wild 1995

Chapter 123 Negotiation
Goldman Sachs established an office in Hong Kong in 1983 and upgraded it to its Asia-Pacific headquarters in 1984. Since its business scope does not include Japan and its social resources in Southeast Asian countries are not as abundant as those of British and Chinese capital, its performance has been tepid. It is a marginal department and is not valued by the New York headquarters.

However, this situation changed dramatically on the afternoon of April 1995, 4. Hong Kong became the protagonist and New York became the supporting role, because Di Ye entrusted the transaction negotiations for acquiring shares in Netscape to the Asia-Pacific headquarters.

Goldman Sachs is the underwriter of Netscape's listing on the NASDAQ and has been working on it for more than three months. It was going smoothly and was highly sought after. The IPO price was raised from US$8 per share to US$10, and then from US$10 to US$12 per share, but it still couldn't stop investors' enthusiasm.

However, everything changed after the emergence of the open source and free Athlon. Open source broke Netscape's monopoly from a technical perspective, and free browsers created a commercial dilemma in which browsers could not make profits. More and more media began to question Netscape's future, and investors also backed off, making the IPO roadshow unattractive.

So when the news from Hong Kong that Di Ye was interested in buying a stake in Netscape with a package of cash and Athlon reached New York, the Goldman Sachs IPO team was ecstatic and, regardless of the time difference, worked overtime to facilitate a telephone conference involving Di Ye, Goldman Sachs, and Netscape.

In fact, when Di Ye attended the W3C meeting in Darmstadt, he discussed with Marc Andreessen about investing in Netscape. Because his offer and asking price were too outrageous, the Netscape board of directors did not take it seriously and did not notify Goldman Sachs.

But things are different now. Although Goldman Sachs is not as powerful as HSBC in Hong Kong, it is not blind or deaf. It is very sure that Di Ye has at least US$3 million in assets and is fully capable of executing the shareholding plan, so it is very positive about this matter - as long as Athlon and Netscape merge, even if they still cannot come up with a reliable profit model, they can rely on the concept of "monopoly" to attract a large number of investors, because capital naturally likes this word.

"Netscape's current valuation is $12 per share. 20% of the shares are 600 million shares, which is $7200 million. Mr. Di is ready to pay $1 million for 20% of the shares and 40% of the voting rights. Mr. Doerr of KPCB has agreed. Mr. Clark, do you agree?"

"I need to think about..."

"Clark, don't think about it. You are old and don't usually participate in the management of the company. It is better to transfer the voting rights to Mr. Di. The offer of 2800 million US dollars is reasonable. He is a technical genius and needs full autonomy to display his talents."

"Okay, I agree. What about you, Mark?"

"I agree."

"What do you think, Mr. Barksdale?"

"If Mr. Di can focus on the technical field as he promised and not interfere with the normal business operations of the company, I have no objection."

A total of four people from Netscape participated in the conference call, namely founder and major shareholder Jim Clark, KPCB partner John Doerr, CTO Marc Andreessen and CEO Jim Barksdale.

When Jim Clark founded Netscape in April 1994, he invested $4 million. When John Doerr bought the shares in December 400, he invested $1994 million. They were pure financial investors. As long as they agreed to Di Ye's $12 million offer, they could get more than ten times the profit return. Therefore, they did not care about voting rights.

After witnessing Di Ye's extraordinary "programming ability" at the W3C conference, Marc Anderson had lost the will to compete with him. CEO Barksdale was a professional manager and did not have many shares in Netscape, so even if he opposed it, it would be of no avail.

So the first item was passed quickly, but the second item was not so easy because Di Ye wanted to exchange Athlon for 15% of Netscape shares and 30% of voting rights.

"That's impossible. Athlon's market share is only 10% of Netscape's. It's not worth so much money!"

"It was 6% last month, 10% now, and maybe 15% next month. By that time, it won't be a question of how much Athlon is worth, but how much Netscape is worth."

"Athlon is open source, and the code is all over the Internet. What good will it do for Netscape if it's merged?"

"If Netscape and Athlon merge, open source will eliminate all competitors - including Microsoft - in the bud. Isn't this benefit big enough? Oh, by the way, the president of Microsoft China is in contact with Athlon's R&D team. I plan to meet with him in three days to discuss it."

"Microsoft has done nothing in the browser field and is not a threat to us! Moreover, Microsoft cannot offer you such favorable conditions as we do, let alone give you additional voting rights."

"Either great or destroyed. My purpose of investing in Netscape is to turn it into a great company with my own hands. If I can't achieve that, I would rather join hands with Microsoft to destroy it!"

"Mr. Di, please calm down. Business is not war. There is no need to be so radical."

"I suggest that we sign a bet agreement. If Mr. Di can really turn Netscape into a great company as he said, then he can get more shares and voting rights. If not, then he must compensate the shareholders for their losses..."

"Betting? All right! Let's talk about how to bet." In order to increase the importance of Athlon, Di Ye did a lot of preparatory work. He wrote more than a dozen different versions of the browser using Little Red Flower, and even planned to go to Silicon Valley in person to demonstrate a series of new technologies such as Javascript, DOM, AJAX, etc. to the Netscape board of directors. As a result, before he had the chance to release these killer weapons, he just casually mentioned Microsoft a few times, which scared Clark and others, and they actually agreed to sign a bet agreement.

What's the difference between betting against a time traveler and seeking one's own death?
With the mediation of Goldman Sachs, Di Ye and Clark and others, after a fierce war of words, finally compromised and reached a draft bet agreement. The general content was that Athlon would be converted into 10% of the shares and 20% of the voting rights and merged into Netscape, but he could only own 5% of the shares and 9% of the voting rights at present, and the rest would be determined by Netscape's market value performance after its IPO.

"The current estimated market value of Netscape is $3.6 million. If the market value exceeds $10 billion after the IPO, Mr. Di will receive 1% of the shares and 3% of the voting rights...

"After that, for every $10 billion increase in market value, Mr. Di will automatically receive 1% of the shares and 2% of the voting rights as a reward..."

“如果市值在1997年12月31日之前超过50亿美元，除了既定的奖励之外，狄先生还将额外获得3%的股份和7%的投票权……”

"The above are the reward clauses for a successful bet. Next, I will read out the penalty clauses for a failed bet..."

Di Ye sat at the conference table, his mind wandering. He ignored the so-called penalty clauses and didn't listen to a single word of them. Anyway, there was no way he could lose!
KPCB is one of the top venture capital firms in Silicon Valley, and John Doerr is one of the most prestigious investment experts in the United States. However, even so, the bet agreement personally handled by him is meaningless in Di Ye's view, because in the original history, when Netscape went public on August 8, its market value soared to US$9 billion that day, and exceeded US$28 billion at the end of the year, creating the first wealth myth in the history of the Internet.

In other words, if Di Ye did nothing and just lay in Yuncheng and watched the show, the bet agreement would be automatically completed within a few months. If he was determined to make an effort, he might be able to increase the market value to over 50 billion US dollars on the day of the IPO, directly get all the rewards in the agreement, own 33% of Netscape's shares and 67% of the voting rights, and become the absolute controlling shareholder.

But Clark and others did not think so. In their eyes, this bet agreement was very harsh and it was almost impossible for Di Ye to achieve it. Because in April 1995, Microsoft, the big devil, was famous, but its market value was only more than 4 billion US dollars. Netscape, as a new company that had only been established for one year, had not even found the most basic profit model. Its market value was unlikely to reach 300 billion US dollars, let alone break through 1 billion US dollars.

All in all, both parties are very satisfied with this bet agreement, and it can be officially signed as long as the relevant legal paperwork is completed.

"Mark, I'm very busy recently and don't have time to go to the United States. Once the formal agreement is ready, could you please come to Hong Kong on behalf of the board of directors to sign it? I will treat you well."

"No problem. I've long wanted to go to Hong Kong to experience the oriental customs."

"Then it's settled."

After the conference call at Goldman Sachs, Di Ye rushed to Peregrine to discuss with Du Huilian about jointly establishing a private equity fund.

Of the two founders of Baring, Liang Botao has close ties with the mainland and is trustworthy, while Du Huilian's stance is questionable. When Baring fell into crisis at the end of 1997, he rejected Bank of China (Hong Kong)'s proposal to acquire a stake and insisted on cooperating with the Swiss Zurich Group. As a result, the Zurich Group later regretted its decision, leading to the bankruptcy and liquidation of Baring. During the liquidation and reorganization period, this guy again rejected Bank of China (Hong Kong) and chose to cooperate with BNP Paribas, turning Hong Kong's largest local securities firm into a vassal of foreign capital.

Therefore, Di Ye had two purposes in setting up a private equity fund. One was to establish a trusting relationship with Du Huilian, to control him with black material and interests, and to prepare for the future acquisition of Peregrine. The other purpose was to make friends with elite talents in Hong Kong and Southeast Asia and expand social relations.

"The number of customers is limited to 100, and the investment amount is divided into three levels: $10, $20, and $50..."

"If the profit is less than 10%, only the management fee will be collected, and no profit dividends will be distributed. If the profit exceeds 10%, in addition to the management fee, 20% of the profit will be distributed as dividends..."

“The fund will be launched on June 1995, 6 and closed on December 1. No dividends will be distributed during the operation period, but customers will be allowed to redeem at any time…”

Although Du Huilian's position was problematic, his ability was not a problem. According to Di Ye's request, he quickly drafted a draft of the private equity fund plan, and then said with a smile: "Mr. Di, these conditions are very generous. Even if you don't consider your amazing performance in the financial market, I think there will be many people willing to buy this fund."

"Will you buy it?"

"Of course, I will reserve a $50 investment quota now."

"That's great. With Mr. Du's support, I think this fund will be successful."

I don’t know much about finance, so if there are any mistakes in what I wrote, please correct me.



(End of this chapter)