Behind the massive buyback plan lies an internal redistribution of interests at Haoxiangni. Recently, Haoxiangni (SZ:002582) announced a plan to repurchase its listed shares through centralized bidding transactions using its own funds. The repurchase price will not exceed 13 yuan per share, with the number of shares to be repurchased ranging between 113 million and 226 million. If the maximum repurchase amount is calculated, Haoxiangni will repurchase 43.83% of its shares at once. Currently, the most expensive stock in the world is Berkshire Hathaway A (NYSE:BRK.A), run by Warren Buffett, with a price of $302,200 per share. The reason for its high price, aside from the "halo of the stock god," is more importantly the management's persistent buyback plan over the years, showing that buybacks significantly boost stock prices. Similarly, after Haoxiangni announced the massive buyback, the stock price hit the daily limit up the next day, with over a million shares in the buy queue, making Haoxiangni the star of the entire market. However, this seemingly normal buyback is actually a rebalancing of interests. -01- The "Haoxiangni Faction" and the "Baicaowei Faction" In 2016, Shanghai experienced its "hottest summer in history." Just entering August, the city was shrouded in continuous high temperatures, even exceeding 40 degrees Celsius. This heat extended to the Chinese snack industry. On August 18, at the Ritz-Carlton Shanghai Pudong, Haoxiangni Chairman Shi Jubin and Baicaowei Chairman Qiu Haoqun attended the M&A strategy conference "Together, Play Big." Haoxiangni is China's first listed red date company and the main entity in this acquisition, while the acquired Baicaowei is a well-known internet snack brand. Their collision was indeed "playing big." This acquisition was seen at the time as Haoxiangni's "breaking out of its circle," as it would successfully enter the internet snack industry through the new brand Baicaowei. Although this acquisition ultimately did not help Haoxiangni achieve its "circle-breaking," it did make a lot of money. Initially, Haoxiangni acquired Baicaowei for only 960 million yuan, but in February this year, it sold it to PepsiCo for $705 million (approximately 4.989 billion yuan), netting a profit of over 4 billion yuan. Haoxiangni's acquisition of Baicaowei was extremely successful. In addition to the 4 billion yuan investment return, it also contributed significant performance during the period it was part of the listed company. But to "marry" Baicaowei, Haoxiangni went to great lengths. At that time, to successfully complete the merger and restructuring, Haoxiangni conducted two share issuances simultaneously in October 2016. One was to purchase Baicaowei's assets, issuing 50.65 million shares to six parties including Hangzhou Yuequn at a consideration of 816 million yuan, with major shareholders Qiu Haoqun and Cai Hongliang, and also paying 144 million yuan in cash, totaling 960 million yuan. The other was to increase cash flow. At that time, Haoxiangni's book cash flow was nearly exhausted. To complete the acquisition, Haoxiangni issued 59.59 million shares to ten parties including Shi Jubin and the employee stock ownership plan, with a consideration of 960 million yuan. After completing the two share issuances, two major forces formed within Haoxiangni: the "Haoxiangni faction" represented by Shi Jubin and the "Baicaowei faction" represented by Qiu Haoqun. The "Baicaowei faction" essentially contributed 100% of Baicaowei's equity to Haoxiangni, with Qiu Haoqun and Cai Hongliang each receiving 7.63% and 6.44% of Haoxiangni's shares, plus 144 million yuan in cash. Obviously, 144 million yuan in cash could not reflect Baicaowei's value. Qiu Haoqun and Cai Hongliang accepted Haoxiangni's offer for the latter's shares and for longer-term interests. After selling Baicaowei to PepsiCo, Haoxiangni received 5 billion yuan in acquisition funds, netting 4 billion yuan in profit. But for minority shareholders Qiu Haoqun and Cai Hongliang, who lacked control, this did not mean much. In fact, after Baicaowei was sold, Qiu Haoqun and Cai Hongliang had no choice but to exit Haoxiangni at an opportune time. A careful review of the announcements reveals that when PepsiCo officially confirmed the acquisition of Baicaowei, Qiu Haoqun and Cai Hongliang had already started reducing their holdings. Having made a lot of money from Baicaowei, the "honest" Shi Jubin should share a piece with Qiu Haoqun and Cai Hongliang. Therefore, launching a massive buyback plan is likely to accelerate their departure. This operation is both a favor and business. -02- No Losers? Conducting a buyback and reducing holdings simultaneously is an extremely sensitive act. However, when examining the essence of this buyback, we find that it may be a game with no losers. Initially, to acquire Baicaowei, Haoxiangni diluted a large number of shares. Specifically, founder Shi Jubin and vice general manager Shi Juling's shares were diluted from 38.25% and 2.77% to 30.59% and 1.65%, respectively, meaning their interests as shareholders were actually damaged. Focusing on this buyback, if Haoxiangni ultimately operates at the upper limit, the overall floating shares will be significantly reduced, and total shares will decrease from 516 million to 290 million. Founder Shi Jubin's stake will increase from 25.07% to 44.41%, even exceeding the stake before the Baicaowei acquisition. In terms of amount, even if the buyback is carried out at the upper limit, Haoxiangni would only need to spend 2.938 billion yuan. Compared with the 4 billion yuan profit from selling Baicaowei, there is still over 1 billion yuan in profit remaining. Moreover, after this battle, founder Shi Jubin has greatly consolidated his position in the company, can refocus on the red date business, retain over 1 billion yuan in profit, and also help internal competitors exit. This is truly killing four birds with one stone. Haoxiangni's large buyback is indeed generous, allowing almost all participants to have a sip of the soup. -03- Rebalancing Interests Shi Jubin is a "thick-browed, big-eyed" honest man. Born in a rural area of Henan, he sold steamed buns, fried dough sticks, and worked as a carpenter to make a living. After more than 20 years of struggling in the business world, he finally built the listed company Haoxiangni and is regarded by the media as a representative of peasant entrepreneurs. His love for red dates can even be described as obsessive. In 2017, Shi Jubin said in an interview: "There are many opportunities on the road of entrepreneurship now, but if the purpose of entrepreneurship is only for wealth, it may not succeed. Later, I understood a truth: to have money, you must first do things well, and then you will have money. Red dates are my life and the root of my lifelong success." In fact, Shi Jubin could have avoided a large-scale buyback and instead chosen other ways to keep the cash in the listed company for his own use. Such disputes over equity and interests are common in the stock market, but Shi Jubin chose the most honest way to handle it. If Haoxiangni's internal factional strife is not handled properly, it would be equivalent to touching the cake of the "Baicaowei faction," triggering a deeper struggle. Even if the "Baicaowei faction" has no intention of fighting for power, continuous reductions would suppress the stock price for a long time and also trigger negative reviews from the capital circle, adversely affecting future investments or M&A transactions. After the announcement of the large buyback, the market responded with a limit-up. The outside world marveled at the amazing courage of Haoxiangni's management, but more importantly, Shi Jubin, the peasant entrepreneur, used perfect capital means to resolve a hidden internal crisis. -04- Haoxiangni Needs to Explain the Basis for the Buyback Price On June 10, Haoxiangni, which caused a market sensation by releasing the "most generous" buyback plan in A-share history, received a letter of concern from the Shenzhen Stock Exchange. Haoxiangni was asked to explain the basis for calculating the buyback price and the feasibility of the buyback. In the letter, the SME Board Company Management Department of the Shenzhen Stock Exchange required Haoxiangni to supplement the explanation of the basis for calculating the buyback price, explain the feasibility of the buyback in light of the stock price situation, whether the buyback price will be adjusted subsequently, and whether reasonable arrangements are made for the daily number of shares repurchased and the specific circumstances. The buyback plan shows that Haoxiangni has received 4.967 billion yuan from PepsiCo Beverages. Haoxiangni is required to explain, based on the company's working capital needs, interest-bearing debt situation, debt repayment ability, etc., whether this buyback will lead to a liquidity crisis, and based on communication with major creditors, whether major creditors may require the company to repay debts early. The buyback plan shows that except for Qiu Haoqun, director and vice general manager of Haoxiangni, other directors, supervisors, senior management, controlling shareholders, and their concerted actors have no clear plans to increase or decrease holdings, and the proposer of the buyback plan, Shi Jubin, and his concerted actors have no clear plans to increase or decrease holdings during the buyback period. However, on the evening of June 8, Haoxiangni disclosed an announcement that shareholder Hangzhou Haohong Industrial Co., Ltd., holding more than 5% of shares, plans to reduce holdings by no more than 3% within six months after fifteen trading days from the disclosure date of the reduction announcement. The Shenzhen Stock Exchange requires Haoxiangni to clarify the plans of the company's directors, supervisors, senior management, controlling shareholders, actual controllers, and their concerted actors to increase or decrease holdings during the buyback period, and to explain whether the company is cooperating with the reduction of holdings by directors, supervisors, senior management, controlling shareholders, actual controllers, shareholders holding more than 5%, and their concerted actors. Source: Alpha Workshop Research Institute (ID: alpworks) Author: Lin Xiaochen