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The two parties who had lost trust in each other can finally stop being upset.

Text丨Chen Jing
Edited by Song Wei

"Once the trigger of distrust is pulled, the direction of many things is no longer under the control of either party." A person close to both parties commented on the "breakup" between Dong Yuhui, CEO of Yihuixingxing, and Yu Minhong, CEO of Dongfangzhenxuan.

This distrust began when Dong Yuhui became famous as a host at Dongfang Zhenxuan, and reached its peak after the "Little Composition" incident - at the end of last year, an employee of Dongfang Zhenxuan said that the video copywriting was the work of the team rather than Dong Yuhui alone, and was questioned by Dong Yuhui's fans for "stealing credit". Fans and Dongfang Zhenxuan employees fought back and forth, and the stock price experienced multiple rounds of declines.

Seven months later, Dong Yuhui and Yu Minhong parted ways. In the past six months, Dong Yuhui took half of the profits of Huitongxing, and the other half was also allocated to Dong Yuhui by Dongfangxuan. In addition, the 76.58 million yuan that Dong Yuhui spent on purchasing Huitongxing will also be paid by New Oriental.

According to the announcement released by Oriental Selection on July 25, the profit distribution of Yuhuixingxing to Dong Yuhui was out of "Mr. Yu and the Group's gratitude and appreciation for Mr. Dong's contribution." Many media summarized this profit sharing as a "breakup fee."

People familiar with the transaction said that today's profit-sharing plan was a commitment reached by both parties half a year ago and was not compensation for a "breakup."

The above-mentioned person said that at the end of last year, a live broadcast organization offered an annual salary of 800 million yuan to invite Dong Yuhui to join. In order to retain Dong Yuhui, Yu Minhong promised to give Dong Yuhui a guaranteed income of several hundred million yuan and half of the profit of Hui's peers in the next year. However, it is doubtful whether the two parties signed a contract, and it may have only reached a verbal promise; half a year has passed, and the guaranteed income has not yet arrived. Dongfang Zhenxuan did not respond to the above information.

After the "Little Composition" incident came to an end at the end of last year, fans, shareholders, and employees thought that both parties had reached an agreement.

Dong Yuhui was appointed as the cultural assistant to the chairman of New Oriental Education & Technology Group, and concurrently served as vice president of New Oriental Culture and Tourism Group. He owned shares in Oriental Selection and had his own live broadcast room where he could make the final decision. Yu Minhong also believed that Oriental Selection and Yuhui Tongxing had the support of the middle office, while everyone in the front office did their own thing, and "everyone got the treatment and income that they were satisfied with."

A top anchor who wanted to expand his personal influence and a live broadcast company that wanted to expand its product supply chain originally planned to coexist, but why did they eventually part ways? We try to restore this process.

01 How much is Dong Yuhui’s salary?

A person close to Hui analyzed that Oriental Selection has always wanted to be a product company and wanted to get rid of the top anchors, which led to tensions between the two parties and the "breakup".

In the opinion of a person close to Oriental Selection, Oriental Selection really needs top anchors, but the disagreement between the two parties on salary and the long-term malicious comments against the company by some fans were the reasons for the two parties' eventual "breakup".

Dong Yuhui once shared his experience when he first came to Beijing to work in a live broadcast: there was only a bed and a table in the rented house, the room was too small, and the bed took up half of the area; the table was too old and collapsed during meals, and the food spilled all over him; after becoming famous in 2023, he said that he still lived in a rental house with a "broken air conditioner."

These chats and sharing were interpreted by many fans as meaning that he was treated unfairly by the company.

After the "Little Composition" incident in December last year, some media reported that Dong Yuhui's real annual salary was only a few million, plus some options. Dong Yuhui's fans thought this was unfair, and they invaded the comment area of ​​​​Dongfang Selection, accusing Yu Minhong and Sun Dongxu, the CEO of Dongfang Selection at the time, and expressing their disappointment with Dongfang Selection.

At that time, Sun Dongxu responded that Dong Yuhui's salary was more than the tens of millions that were circulated online; at the Oriental Selection shareholders meeting on July 26 this year, Yu Minhong also said, "The treatment for Yuhui approved by the board of directors is reasonable, even generous."

We learned from an insider close to the transaction that since the explosion in June 2022, Dong Yuhui's total pre-tax income from Dongfangxuan has been about 600 million yuan, of which 140 million yuan has not yet been received, and a small amount of shares have not yet been vested. We asked Huixing for confirmation of the above data, but the other party has not responded as of press time.

Dong Yuhui's income is divided into six parts: salary (salary + performance), equity, gifts from senior executives, half of the profits of Yuhui Tongxing, guaranteed income, and the acquisition payment of Yuhui Tongxing that New Oriental helped Dong Yuhui pay.

Salary and performance part

In the first half of the live broadcast in December 2021, Dongfang Zhenxuan employees, including Dong Yuhui, had a difficult start. "Originally, our platform could only sell 500,000 or 600,000 a day, and the commission was at most 10%, which was not enough to pay the employees' salaries." Yu Minhong said in a public interview.

The turning point came in June 2022. A live broadcast of Dong Yuhui explaining steak was widely circulated. Within a month, the number of fans of Oriental Selection increased by more than 20 million, and Dong Yuhui's Douyin fans also approached 7 million.

Sun Dongxu, former CEO of Dongfang Selection, once mentioned in a live broadcast that Dong Yuhui's annual salary is more than 10 million yuan. We learned that the salary alone exceeds 10 million yuan a year. Dongfang Selection also issues multiple performance bonuses to outstanding employees, which accounts for a large part of Dong Yuhui's income.

Dong Yuhui also brought huge profits to Oriental Selection. From the end of 2021 to the middle of 2022, Oriental Selection's overall revenue was only 24.6 million yuan; after Dong Yuhui became popular, from June 1, 2022 to May 31, 2023, Oriental Selection's revenue increased by 651% year-on-year to 4.5 billion yuan, turning losses into profits with a profit of 970 million yuan.

Equity

On April 11, 2023, after the financial situation of Oriental Selection improved, the first equity reward was carried out. Yu Minhong, chairman of the board of directors of Oriental Selection, was awarded 1.5 million shares, Sun Dongxu, then CEO of Oriental Selection, was awarded 3 million shares, CFO Yin Qiang was awarded 600,000 shares, and the other 151 employees were awarded a total of 25.359 million shares.

Sources close to the transaction revealed that Dong Yuhui received 8 million shares out of the 25.359 million shares of equity incentives for employees, accounting for about 31.6% of the total. Half of them were vested in April this year, and he will receive a small portion of the remaining shares in April 2025, and the rest will be invalidated.

On April 11, 2023, the day when the equity was granted, the share price of Oriental Selection was HK$29, and the share value at that time was HK$232 million. Calculated based on the share price of HK$11.5 on August 9, 2024, the value of Dong Yuhui's vested shares has fallen by 60.3%.

In February 2023, Sun Dongxu sold a total of 1.93 million shares twice, cashing in a total of HK$217 million; in the same month, Yin Qiang sold 1 million shares, cashing in HK$61.59 million; these are the only two executive share reductions disclosed by Oriental Selection since June 2022. The company did not disclose information about Yu Minhong and Dong Yuhui's share reductions.

Executive Gifts

In a live broadcast on December 18, 2023, Dong Yuhui mentioned that he bought a house in Beijing and borrowed money from Yu Minhong when buying the house. Three days later, he mentioned in a live broadcast that Yu Minhong had mentioned many times that he would give him a more generous return, and hoped that everyone would not misunderstand Yu Minhong again, "otherwise I would feel very ashamed of him." However, many people were surprised that the super anchor still needed to borrow money to buy a house, and a large number of fans therefore called Yu Minhong "iron rooster" and "Grandet."

On December 25, Yu Minhong himself posted a video saying that he had repeatedly told Dong Yuhui that the money was for him and he would not need to repay it in the future.

According to people familiar with the matter, Yu Minhong and Sun Dongxu gave Dong Yuhui tens of millions of yuan in total. Yu Minhong gave the vast majority of it, and Sun Dongxu gave Dong Yuhui 15 million yuan in March 2023 as a reward to help him buy a house. The two have not asked him to repay it so far.

Half of Huixing’s profits and guaranteed income

The "Little Composition" incident at the end of 2023 made the management of Oriental Selection realize that the top anchors had such a great influence on public opinion, stock prices, and corporate image, far beyond their expectations.

Other institutions in the market also extended olive branches to Dong Yuhui. After the conflict broke out, Luo Yonghao publicly stated that if Dong Yuhui was willing to start a business, he would be willing to help find investors; a person close to Hui said that an institution offered Dong Yuhui an annual salary of 800 million yuan.

The top anchors are the core assets of every live broadcast organization. In the "Little Composition" incident, Sun Dongxu's speech against the "fan circle" and his serious attitude caused dissatisfaction among many fans. On December 16, 2023, Dongfang Selection announced the removal of Sun Dongxu from the positions of CEO and executive director, and Chairman Yu Minhong served as CEO concurrently. Two days later, Dong Yuhui was appointed as the cultural assistant to the chairman of New Oriental Education and Technology Group, and concurrently served as vice president of New Oriental Culture and Tourism Group, and announced that he would set up a personal studio, which later became Yuhui Xingxing.

People close to the transaction told us that Yu Minhong made a promise to Dong Yuhui, but this promise was probably just verbal and not put on paper - half of the profits from Huixingxing will be given to Dong Yuhui. At the same time, Oriental Selection may have promised Dong Yuhui a guaranteed income of several hundred million yuan a year, which mainly consists of cash plus some stocks.

On July 26, 2024, at the shareholders' meeting of Oriental Selection, Yu Minhong did not directly mention that this guaranteed income would be distributed to Dong Yuhui. He said that the reason why he gave him the remaining 140 million yuan of profits after distributing half of the profits of Hui Tongxing to Dong Yuhui was, on the one hand, to "express goodwill", and on the other hand, the two parties had previously agreed on a guaranteed income, which included equity issuance, but because Dong was about to leave, the equity that had not yet been issued would also be invalidated, so it was replaced by cash distribution.

Many media outlets referred to this money as the "breakup fee" given by Oriental Selection to Dong Yuhui, while people who have worked with Yuhui said that this was an agreement reached by both parties half a year ago and that the income originally belonged to Dong Yuhui. On August 2, New Oriental stated that the payment was a support for the continued development of Dong Yuhui and "Working with Yuhui" in the future, rather than severance pay.

As of his resignation on July 25, Dong Yuhui had received the following benefits: half of Huixing’s profit in the past six months, 140 million yuan, salary, performance, and rewards from senior executives. He still had 140 million yuan to receive.

In addition, 4 million shares have already been allocated to Dong Yuhui's personal account, and a small number of shares have not yet been allocated; the company's acquisition payment of 76.58 million yuan will be paid directly by New Oriental to Oriental Selection and will not pass through Dong Yuhui's personal account.

If Yu Minhong fulfills his promise, Dong Yuhui's total pre-tax income will be about 600 million yuan. From June 1, 2022 to November 30, 2023, Dongfang Zhenxuan had a total net profit of 1.219 billion yuan. According to CICC's forecast, Dongfang Zhenxuan's net profit will reach 262 million yuan in the first half of 2024, with a total profit of about 1.481 billion yuan in two years. In this way, 600 million yuan accounts for 40.5% of the total profit.

In the many companies jointly established by Meiwan and Li Jiaqi, Li Jiaqi holds 49% of the shares; Qianxun Holdings, where Viya is located, has Viya’s husband Dong Haifeng as a shareholder holding 52%; in the parent companies of live broadcast rooms such as Crazy Xiao Yangge and Xinxuan, the top anchors are all controlling shareholders.

However, Dong Yuhui did not take on the responsibility of product selection and operation like these super anchors before, but mainly played the role of anchor. When Dongfang Zhenxuan was established, Yu Minhong set the general direction of live broadcasting of agricultural products and not charging slot fees, and Sun Dongxu was responsible for the specific management, which laid the foundation for Dong Yuhui's later popularity.

Li Jiaqi has many years of experience in cosmetics counter sales. He knows the bottom line of beauty brands and will directly participate in price negotiations. He can also use his intuition as a "product manager" to make many suggestions on Huaxizi's products, so that the brand and himself are more closely bound together. Xin Youzhi, as the chairman of Xinxuan, directly manages the company. He needs to participate in discussions and decisions on major business decisions such as the company's live broadcast room and supply chain. In Dongfangxuan, investment promotion, product selection, and self-operated products are all handled by their own teams, and the anchors do not need to be responsible for other links.

According to people familiar with the matter, in the early days of its establishment, Yuhui Xingxing was more focused on learning the product selection and operations of Oriental Selection, and Dong Yuhui did not make many business adjustments. It was not until April this year that Dong Yuhui began to introduce big brands and launched outdoor live broadcasts across the country.

02 Unsustainable coexistence

According to Yu Minhong’s plan at the end of last year, the future relationship between Huitongxing and Dongfang Zhenxuan should be "non-interference": the same middle-office system is used behind the scenes, and each does its own thing on the front end.

Dong Yuhui said in a live broadcast at the end of last year that he had signed a three-year contract with Oriental Selection and was unwilling to leave Oriental Selection because "a gentleman will die for his friend." Going forward, he will not only broadcast live in the Yuhui Xingxing live broadcast room, but will also come to Oriental Selection for live broadcasts once or twice a month.

However, the lack of trust in internal relationships and the loss of control over external public opinion ultimately led to the development of the situation exceeding the original expectations of both parties.

In mid-December 2022, Yu Minhong may have promised Dong Yuhui a guaranteed annual income of several hundred million yuan in order to retain him, but a person close to the transaction analyzed that the two parties may not have signed a written contract, which may have made Dong Yuhui feel uneasy. In March this year, both Dong Yuhui and Yu Minhong had the intention to "break up" and began to discuss the specific details.

The two live broadcast rooms, Dongfang Zhenxuan and Yuhui Xingxing, have similar live broadcast styles, a large amount of overlapping products, and both have cultural and tourism live broadcast formats. There is a competitive relationship between the two parties.

The most direct competition is in the cultural tourism business. In March 2024, Dong Yuhui said that he would go to Henan to live broadcast at the end of April and had started to attract investment. At that time, he was still live broadcasting in Hubei; then, before Dong Yuhui went, the Henan New Oriental Cultural Tourism Douyin account announced that Yu Minhong would come to Henan to live broadcast in early April. Many viewers questioned that Yu Minhong was going to live broadcast in advance in order to steal Dong Yuhui's limelight.

Yu Minhong explained that the Henan trip had been arranged as early as March, and asked Henan New Oriental Culture and Tourism Company to completely stop live broadcasts, rectify, and apologize to netizens.

People close to Dongfang Selection said that after the Henan incident, Dongfang Selection's live broadcasts would avoid the destinations that Dongfang Hui traveled with, but every time they went to a place, they would be questioned, "Why didn't you invite Dong Yuhui?"

In June this year, the live broadcast of Dongfang Selection in Guizhou once again caused a storm of public opinion. One anchor used inappropriate words during the live broadcast and was questioned as "uneducated". Other anchors made fun of the high temperature, spiders and mosquitoes in Guizhou and were questioned as "regional discrimination". The above Dongfang Selection people said that the successive public opinion storms made the team morale low, and the subsequent live broadcasts were suspended.

The products on both sides have a high degree of overlap, and are concentrated in categories such as fresh food, snacks, and books. However, even before the "breakup", Yuhuixingxing had never sold Dongfangzhenxuan's own products.

A person close to Yuhui Tongxing said that Yuhui Tongxing's product selection team had asked whether they could sell self-operated products, but received no response.

A former employee of Dongfang Zhenxuan said that self-operated products are the differentiated competitive point of Dongfang Zhenxuan's live broadcast room, contributing more than half of the sales. If Dong Yuhui also sells them, the two live broadcast rooms will be more similar, and Dongfang Zhenxuan will fall behind. The average gross profit of Dongfang Zhenxuan's self-operated products is not high. If Dong Yuhui is allowed to sell self-operated products, he may have to pay a commission of about 15%. After deducting the commission, the self-operated products may still lose money.

The delicate relationship between the two parties and the lack of trust make everyone involved feel exhausted. When this exhaustion becomes public expression, it will attract public backlash, affect team morale, and form a negative cycle.

At the end of May this year, Yu Minhong said in a live broadcast that "Oriental Selection is in a mess now"; in June, Dong Yuhui said in a program, "I am very resistant to selling things, and I still don’t enjoy this job to this day"... Every speech reflecting chaotic management and unstable personnel will lead to a decline in stock prices and a loss of fans. From the highest point in January to August 9, Oriental Selection lost more than 1.7 million fans and its stock price fell 84.8%.

"Originally, the sum of these two sides should be higher than before, but the stock price went down instead." Yu Minhong said at the shareholders' meeting that he felt that if the two sides were not separated, they might strangle each other in the future.

Yu Minhong said that Dong Yuhui took the initiative to find him at the end of February to discuss whether the company should be independent. We did not know the details of the negotiations, but separation seems to have more benefits than disadvantages for both parties.

In the past six months, Yuhui Tongxing, with a team of only 100 people, has made a net profit of 140 million yuan. All the products sold are third-party products, and it has not penetrated into the product supply chain. This proves that Yuhui Tongxing can make money by "people" rather than "goods". After independence, both parties can have fewer internal relationship constraints.

For Oriental Selection, there is no need to worry about how to balance internal resource allocation, and external public opinion disputes may also be reduced. "If it is resolved once and for all, the environment will be cleaner in the future," Yu Minhong explained at the shareholders' meeting.

The biggest losers are probably the shareholders of Oriental Selection. Since the “Little Composition” incident at the end of last year, the share price of Oriental Selection has fallen by 72.9%, and the market value has evaporated by HK$31.96 billion. From the external shareholders of Oriental Selection to Yu Minhong and Dong Yuhui, everyone has suffered as a result.

The major transaction of selling core assets was not discussed by the board of directors. Instead, it was discussed and decided by Yu Minhong and Dong Yuhui, and then Yu Minhong sought the approval of the board of directors.

The Company Law of the People's Republic of China stipulates that if a listed company purchases or sells major assets or provides guarantees to others in an amount exceeding 30% of the company's total assets within one year, a resolution must be made by the shareholders' meeting and passed by more than 2/3 of the voting rights held by shareholders attending the meeting.

Wang Jiyue, an investment banker, said in an interview with Beijing Business Daily that although the transaction amount did not account for 30% of the company's total assets, it should be brought to the shareholders' meeting from the perspective of the nature of the matter and the impact on the company. If the shares controlled by Yu Minhong abstain from voting, small and medium shareholders can veto the resolution.

03 “Breaking up” won’t solve all problems

During a live broadcast at the end of last year, Yu Minhong made a promise that if Dong Yuhui left one day, he would give the new live broadcast room to Yuhui and would not let him be left with nothing.

After the two parties officially decided to "break up", Oriental Selection sold Hui Tongxing to Dong Yuhui for 76.58 million yuan. Yu Minhong said that he would pay the fee for Dong Yuhui through cooperation with New Oriental Group. "The company is a gift from me to Yuhui." He explained in a comment on Douyin.

76.58 million yuan is an extremely low valuation. As of June 30, 2024, Yuhuixingxing had a net profit of 140 million yuan, and the price-earnings ratio under the valuation of 76.58 million yuan is only 0.5 times. Dolphin Investment Research estimates that according to the average price-earnings ratio of 20 times for the top live e-commerce institutions in the growth stage, Yuhuixingxing has a net profit of about 300 million yuan a year, and its valuation should be 6 billion yuan. However, Dongfang Zhenxuan finally valued Yuhuixingxing at only 76.58 million yuan based on the book net assets. This practice is generally used when the company is liquidated or lacks market reference value.

A person close to the transaction said that once Oriental Selection raises the valuation of Yuhui Tongxing, Dong Yuhui will choose to resign personally and give up the acquisition of Yuhui Tongxing, and the high valuation will become meaningless.

In this transaction, Yu Minhong kept his promise to give the company away and got a decent deal. Dong Yuhui did not have to rebuild his team or rent an office, which was a good deal. External shareholders who had no say could only watch the stock price fall to the lowest point in two years.

An industry insider said that all the live broadcast rooms under Yuhui Tongxing sold about 4 billion yuan of goods in the past six months, which is roughly the same as the sales of all the live broadcast rooms under the Oriental Selection brand in the past six months.

Without this core asset, Oriental Selection's performance will be significantly affected. Bocom International predicts that Oriental Selection's GMV, revenue and profit will decline by 34%, 9% and 20% in fiscal year 2025 (ending May 31, 2025). Shenwan Hongyuan predicts that its net profit will decline by 12% to RMB 853 million in fiscal year 2024 (ending May 31, 2024).

Without the super anchor, how can Oriental Selection find the next growth point?

Yu Minhong said that Oriental Selection will continue to walk on two legs, one is traffic, and the other is products. Since the launch of its first self-operated product in March 2022, Oriental Selection has made it clear that it wants to be a national consumer brand company, rather than an MCN agency that relies on anchors. After a round of ups and downs, Yu Minhong publicly stated more clearly that in the future, Oriental Selection will no longer allow anchors to independently establish platforms and operate independently, because this will bring about divisions and unpredictable results.

A former employee of Dongfang Zhenxuan said that the company's continuous negative news over the past six months has directly affected new users' orders. In April this year, he saw on the backend of Douyin that 90% of the orders within a month came from repeat purchases from old customers. Even if multiple live broadcasts are held, the sales of each show will increase, and the usual sales will decline, and the total amount will not change much - the refrigerators and snack cabinets of old users are full, so they will naturally reduce purchases.

Sending off former employees with dignity is the first step to restore the company's image. The next step to gain more traffic is how to select more outstanding anchors?

Yu Minhong said that New Oriental still has more than 30,000 teachers, and many excellent anchors can always be found among them. This is a very optimistic judgment. Meiwan has cooperated with hundreds of anchors, but in the end it all depends on Li Jiaqi. After Wei Ya disappeared, the anchors she trained for a period of time could not create another Wei Ya. So far, no one has been able to replicate the super anchor.

New Oriental also has more than 800 offline teaching sites, and parents are a very stable flow of people. In terms of products, Oriental Selection hopes to benchmark online Sam's Club. However, without Sam's annual purchase volume of hundreds of billions of yuan, it is difficult to use scale to leverage the top suppliers and get a low enough price. It is also difficult for it to make new products that lead the industry. Oriental Selection does not have a market research department, and determining what new products to make depends on what products are selling well on JD.com, Sam's Club, and Hema.

Dong Yuhui also missed the best opportunity to become a super top anchor like Li Jiaqi and Viya.

A former middle-level manager of a top anchor agency believes that Dong Yuhui’s personal IP influence should have been maximized when he first became popular, and the Oriental Selection live broadcast room should have been built with the logic of being a "person" rather than a "account". The conflict at the end of last year meant that they lost the opportunity to become a Li Jiaqi - but this does not conform to Yu Minhong's starting point of wanting to build a product company.

Dong Yuhui will have to go through the same pitfalls that live streaming e-commerce organizations have gone through. Only by going deep into the supply chain can the quality of goods be managed well; when the next big anchor appears, money and power must be allocated well to avoid a lose-lose situation; to manage well, Dong Yuhui needs to first overcome his inner aversion to selling goods and doing business.

"Breaking up" cannot solve all the problems between two parties, but it can at least solve one problem - the two parties who have lost trust in each other can finally stop being twisted.

Source of title image: "Knives Out"