Chapter 910
The Peak of the Dot-com Bubble
More than a year ago, Lu Yang invested in Ding Sanshi, spending 1000 million yuan to acquire 35% of the shares of NetEase held by Ding Sanshi.
This was an incredibly high price at the time.
For NetEase, a company that had just been established and had been founded for less than half a year, although the capital market was optimistic about the development prospects of its portal website, very few were willing to invest 1000 million yuan, let alone acquire only 35% of its shares like Lu Yang.
Looking back now, however, Lu Yang's investment was a stroke of genius.
Because up to today.
NetEase has planned to list on Nasdaq in the US, and is just one step away from the final IPO.
At the height of the global internet bubble, Chinese portal concepts are highly sought after by international capital. According to Ding Sanshi, after negotiations with Deutsche Bank and Merrill Lynch, two Wall Street investment banks, the company plans to raise $7000 billion through an IPO, with an expected issuance of 4.5 million ADSs, equivalent to 450 shares, which will account for 15% of the company's total share capital.
Also, the planned offering price is $15.5.
In other words, if we work backwards from this,
NetEase's current valuation should be around $4 to $5 million.
Of course, this is the ideal situation.
Deutsche Bank and Merrill Lynch, the two foreign firms behind the scenes, are sure to profit as well.
If Lu Yang wanted to sell his NetEase shares at this valuation, the other party might not be willing to accept it.
But even so.
Even if they concede a small portion of the profits, a 35% stake in NetEase would still be an astronomical price.
It's worth at least $1 million.
The returns are off the charts.
Leaving Shenzhen, although it's unclear what Lu Yang's true intentions are, it's clear that this CEO Lu has decided to sell a portion of his shares in NetEase.
From his own perspective, Ding Sanshi still welcomes such behavior.
After leaving Shenzhen, he immediately began contacting the heads of Merrill Lynch and Deutsche Bank in Asia.
"Mr. Baring, after discussion, we have decided to agree to your company's requirement of holding at least 10% of NetEase's shares."
"Mr. Macbeth, I have a new idea regarding the pre-IPO funding round..."
half a month later.
The chairman's office on the top floor of the Century Building.
Outside the huge floor-to-ceiling windows, the sky over Shenzhen was unusually clear, and the sunlight shone on the rows of high-rise buildings, giving them a golden glow.
Lu Yang sat behind his large mahogany desk, his fingertips unconsciously tapping the smooth surface, making a soft "tap-tap" sound. His gaze fell on Wei Shu, who was standing opposite him.
Wei Shu was still dressed in a sharp business suit, her expression calm, but deep in her eyes was an indescribable shock and admiration.
“Chairman,” Wei Shu’s clear and steady voice broke the silence, “the agreement has been officially signed and is in effect. We have transferred 20% of NetEase’s equity to a consortium of Merrill Lynch and Deutsche Bank for US$8000 million. After deducting relevant taxes and fees and Mr. Ding’s 5% share payment, the net funds will be transferred to the group’s designated offshore account in batches within three working days.”
She paused, shifting her gaze from the documents in her hand to Lu Yang, her tone carrying an almost solemn air, as if reporting a miracle: "Two years ago, you acquired 35% of NetEase's shares for 1000 million RMB. At the time, many people considered it a huge gamble, or even... a foolish act of being overly greedy."
Lu Yang's lips curled into a half-smile, but he didn't interrupt her.
Wei Shu took a deep breath and continued, "Who could have imagined that in just two years, 1000 million RMB would turn into 6000 million USD? Just this 15% cash-out is already more than the initial investment..." She quickly did some mental calculations, "...more than 80 times the return! Chairman, this deal is the most brilliant and terrifyingly profitable single investment since the establishment of Century Investment, without exception."
Her praise came from the bottom of her heart.
As the person who was involved in the entire negotiation process, she understood the intricacies of this deal better than anyone else.
According to Ding Sanshi's previously disclosed IPO plan, the issue price is $15.5, and the $7000 million raised corresponds to 15% of the shares. Theoretically, their 15% equity should be worth around $7000 million at the time of the IPO.
“We gave up $1000 million,” Wei Shu analyzed, his tone revealing a deep understanding of the decision. “But as you predicted, this eliminates the 180-day lock-up period and the unknown market risks of the future. $6000 million, real cash, is now in our pockets and more reliable than any paper wealth. This is a brilliant calculation.”
Lu Yang picked up the purple clay teapot on the table and poured himself a cup of hot tea, the fragrant aroma rising in the air. He took a sip, his eyes sharp: "Has Ding Sanshi's side been dealt with?"
“It’s clean,” Wei Shu replied confidently. “According to your secret agreement with him, of the 20% equity we transferred, 5% was actually his personal cash-out portion, valued at US$20 million. This money has already been paid directly to the overseas account designated by President Ding through a secret channel agreed upon with the foreign consortium. Publicly, our unified statement is that Century Group reduced its stake in NetEase by 2000% to the foreign consortium, citing ‘optimizing the group’s investment structure and supporting the development of core industries’ as the reason. President Ding has also confirmed again that he will keep this matter confidential, and at least before the listing, the news of the founder’s share reduction will not be leaked to avoid affecting market confidence.”
Lu Yang nodded, satisfied with the result.
Ding Sanshi's little scheme—whether he genuinely needed money to improve his life, or was prompted by his own large-scale share reduction and wanted to cash out—was exactly what he wanted.
This 5% transfer not only silenced Ding Sanshi, making him an "accomplice" in his early withdrawal plan, but also cleverly alleviated some of the public pressure.
After all, a founder secretly cashing out is far more detrimental to the market than a major shareholder reducing their holdings. For his own benefit and for NetEase's listing, Ding Sanshi had to keep this secret to himself.
“Very good.” Lu Yang put down his teacup and tapped his finger lightly on the table. “This funding is a crucial ammunition for the group’s future strategy. President Wei, you personally oversee it to ensure its safe and compliant return. At the same time, initiate the funding reserve plan for several core projects we discussed earlier, especially the layout in the semiconductor and chip fields, which needs to be accelerated. This $6000 million must be spent wisely.”
"Understood!" Wei Shu replied solemnly.
This enormous wealth, harvested at the peak of the dot-com bubble, is about to be injected into the more fundamental, core, and strategically aligned hard technology sector, far exceeding the numbers on paper. However, the capital market is extremely perceptive.
The fact that Century Group, as the undisputed largest angel investor in NetEase, transferred such a large amount of equity to foreign investors on the eve of its IPO is like a bombshell dropped into a calm lake.
Despite the official statement being presented in a grand and respectable manner, the news that "Century Group has reduced its stake in NetEase" still spread like wildfire, quickly causing a huge uproar in the industry.
Various speculations, doubts, and even gloating voices quickly spread in investment, internet, and media circles.
"Has Lu Yang gone mad? NetEase is about to go public, and he's selling his shares now?"
"8000 million US dollars? That price... is much lower than the expected IPO valuation! How desperate for money is Century Group?"
"I don't understand, I don't understand at all! Did President Lu hear something we don't know about? Is he not optimistic about NetEase's performance after its IPO?"
"Century Group has been making a lot of moves lately, from developing home appliance chains in mainland China to real estate in Hong Kong, investing in semiconductors, and collaborating on research with prestigious universities across the country. Could it be that their cash flow is really in trouble?"
"Tsk tsk, this Mr. Lu always does things unexpectedly. I'm afraid he's gone too far this time?"
This trend soon reached the ears of Lu Yang's cronies.
There was a knock on the office door, and before Lu Yang could say "Come in," Mu Qizhong's signature loud voice and burly figure burst in: "Brother Lu! My dear Brother Lu!"
Following closely behind was Xiao Jun, who looked somewhat guilty and whose eyes were darting around.
"Oh, what brings you two big bosses here?" Lu Yang put down his teacup, a playful smile on his face, and gestured for them to sit down on the sofa opposite him.
Wei Shu calmly put away the agreement documents on the table and stood aside.
Mu Qizhong plopped down on the sofa, which made a dull thud.
He stared at Lu Yang with his big, round eyes: "Brother, tell me the truth! There's a lot of talk outside saying you sold your NetEase shares for a pittance? Are you in some kind of trouble? Short of money?"
He patted his broad chest, making a loud thud, and said with great bravado, "If you need money, just say the word! What kind of relationship do we have? A couple of small goals, I'll lend you some to tide you over, absolutely no problem! Interest is negotiable! You absolutely mustn't do anything like killing the goose that lays the golden eggs, NetEase is about to lay its golden eggs!"
Xiao Jun rubbed his hands together cautiously, chiming in, "Yeah, boss... well, although I'm not as wealthy as Lao Mou, I still have tens of millions... well... I can manage to squeeze some out. If you're really short, don't hesitate to ask." His eyes held concern, but also a hint of inquiry and confusion, clearly bewildered by Lu Yang's unusual actions.
Looking at the genuine concern on the faces of his two "frenemy" friends, Lu Yang felt both amused and warmed.
He waved his hand, his smile becoming more sincere: "I appreciate your kindness. But it's really not that big of a deal."
He leaned forward slightly, his tone conveying a convincing composure: "The group is operating well, and our cash flow is very healthy. Reducing our stake in NetEase is just a normal portfolio adjustment. You can't put all your eggs in one basket, right? The internet is red-hot right now, like a red-hot iron. It's good to take profits when appropriate and reinvest the funds in more needed and core areas, such as chips and semiconductors—these are the group's established strategies. Rest assured, if we ever really reach a dead end and need your help, I, Lu Yang, will be the first to speak up, and I won't hold back!"
Lu Yang's words were watertight, both reassuring his friends and maintaining the official narrative of "strategic adjustment."
Mu Qizhong and Xiao Jun exchanged a glance. Although their doubts were not completely dispelled, their calm and clear-eyed demeanor suggested that they did not seem to have encountered any real trouble.
Mu Qizhong clicked his tongue, half-believing and half-doubting: "Alright, little brother, you know what you're doing. But I'll say it again, if you need money, just say the word!"
He felt something was off, but he couldn't quite put his finger on it.
Xiao Jun nodded in agreement, "Yes, yes, boss, you're in charge. Strategic adjustment... hmm, that makes sense."
Just as the atmosphere in the office eased slightly, and Mu Qizhong was preparing to delve deeper into the inside story of the "strategic adjustment," such as which "more needed and more core areas" it involved, a piercing cell phone ringtone sounded almost simultaneously from Mu Qizhong's and Xiao Jun's pockets.
"Who is it at this time..." Mu Qizhong was interrupted and impatiently pulled out his huge mobile phone.
Xiao Jun also took out his phone.
The two answered the phone almost simultaneously: "Hello?"
The voice on the other end of the phone sounded urgent and flustered.
Mu Qizhong's face instantly tightened, his brows furrowed into a knot, and his originally loud voice suddenly rose: "What? Say that again?... How could this be?!"
Almost at the same second, Xiao Jun also exclaimed in shock, his voice changing tone: "What? Funding is stalled?!...Who? What do they mean?! Weren't things going well yesterday?!"
The ease and confusion on their faces were instantly replaced by shock and anxiety, and the color seemed to drain from their faces.
Mu Qizhong suddenly stood up, the sofa screeching as he did so. He yelled into the phone, "Damn it! Tell them to wait! I'm flying over right now!"
Xiao Jun hurriedly put away his phone, his face grave.
"What happened?" Lu Yang noticed the sudden change in their expressions and keenly sensed that something was definitely not simple. For Mu Qizhong and Xiao Jun, who were used to weathering storms, to lose their composure at the same time, it was no small matter.
Mu Qizhong hung up the phone, his face ashen, speaking rapidly with unbelievable anger: "It's Sohu! The last round of financing has gone horribly wrong! Everything was going well. Besides the underwriters and a few foreign investors taking a stake, we investors from the previous rounds had the right to continue investing. Even if we didn't, at the very least, as long as we were willing to contribute, we could keep our shares from being diluted. Damn it, I was even thinking of continuing to invest and increasing my shareholding, but some company from Hong Kong barged in and stole my shares. I'm going to go there and settle accounts with Zhang Chaoyang."
Xiao Jun added anxiously, his voice trembling, "It's the same with Sina! My subordinates just reported that the right to make additional investments has been cancelled. Originally, we could have kept our shares from being diluted by making additional investments, but they were all taken away by a company in Hong Kong."
Sohu and Sina, two of China's top portal websites that launched their US IPOs almost simultaneously with NetEase and were also wildly sought after by capital, unexpectedly encountered a strong influx of capital from Hong Kong Capital at the last sprint of their fundraising efforts.
Mu Qizhong and Xiao Jun, as early investors and major shareholders of these two companies, were extremely anxious. Their enormous profits had been snatched away. They didn't have time to question Lu Yang about the reasons for reducing his stake in NetEase; they hastily left with a "Brother, we'll talk about it later!" and rushed out of the office like their pants were on fire, forgetting to even close the door. (End of Chapter)