone. Within China, no other competitor is likely to have a comparable upstream capability of this scale."
Wu Changjiang points out that an important prerequisite for his harmonious cooperation with Wang Donglei is: "His business (Elec-Tech) is something I can't interfere with; we all give each other space. NVC is my business, and he won't really come take it—that's the premise of our mutual understanding. So we all follow the rules. This is also the moral code of the Chinese, the Chinese way of cooperation."
In addition, Wu Changjiang believes: "Previously, NVC's main decisions were made by Andy and me, just the two of us. Now there are three of us, which is actually a good thing—two people tend to become hostile, it's either you or me, but with three, there can be a subtle balance."
But will the future really be that rosy?
An executive at an LED company analyzes: "Wu Changjiang treats NVC Lighting as the apple of his eye. Apart from him, no one else can control NVC Lighting. Channels have nothing to do with capital. Apart from Wu Changjiang, no matter who else tries to control NVC's channels, it's very hard to achieve—we've already been through two rounds of turmoil. But Wang Donglei's big-money takeover of NVC Lighting will inevitably mean he borrows NVC Lighting's channels to sell more of Elec-Tech's LED products, which may not align with the interests of NVC's suppliers. Conflict between the two sides in the future is inevitable."
In addition, there are reports that Wang Donglei's next step is to vie for the chairmanship of NVC Lighting. The current temporary balance among Yan, Wu, and Wang will soon face a challenge.
Two weeks ago, after Elec-Tech announced its takeover of NVC Lighting, it entered NVC Lighting as a new force; from then on, internal struggles within NVC Lighting's board of directors will become even more byzantine.
On January 11, Wang Donglei (chairman of Elec-Tech), Wu Changjiang (founder and former chairman of NVC Lighting), Yan Yan (founding partner of SAIF Partners, NVC Lighting's second-largest shareholder), and others gathered in Shenzhen for an NVC Lighting board meeting to jointly discuss changes to the board's membership and NVC Lighting's future deployment in the LED field.
This newspaper's reporter has learned that at this board meeting, Wang Donglei joined NVC Lighting's board as a non-executive director, Wu Changjiang was appointed as NVC Lighting's CEO, and Yan Yan continued as non-executive chairman.
Wu Changjiang told this newspaper's reporter: "My purpose is to run NVC (Lighting) according to my ideas and my strategy." His gentleman's agreement with Wang Donglei is one of mutual non-interference: Wu will not interfere with Elec-Tech's operations, and Wang will not interfere with NVC Lighting's day-to-day management. He believes that he and Yan Yan have at times been too antagonistic, and that "Wang Donglei's joining can play a subtle balancing role."
Regardless of whether NVC Lighting's other shareholders are prepared, NVC Lighting is about to enter the era of the three giants—Wang Donglei, Wu Changjiang, and Yan Yan. Each of the three has his own calculations, yet they share common goals; while they constrain one another, flirtation between them is inevitable. In this "era of the three giants," can NVC Lighting carve out a place for itself in the LED field as swiftly as Wu Changjiang hopes?
Reconstructing the "share swap" transaction: as swift as thunder covering ears
On December 27, 2012, NVC Lighting and Elec-Tech both announced that Elec-Tech had purchased approximately 8% of NVC Lighting's shares from the open market, and had paid HK$950 million to acquire about 12% of NVC Lighting's equity from Wu Changjiang; at the same time, Wu Changjiang planned to invest approximately RMB 760 million to participate in Elec-Tech's private placement, and if completed successfully, would hold 9.3% of Elec-Tech's equity.
This series of transactions is considered to have effectively constituted a share-swap deal between Elec-Tech and Wu Changjiang. The transaction spanned HK-listed shares and A-shares; Wang Donglei personally invested RMB 586 million, and Elec-Tech contributed around RMB 560 million—for a price of less than RMB 1.2 billion, Elec-Tech preserved its own equity from dilution and gained control of NVC Lighting, thereby obtaining one of the most valuable channels in the LED field. For Elec-Tech, which seeks a full industry-chain layout, this was a brilliant and relatively low-cost move.
This transaction was not the result of careful deliberation between Wu Changjiang and Wang Donglei.
Wu Changjiang told reporters that he and Wang Donglei met for the first time last October. Deng Fei, board secretary of Elec-Tech, also stated that prior to this, Elec-Tech and NVC Lighting had only discussed cooperation in business and products, with no involvement of capital-market cooperation.
Elec-Tech is unquestionably a "fast" company. Before 2009, Wang Donglei and Elec-Tech had never ventured into the LED industry. In 2009, Elec-Tech began aggressively pouring money into the LED industry, completing two targeted private placements that raised over RMB 3 billion. Capitalizing on the willingness of local governments to provide lavish subsidies, Elec-Tech built out its presence in LED epitaxial wafers, chips, and packaging within three years, and its capacity is unquestionably top tier among companies in mainland China.
This time, Elec-Tech once again acquired a channel—by gaining control of NVC Lighting.
Wang Donglei is usually very low-key; few people inside the LED industry have even met him, and impressions of him are limited to: "He's been rolling out fast in the LED field." The subtext of moving fast is: if Wang Donglei bets correctly on the LED trend, he may achieve great success; if he bets wrongly, Elec-Tech—given its massive prior investments—will have very little room to maneuver and may face a severe crisis before the LED industry takes off.
On January 10, at Elec-Tech's new-LED-product launch, Wang Donglei declared: "The Chinese LED market will explode within 24 months—at the very least, Elec-Tech already has that capability."—In other words, whether Wang Donglei and Elec-Tech bet right or wrong, the answer will be clear within two years.
For this launch event, Elec-Tech invited Wang Jinsui, an independent director of NVC Lighting, to attend. Wang Jinsui is president of the China Illumination Association and a veteran expert in the lighting industry.
The reason Wu Changjiang has bound himself—and even the fate of NVC Lighting—to Elec-Tech and Wang Donglei is this: he felt he had no other choice.
On January 6, when asked why he sold his shares to Elec-Tech, thereby stepping away entirely from his position as a major shareholder of NVC Lighting, Wu Changjiang opened his heart: "In a sense, it was unavoidable; what can I do now? I still can't return to the board anyway. My purpose is to run NVC according to my ideas and my strategy. Today Andy (that is, Yan Yan) also expressed his support for me. I will abide by the rules of the board game; whatever the matter, we should all discuss more, the three of us should all discuss more."
At the same time, Wu Changjiang is keenly aware that NVC Lighting's deployment in the LED field is insufficient: "In our cooperation, Elec-Tech certainly stands to benefit more. From the current perspective, their input-output ratio is more favorable. But NVC also faces a hurdle—it has to transform and produce a lot of LED products. If I develop on my own, lacking chips, I'd be at others' mercy; but if I do R&D, there may not be enough time; and if I develop on my own and don't do it well, that's even worse. Although the (LED) upstream is in surplus, there are still opportunities—let's see who can break through."
In addition, Wu Changjiang believes Elec-Tech's technology and products are good, and that "Elec-Tech's prior investments were all personally guaranteed by Wang Donglei, which shows he has a lot of boldness—he dares to take such big risks."—When Elec-Tech previously carried out its private placement, one of the placement targets was Wang Donglei himself.
Can 1+1 > 2?
On January 6, the first meeting among representatives of the parties—Wu Changjiang, Yan Yan, Wang Donglei, and Schneider—took place in Beijing.
On January 11, the parties again gathered in Shenzhen for the board meeting. This newspaper's reporter has learned that at this board meeting, Wang Donglei joined NVC Lighting's board as a non-executive director, Wu Changjiang was appointed as NVC Lighting's CEO, and Yan Yan continued as non-executive chairman.
At 1 p.m. that afternoon, NVC Lighting announced a brief trading halt pending the company's issuance of an announcement concerning inside information.
Wu Changjiang was thus able to legitimately take the helm of NVC Lighting, putting an end to his days of managing NVC Lighting's day-to-day operations in his capacity as "Head of the Interim Operations Committee."
Deng Fei is optimistic: "NVC Lighting's shareholding isn't complicated; once we joined, it isn't anymore. We currently control 20.05%, making us the largest single shareholder at present. In addition, Wu Changjiang still holds nearly 7%; cooperating with Wu Changjiang, we will at least be aligned in opinion and voting rights."
In the share-swap transaction between Elec-Tech and NVC Lighting, there is a clause allowing Elec-Tech, at any time, to purchase the remaining nearly 7% of NVC Lighting shares held by Wu Changjiang at HK$2.95 per share.
Deng Fei told reporters that under the terms, Elec-Tech does not have to purchase all the equity in one go and can do so in batches. "We considered that in an extreme case, if other capital wants to meddle in this matter, we can buy shares from Mr. Wu at any time, which actually leaves room for the unpredictability of the next step." The implication is that Elec-Tech will firmly hold its position as NVC Lighting's largest shareholder. #p#page-title#e#
Deng Fei emphasized that Elec-Tech's controlling stake in NVC Lighting is an industrial investment. His reasoning is that, even if someone today spent HK$1.6 billion, they could not recreate NVC Lighting's brand and channel. Both Elec-Tech and Mr. Wu Changjiang hope to grow the brand and channel, bringing greater profits to both Elec-Tech and NVC Lighting. He believes that Elec-Tech and NVC Lighting have significant complementary strengths and is confident they can achieve 1+1 > 2.
Wu Changjiang's vision for the cooperation is: "From the standpoint of my future strategy, NVC does lighting fixtures, Elec-Tech does light sources. Even if Elec-Tech later comes to control NVC, I'll still be the second-largest shareholder on the Elec-Tech side—we're the ones in control—so both sides of ours can operate as dual brands. I can sell Elec-Tech's light sources to other companies—Philips, OPple, anyone. Within China, no other competitor is likely to have a comparable upstream capability of this scale."
Wu Changjiang points out that an important prerequisite for his harmonious cooperation with Wang Donglei is: "His business (Elec-Tech) is something I can't interfere with; we all give each other space. NVC is my business, and he won't really come take it—that's the premise of our mutual understanding. So we all follow the rules. This is also the moral code of the Chinese, the Chinese way of cooperation."
In addition, Wu Changjiang believes: "Previously, NVC's main decisions were made by Andy and me, just the two of us. Now there are three of us, which is actually a good thing—two people tend to become hostile, it's either you or me, but with three, there can be a subtle balance."
But will the future really be that rosy?
An executive at an LED company analyzes: "Wu Changjiang treats NVC Lighting as the apple of his eye. Apart from him, no one else can control NVC Lighting. Channels have nothing to do with capital. Apart from Wu Changjiang, no matter who else tries to control NVC's channels, it's very hard to achieve—we've already been through two rounds of turmoil. But Wang Donglei's big-money takeover of NVC Lighting will inevitably mean he borrows NVC Lighting's channels to sell more of Elec-Tech's LED products, which may not align with the interests of NVC's suppliers. Conflict between the two sides in the future is inevitable."
In addition, there are reports that Wang Donglei's next step is to vie for the chairmanship of NVC Lighting. The current temporary balance among Yan, Wu, and Wang will soon face a challenge.