The so-called privatization refers to the acquisition activity initiated by the major shareholder of a listed company as the proposer of the acquisition, with the purpose of buying back all the shares held by the minority shareholders, and then revoking the listing qualification of the company and turning it into a private company of the majority shareholder itself.

The "privatization" of listed companies can be said to be a special type of merger and acquisition operation in the capital market.

The biggest difference from other M&A operations is that its goal is to delist the acquired listed company from a public company to a private company.

In Lin Feng's previous life, after 2012, especially in 2015, there was a wave of privatization and return of Chinese concept stocks on the NASDAQ.

Nearly 40 Chinese companies listed on the NASDAQ, such as Focus Media, Shanda Games, Giant Network, Perfect World, Renren, Qihoo 360, Homeinns, etc., have started the privatization process and delisted on the NASDAQ, intending to return to A-shares.

At that time, on the one hand, it was because of the large-scale attacks on Chinese concept stocks by foreign short-sellers, and on the other hand, due to the cultural differences between China and the United States, the stock prices and market capitalization of these companies were mostly undervalued.

On the other hand, in the domestic A-share bull market in 2014, the market value of companies with little difference in performance in the same industry may differ by ten times or even 100 times between the market value of NASDAQ and A-shares.

Menglong's privatization this time, of course, is not to return to A-shares, but to merge with Fengxing after delisting.

Despite this, this is also the first case of privatization and delisting of Chinese concept stocks on the NASDAQ market!

It is believed that if the news is disclosed, it will inevitably cause an uproar in the industry.

For Lin Feng, this strategy is a must!

However, how to complete the privatization more smoothly depends on whether the design of the entire plan can satisfy the US investors, the private equity consortium involved in the privatization, the US SEC and the Chinese Ministry of Commerce.

Generally speaking, there are three ways to privatize a company listed on NASDAQ:

1. Long-form merger path, in which the major shareholder directly merges with the target company, or the major shareholder first establishes a wholly-owned subsidiary, and then merges with the target company through the subsidiary. In the merger agreement, it is usually stipulated that the consideration received by the minority shareholders after giving up the shares of the target company is cash or bonds, redeemable preferred shares, etc. This is what Shanda did in his previous life.

2. Tender offer (simple merger), the usual operation is divided into two steps, the first step is that the major shareholder obtains enough shares through the tender offer to control more than 90% of the total shares of the target company; The second step is a simple merger, in which the merger resolution stipulates that the consideration received by the minority shareholders after giving up the shares of the target company is cash or bonds and redeemable preferred shares. The simple merger only requires a resolution of the board of directors of the parent company to be implemented, and does not require a resolution of the general meeting of shareholders of the parent company and the subsidiary.

3. Reverse share split: The company can also reduce the number of registered shareholders by reverse share split, so that the number of shareholders is lower than the requirements of the SEC, so that there is no need to continue to submit information disclosure reports. If the acquirer's interest in the company is greater than that of any other non-affiliated shareholder, the acquirer may implement a reverse share split, issue new shares, and merge the previous shares, and the amount of the new shares will exceed the equity held by the largest non-affiliated shareholder.

For Lin Feng and Menglong, the third way is too long to consider.

Whether to adopt the first long-term merger path or the second tender offer method depends mainly on the number of shares held by the major shareholders (voting rights) and confidence in the privatization plan (investors buy it).

The long-term merger route requires a general meeting of shareholders, but according to the company law of Cayman, where the company is located, only a majority of shareholders are required to vote, which means that the privatization can take place as long as 66% of the voting rights are passed.

A tender offer only requires the acquisition of 90% of the shares in the market before it can be privatized.

Specific to Menglong, it is obvious that the first way is more convenient to operate.

After all, although Lin Feng currently holds only 15.8% of the shares, he has a whopping 65.2% of the voting rights. Coupled with Wang Hao's 12.3% and Li Dong's 6.7% (both of them cashed out part), Ye Weiyu's 2.45%, Lin Feng's voting rights have reached 86.45%.

Therefore, compared with the tender offer, which requires a lot of money to acquire 90% of the shares in the market, the long-form merger path model is obviously more suitable for Menglong.

Of course, even if the long-form merger path is privatized, it will still need to spend money to recover the shares of minority shareholders.

In terms of capital requirements, there is not much difference between the two methods.

The main difference is that the privatization is guaranteed to be successful by adopting this model, and it will not fail because it does not acquire 90% of the shares.

After the privatization method is determined, it is necessary to set the price and find an investment alliance to raise the privatization funds.

As of April 15, the stock price of Menglong is $23.6, because it has just announced the financial report for the fourth quarter of last year and the annual financial report for 05, although the revenue is still growing, but the profit has declined, so the current stock price has been fluctuating between $23-24.

At present, the main shareholders of Menglong, except for Lin Feng, Li Dong, Wang Hao, and Ye Weiyu, are basically investors in the United States, and most of the top ten shareholders of outstanding shares are some fund companies, and it is expected that about 62% of the shares need to be acquired.

According to the timing, Lin Feng expects to issue a privatization offer around June. It is expected that the stock price should be around $20 by then. The average price of the previous 30 trading days would not exceed $22, and Lin Feng also had to take into account the reaction of investors, in order to avoid complaints, he decided to buy at a premium of 30%, so that the price of Menglong's privatization should be around $28/ADR.

The number of shares outstanding in the market has been reduced to 280 million common shares (93.5 million ADRs), which means that excluding Lin Feng and other acquisition shareholders, the overall privatization transaction of Menglong will require about $1.62 billion.

Lin Feng has about 200 million US dollars in cash that he can take out immediately (he also needs to keep some cash for temporary emergencies), and Li Dong and Wang Hao can also come up with 100 million US dollars combined. The company currently has $300 million on its books.

The remaining $1 billion will need to be financed from private equity funds and banks through a leveraged buyout model, in the form of bond financing and equity financing.

Lin Feng calculated, this time is still relatively tight.

In general, the process of privatization of the long-term merger path in the NASDAQ market is as follows:

-The Company appointed financial advisors and legal advisors to the acquirer

-The Company announced that it has received a non-binding offer to acquire the Company

-Establishment of a special committee at the target company

- Appointment of financial advisers and legal advisers to the Special Committee

-The acquirer established a parent company and a subsidiary

- Investment banks provide fairness opinions

- The board of directors and the seller reach an agreement (or reject it, or renegotiate a price)

- Filing Form 13E-3 with the SFC

- Issuance of acquisition documents to shareholders at the same time (20 days apart)

-Convening of an extraordinary general meeting of shareholders

- The general meeting of shareholders voted to approve (or reject) the merger

- Privatization completed, shares ceased trading, delisting ended (or voted not passed, privatization failed)

The whole process also takes three months at the earliest, and generally takes about 4-6 months.

If Lin Feng wants to promote the listing of Fengxing in the first half of 2007, on the eve of Alibaba's listing in Hong Kong, then the privatization of Menglong must be completed within this year, preferably before October. It is also necessary to allow time for the popular listing preparations.

Then, if you go backwards, that is, it would be better to officially launch the privatization offer in June.

In just one and a half months, it is necessary to complete the privatization plan, carry out a series of related companies for acquisition, raise funds, form a joint consortium, and reach an agreement, which is a tight time and heavy task.

In particular, Lin Feng needs to think about how to consider which funds and institutions to let in.

Although $1 billion is not a big number, to be honest, because there is no profit temptation for those companies in the previous life to return to A-shares, what Lin Feng can give is naturally the interest space for the future listing after the merger of Menglong and the popularity of the market.

To put it bluntly, this joint consortium is actually another round of financing that has become relatively popular, and because the time interval is very close, this is basically a popular pre-IPO financing.

Of course, from the design of the privatization plan, not all of them will be replaced by Fengxing shares, and some of them may be returned in the form of profits, but I believe that the institutions that are willing to participate in the privatization of Menglong will definitely be of real interest.

First of all, domestic official funds are necessary, such as China Merchants Capital, which has always had a good relationship with Fengxing, and Bank of China Investment, which has always had a good relationship with Fengxing.

Zhao Jun and other close-knit second generations also need to be taken into account, and Boyu Investment must also be taken care of.

At the same time, the capital of the United States is also a must, whether it is the delisting of Menglong or the popular listing, they need to lobby behind the scenes. Goldman Sachs, Da Mo, Blackstone, etc., who to let in, also need to be carefully considered.

Lin Feng also wants to give a part of his share to his CEO classmate, which is obviously an opportunity for everyone to get closer, such as Guo Guangchang's Fosun Group......

Of course, Ma Yun's Alibaba doesn't even think about it, Lin Feng will definitely not let him join.

…………

On June 1, 2006, Lin Feng attended the second module of the CEO class in Philadelphia, during the Wharton School course.

Menglong Technology Co., Ltd. (NASDAQ: LONG) announced that its board of directors has received an unbinding privatization offer from Chairman Lin Feng and others at a price of $28 per ADR, or $9.33 per share. The offer values Menglong Technology at approximately US$2,618 million (US$1,620 million on a total share capital basis, or US$1,620 million on a outstanding share basis). If there are shares that have not been cancelled after the repurchase, then the total share capital and the outstanding share capital will not be consistent).

On the news, Menglong surged 11% in early trading, rising to $23.75 from $21.4 previously.