news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

After repeated consideration of Yu Minhong’s speech at the shareholders’ meeting, it can be seen that what he wants most at the moment is a quiet and peaceful development environment.

Text｜"Chinese Entrepreneurs" reporter Zhao Dongshan

Editor: Yao Yun

Image source: Visual China

After the excitement died down, the doubts of small and medium shareholders lingered for a long time.

The "breakup" between Dongfang Zhenxuan and Dong Yuhui is still brewing. On July 26, the day after Dong Yuhui announced his solo career, the share price of Dongfang Zhenxuan in Hong Kong plunged. The intraday decline once exceeded 27%, and the closing price fell by more than 23%. Shareholders who did not have time to sell in advance suffered losses.

In the stock review sections of apps such as Snowball and Oriental Fortune, small and medium-sized shareholders complained that they "have been kept in the dark." What's more important is that, in their view, there is great uncertainty about the future development of Oriental Selection.

To make matters worse, after Yu Minhong held a communication meeting with shareholders of Oriental Selection on July 26, the outside world confirmed that Dong Yuhui's breakup fee for going solo was not just the 76.5855 million yuan used to acquire "With Hui Xing Xing", but reached 358 million yuan.

What does 358 million yuan mean? Here is a set of data for comparison: in the six months ending November 30, 2023, Oriental Selection's net profit was only 249 million yuan.

Yu Minhong explained this at the shareholders' meeting: "There is still 140 million yuan of net profit in the account of Yuhui Tongxing. This 140 million yuan of net profit is actually the net profit that should have belonged to Dongfang Zhenxuan after the distribution of Yuhui's income. According to the previous agreement, Yuhui can get 50% of Yuhui Tongxing's net profit. In other words, 50% has been distributed to Yuhui, leaving 140 million yuan. The distribution to Yuhui has already reached his personal account, which will be reflected in the annual report."

According to this calculation, Dong Yuhui's breakup fee for going solo this time totaled 358 million yuan.This fee is mainly composed of three parts: first, Dong Yuhui does not need to pay the acquisition fee of 76.5855 million yuan personally; second, the 140 million yuan that has been distributed to Dong Yuhui according to the previous agreement; third, the 140 million yuan that originally belonged to Oriental Selection and remained in the account of Youhui Tongxing.

Regarding this expense, China Entrepreneur collected information from multiple channels and found that small and medium shareholders have the following questions:

First,Why can Dong Yuhui take away a huge breakup fee of 358 million yuan when he goes solo? Will such a high fee harm the core interests of Dongfangxuan's listed company?

second,How did the valuation of Yuhuixingxing of 76.5855 million yuan come about? Was it too low and sold at a low price to Dong Yuhui?

third,On the basis of the 140 million yuan of net profit distributed to Dong Yuhui, why was the 140 million yuan of net profit originally belonging to Dongfang Zhenxuan distributed to Yuhui Tongxing?

fourth,Is Yu Minhong using the interests of the listed company to benefit others? As a listed company, is Dongfang Zhenxuan compliant in its procedures?

fifth,The interests of small and medium shareholders are being ignored and violated. Should the Hong Kong Stock Exchange and the Hong Kong Securities and Futures Commission intervene?

To this end, China Entrepreneur sought out M&A experts, professional lawyers and other professionals to interpret from different perspectives:

Zhang Xiao (pseudonym), a senior practitioner at a leading domestic private equity firm, told China Entrepreneur: “Any spin-off or disposal that exceeds a certain percentage of a listed company’s revenue, assets, or profits will require approval from the shareholders’ meeting, but it is more difficult to determine the valuation of intangible assets like Dong Yuhui’s. 76.5855 million yuan is definitely low based on common sense.If Dongfang Zhenxuan's net profit in the first half of the year was 140 million yuan, and 76.5855 million yuan exceeded 40% of the net profit in the first half of the year, the fair valuation must be more than 3 billion yuan, and this disposal is indeed illegal. In addition, if someone traded stocks during the period of inside information, it would definitely be illegal.”

Dong Yizhi, a lawyer at Zhengce Law Firm, said, "Dongfang Selection did have some flaws in the entire transaction process. From the perspective of information disclosure, the existing information disclosure is still not timely and comprehensive, especially when it comes to the interests of small and medium shareholders."

Lawyer Dong Yizhi also mentioned, "Should Oriental Selection disclose Dong Yuhui's resignation in a timely manner? Because at the end of the fiscal year on May 31, the company started to become independent from Hui Xing, and even started planning in March. This includes whether the shareholders' meeting can provide detailed information on the disposal of Dong Yuhui's IP, the valuation, the acquisition details, and even the future development strategy of Oriental Selection's live e-commerce."

Yu Minhong's answer

Yu Minhong answered some questions at the Oriental Selection Shareholder Communication Meeting on the same day. He also said that he was very sorry that the final result would be like this. "But it can be said that facing the reality facing the company, this result is indeed inevitable. I even think that this result is good for the development of the company." Yu Minhong emphasized.

In response to the first question from small and medium shareholders, the focus of Yu Minhong's speech at the shareholders' meeting seemed to be to express that he did not feel that he had given too much. Instead, he was worried that he would be questioned again by Dong Yuhui's fans for giving too little, and whether Dong Yuhui's resignation was because Dong Yuhui's income was too little.

"People asked me a lot of questions, saying whether Yuhui's profits were too low, which led to the independence of Yuhui's peers. This is the treatment for Yuhui approved by the board of directors. I personally think it is reasonable, even generous," said Yu Minhong.

It is clear that Yu Minhong has had enough of the online bullying, which has caused him to worry about the cost issue again causing negative public opinion from Dong Yuhui's fans when the company is split up. "Everyone knows my image in the past three months. I have suffered huge losses because of the online bullying. There is an endless stream of rumors about me on the Internet, such as conspiracy, stinginess, and employee abuse. It seems that I have become the most vicious capitalist and the most vicious boss in the world."

Regarding the valuation and acquisition price of HuitongxingYu Minhong said, "This is the value assessed by a third-party evaluation company. Since we have broken up, as the elder brother, I will give Yuhui a goodwill. Because there is no use for us to keep this company, but if we give it to him, it must be valuable, otherwise our shareholders will also suffer. The acquisition payment of more than 70 million yuan will be paid for Yuhui through a certain cooperative relationship between New Oriental and Yuhui. The specific operation will not be explained here."

Obviously, it doesn’t matter how much Yuhui Tongxing is valued, because even if it is valued at more than 3 billion yuan according to Zhang Xiao’s estimate, once Dong Yuhui rejects this valuation, everything will be zero, and the empty shell of Yuhui Tongxing that leaves Dongfang Zhenxuan will eventually be worthless and meaningless.

in addition,Regarding the issue of awarding Dong Yuhui the 140 million yuan profit that originally belonged to Dongfang Selection and the process issuesYu Minhong explained: "I proposed this matter, and it was decided after discussion by the board of directors, mainly based on two reasons."

First, Dong Yuhui has made great contributions to the development of Oriental Selection.Giving him another reward when he becomes completely independent expresses the goodwill of Oriental Selection, and also hopes to pass on such goodwill to the society.

Second, when discussing the guaranteed income with Dong Yuhui, the income included additional equity issuance to individuals.However, when Hui Tongxing becomes independent at the end of the fiscal year, the equity becomes meaningless. In the past six months, Dong Yuhui has been contributing to Oriental Selection, so it is reasonable to provide some cash subsidies.

"I think that conveying this goodwill will not only help Yuhui Xingxing to develop better in the future, but also put a perfect end to Yuhui's contribution to Oriental Selection for more than two years.I don't have any personal purpose involved here. If both parties break up amicably and both sides win a better social reputation, I think this is the best protection of the company's interests."Yu Minhong explained.

Here, Yu Minhong once again stressed the importance of "friendly breakup" and "social reputation". In Yu Minhong's view, although the breakup fee of 358 million yuan is indeed high, it can win a clean public opinion environment and certainty for the company's future development, which is more important than anything else.

In response to the question of "whether Yu Minhong is using the interests of the listed company to benefit others", Yu Minhong emphasized in his speech at the shareholders' meeting that day that "this matter (the 140 million yuan profit reward from Oriental Selection to Dong Yuhui) was proposed by me and decided by the board of directors after discussion."

In addition, when talking about the issue of the 76.5855 million yuan acquisition fee arranged for Dong Yuhui, Yu Minhong responded: "Many outsiders speculated that the 70 million yuan was the 140 million yuan left, of which 70 million yuan was used by Yuhui to buy the equity, and the other 70 million yuan was Yuhui's profit. This is not true. The above profits have nothing to do with the 70 million yuan. The 70 million yuan acquisition fee will be paid for Yuhui through a certain cooperative relationship between New Oriental and Yuhui."

After repeated consideration of Yu Minhong’s speech at the shareholders’ meeting, it can be seen that what he wants most at the moment is a quiet and peaceful development environment."After we have solved the internal and external environments through such efforts, Oriental Selection will have a clear, peaceful, and increasingly predictable development environment for the future," Yu Minhong repeatedly emphasized.

For Yu Minhong, what is more important is that New Oriental Group is recovering quickly. He does not want to endure endless cyberbullying from netizens who do not know the truth because of the fan circle of live e-commerce. On August 1, New Oriental Group released its financial report as of May 31, 2024. In the fourth quarter of fiscal year 2024, New Oriental's revenue was US$1.137 billion, a year-on-year increase of 32.1%.

In addition, the financial report predicts that New Oriental's revenue in the next quarter (excluding the live e-commerce business of Oriental Selection's proprietary products) will be between US$1.255 billion and US$1.284 billion, a year-on-year increase of 31% to 34%. It is worth noting that this performance forecast does not include the revenue of Oriental Selection, while in fiscal year 2024, the performance data released each quarter will include the revenue of Oriental Selection. This means thatAs New Oriental’s performance grows steadily, it is imperative for Oriental Selection to “de-Dong Yuhuiize” itself.

Yu Minhong's Aspiration

Yu Minhong should feel regretful and helpless about the transformation of New Oriental Online (later renamed Oriental Selection), from its popularity to its separation.

On the one hand, Yu Minhong emphasized, "There is indeed no estrangement between Yuhui and I to this day." On the other hand, he had to sigh, "But there is nothing we can do about breaking up. This world is no longer a world for the two of us."

New Oriental Online's global IPO press conference was held in Hong Kong on March 14, 2019 before its listing.

In fact, looking back now, Yu Minhong's starting point was to plan in accordance with the direction of common development of Dongfang Zhenxuan and Yuhui Xingxing, and to take Dong Yuhui's personal interests into consideration. This can also be seen from his design of the corporate governance structure, for example, he chose to make Yuhui Xingxing a wholly-owned subsidiary of Dongfang Zhenxuan and let Dong Yuhui hold 100% of the shares.

Yu Minhong said that in order to ensure that Dong Yuhui could get the shares of the listed company Dongfang Zhenxuan, the management predicted that after the establishment of Huitongxing, the two platforms would work together to increase GMV and profits, which means that the value of the company's shares would increase. Therefore, letting Dong Yuhui get the shares of the listed company is undoubtedly more conducive to his personal development and benefits than getting the shares of a subsidiary.

Finally, at the suggestion of Yu Minhong, Yuhui Xingxing was established as a wholly-owned subsidiary of Dongfang Zhenxuan, and Yuhui was 100% responsible for the company's work. At the time of registration, Dong Yuhui was registered as the only executive director and general manager.

But after more than half a year of turmoil, it was discovered that although the company's GMV seemed to be increasing, its stock price was becoming increasingly unstable.Therefore, starting from the beginning of March 2024, Yu Minhong had to find Dong Yuhui to discuss whether Huixingxing should be independent. During this period, Yu Minhong also communicated with some core managers, including individual directors, and finally decided to start the independence of Huixingxing at the end of the fiscal year, that is, on May 31.

Although Yu Minhong had good intentions, the ultimate breakup was a helpless move. From many external details, we can also infer that he did not maliciously seek profits for himself and some shareholders through internal asset distribution, but the reality is that this did cause damage to the interests of many small and medium shareholders.

Yu Minhong's determination

Fortunately, Yu Minhong has not forgotten his identity and responsibilities.He emphasized: "In terms of business, I am the chairman of New Oriental and the chairman and CEO of Oriental Selection, so I know that I should do my utmost to protect the interests of all shareholders, managers and employees of these two companies."

The current scene may seem familiar to Yu Minhong.When New Oriental was doing education business, it also faced the problem of top teachers leaving, but later New Oriental's training business gradually stabilized.On August 1, New Oriental Group released its financial report as of May 31, 2024. The financial report shows that in fiscal year 2024, New Oriental's revenue was US$4.3136 billion, a year-on-year increase of 43.9%; net profit attributable to shareholders was US$309.6 million, a year-on-year increase of 74.6%.

Based on past transformation experience, Yu Minhong also hopes that shareholders will give him more confidence and patience. In terms of anchors, he emphasized that the more than 30 anchors on the Oriental Selection platform are becoming more and more mature. Now he personally guides the anchors. Whenever he has time, he will communicate with the anchors, encourage them, and help them arrange activities, including some invited dialogues with famous writers.

In response to shareholders' concerns about the decline in traffic and the sharp drop in the number of fans of Oriental Selection, Yu Minhong also revealed that he has actively cooperated and negotiated with Douyin in terms of traffic. "I have also repeatedly expressed to Douyin's senior management that Oriental Selection is willing to continue to develop on Douyin. Therefore, it is foreseeable that in the future, Oriental Selection may cooperate more closely with Douyin in various activities and will receive better support from Douyin."

After suffering from traffic problems, Yu Minhong once again emphasized the importance of self-operated products and channels."A company that relies solely on traffic is like an education company that relies solely on teachers giving lectures. Without a teaching system or educational products, this education company will be very unstable."Yu Minhong used his expertise in the education industry to explain the next focus of Oriental Selection.

In addition, regarding the future, Yu Minhong expressed his hope to rely on New Oriental's 800 ground teaching points to deploy Oriental's selected self-operated products to offline channels, try out an online and offline integration model, and cooperate with New Oriental across the country to open ground service stores, membership stores, and experience stores.

This is Yu Minhong's determination and statement on future corporate governance. As for those small and medium shareholders who are deeply trapped, some people choose to believe that Dongfang Zhenxuan can develop more smoothly after the split with Huixingxing, while more people are waiting for an opportunity to get out of the trap as soon as possible.

News hotline & submission email: [email protected]