Exclusive from Zhitong | Yu Minhong and Dong Yuhui "amicably part ways", who wins, who loses?

After Dong Yuhui announced his departure from EAST BUY (01797) yesterday, around 7:00 pm, the number of followers on his Douyin account increased from 21.495 million to 21.596 million by 11:50 pm, gaining over 100,000 followers. During the same period, EAST BUY's number of followers dropped by about 10,000.

New Oriental Education & Technology Group Inc. (EDU.US) plummeted before the U.S. stock market opened last night, showing some resistance after the official opening but then declining all the way to close at $70.33, down 5.46%.

Today, EAST BUY plunged 27% at the opening of the Hong Kong stock market.

Many wise friends had long anticipated the split between Dong Yuhui and Yu Minhong.

The root cause of the rift lies in Dong Yuhui being a talented individual, while Yu Minhong is not a talent scout. Among the group of seemingly similar "horses" running, Dong Yuhui's uniqueness was not recognized by Yu Minhong's discerning eye, but by the consumers in the live broadcast room.

Regardless of their relationship, the final analogy they are closer to (like Dong Zhuo and Cao Cao? Or Confucius and Zigong?), is highly unlikely to be Buffett and Munger.

1. Speculation on the Transfer Arrangement?

According to the announcement, on July 25th, Dong Yuhui (buyer), Beijing New Oriental Xuncheng Network Technology Co., Ltd. (seller), and Along with Hui (Beijing) Technology Co., Ltd. (target company) entered into a sales agreement, whereby the seller agreed to sell, and the buyer agreed to acquire 100% equity of the target company for RMB 76.5855 million.

In addition to fully paying all promised benefits and compensation to Dong Yuhui, Chairman Yu Minhong has sought approval from the board of directors and the board's remuneration committee to distribute all remaining undistributed profits to Dong Yuhui. Furthermore, in accordance with listing rules and the company's articles of association, Yu Minhong has made arrangements for the settlement price of Dong Yuhui's acquisition of Along with Hui. To maintain the normal operation of Along with Hui, the company will provide independently developed information systems to Along with Hui free of charge. EAST BUY stated that it may repurchase company shares worth no more than RMB 500 million in the open market within a year.

Following the article "An Open Letter to EAST BUY Shareholder Friends" by Yu Minhong, two pinned comments were posted on his WeChat account to explain this arrangement:

However, these words alone cannot dispel the "widespread misunderstanding" among netizens. At least there are three levels of questioning:

Firstly, Yu Minhong is simply too cunning. Zhao Yun and Adou fought fiercely at Changbanpo, Dong Yuhui is Zhao Yun, and Along with Hui is Adou. Can you let Adou try to fight fiercely on his own? Now everyone is saying that Yu Minhong gave the core assets of EAST BUY to Dong Yuhui, but the core asset is Dong Yuhui himself. If you take away Dong Yuhui from Along with Hui, it is worthless. Dong Yuhui can resign and go out to start his own company. So, does Along with Hui have any value left? YU Minhong is now making such a move, and in the future, Dong Yuhui will always be labeled as the core asset of EAST BUY, no matter how successful he is, someone will always say that this was arranged by YU Minhong. Instead of accepting and following Yuhui, it's better to leave this live broadcast room to YU Minhong, without taking his money or any information system, resign with the brothers. There is plenty of money and suppliers in the market, starting from scratch won't be worse than accepting the so-called core assets, but in the future, no one will point fingers at you.

Secondly: The money that Dong Yuhui used to buy shares was "arranged" by YU Minhong, the information system was provided free of charge, and in the end, "following Yuhui" is really Dong Yuhui's personal property, or fundamentally became an external asset of YU Minhong. Who can make it clear?

Thirdly: Following Yuhui can use the information system of EAST BUY for free, the system is free to use, but the goods provided as part of the supply chain may not be free. Will it evolve into EAST BUY providing goods to Yuhui as part of the supply chain, earning profits from suppliers, while Yuhui earns profits from sales, changing the relationship from parent and subsidiary companies to upstream and downstream?

Second, the "backstabbed" minority shareholders

Regarding Dong Yuhui's resignation, the "warm and considerate" little article between these two people preserved "dignity" and "completeness", but who will consider the interests of the minority shareholders of EAST BUY?

Some comments: "The most core asset of a listed company was stripped away at a price far below the market fair value of 76 million yuan, 100% stripped away. Many MCN companies overly rely on top anchors, EAST BUY is the first to completely withdraw and even provide funds. This is the most outrageous operation I have seen in so many years since Jack Ma backstabbed shareholders by spinning off Alipay from Alibaba. Can capitalists be so shameless now?"

Another comment: "What YU did was very unfair to the minority shareholders. Not to mention the high salaries, unlimited options, and low-priced transfer of the education business before, why go back on promises now and distribute all the profits of Yuhui Tongxing to Dong Yuhui, thereby giving away half of the company's performance for free? If YU still has a bit of conscience, take at least half of the funds on the company's books to buy back shares, or distribute dividends, don't bully the minority shareholders just for your own image."

Third, the future trend of EAST BUY's stock price?

"If Dong Xuhui doesn't leave, EAST BUY's valuation will never rise. Who dares to invest in a listed company with personal IP? It's a good thing if he leaves. If EAST BUY proves that he has the ability to regenerate, then a new high stock price is imminent." This argument makes sense, but the premise of "it's a good thing if he leaves" is to "prove the ability to regenerate". Does the current EAST BUY have the ability to regenerate?

Unconfirmed third-party data widely circulated on the internet shows that as of the 15th, the GMV of Douyin's live broadcast rooms in the first half of July was 555.82 million, with the "Zhenxuan" live broadcast room accumulating 156.90 million (28%) and the "Yuhui Tongxing" live broadcast room accumulating 398.92 million (72%). In the same period last year, the GMV was 40.854 million, a year-on-year increase of 136% in the performance of Douyin's live broadcast rooms, excluding GMV from Douyin Mall, app, Taobao, and other channels from the above data statistics In July, the performance of EAST BUY's Douyin live streaming room still maintained a relatively high level of growth, but the 100% growth came from the "Along with Hui" live streaming room. The daily average GMV of "Along with Hui" was 26.59 million, a 32% increase compared to March; the daily average GMV of the "EAST BUY" live streaming room was 10.46 million. After the Guizhou trip, there was an accelerating downward trend, with a 53% decrease in daily average GMV compared to March. The performance of the "EAST BUY" live streaming room also decreased from 53% in March to 28% this month.

In the US stock market, New Oriental Education & Technology Group Inc. (EDU.US) has already fallen, and the diving performance of EAST BUY in the Hong Kong stock market is about to begin. Since EAST BUY has announced a 500 million repurchase fund, today's downward extent will depend on the determination of the market to support the stock.

As for TAL Education Group (TAL.US), Gaotu Techedu Inc. (GOTU.US), and Make Friends (01450) and other companies in the same industry, although there is no "sudden wealth" like during the last period, there may still be some strange market sentiment boosts