Luckin “Iron Triangle” anti-Lu Zhengyao to do “no-fall”?

Sunday afternoon’s Shenzhou Youcar Headquarters building few pedestrians, but under the sun but ushered in a shower of rain. In the building, Luckin Coffee shareholders are holding a special general meeting to consider the removal of four directors/independent directors of Lu Zhengyao, Liu Yihai, Li Hui and Yu Xiaoheng regarding the future development of Luckin Coffee. After several hours, the official SEC announcement was not released, but the results were already coming out early: the matter of removing the four people was passed.

Sina Technology Zhang Jun

Although Mr Lu has lost his position as chairman and director, the outcome of the shareholder stake may be equally favourable. The chairman of the special committee investigating Luckin’s fraud, Yu Xiaoheng, and the two Luckin coffee company shareholders who supported him, Liu Yihai and Li Hui, were both kicked out of the board.

Lu Zhengyao may still have control of the current Luckin coffee board.

“Iron Triangle” Power War

People close to Luckin Coffee told Sina Technology that the special shareholders’ meeting at 15 p.m. on July 5 was personally presided over by Mr. Lu, but there were several disputes in the middle, with one of the focus being voting rights.

Lu Zhengyao defaulted on hundreds of millions of dollars in margin loans to several banks after data fraud caused share prices to plummet. According to media reports, a June 16 liquidation order, Lu Zhengyao family trust-controlled Primus Investment Fund LP held 131.25 million shares of B shares will be transferred to KPMG within two working days for liquidation.

The people said that after the liquidation of the shares, the specific voting rights of how to calculate, should be left to the relevant lawyers to define. But lawyers were not allowed to enter the meeting, and the definition of voting rights and even the counting of votes were dominated by Mr Lu.

After 20 p.m. that day, although the official SEC announcement has not yet been made public, the results of the shareholders’ meeting have been circulated in advance: the meeting voted to remove all the bills in the previous announcement, removing the four directors of Lu Zhengyao, Li Hui, Liu Yihai and Yu Xiaoheng, and adding two independent directors, Ying Zeng and Jie Yang.

Prior to this, luckin coffee board of directors a total of eight people: Lu Zhengyao, Guo Weiyi, Wu Gang, Cao Wenbao, Liu Yihai, Li Hui, Yu Xiaoheng, Zhuang Weiyuan, and after the shareholders’ meeting, the board of directors will be composed of six people: Guo Weiyi, Wu Gang, Cao Wenbao, Zhuang Weiyuan, Ying Zeng, Yang Yang Yang.

People familiar with the analysis to Sina Technology, it appears that Lu Zhengyao, Liu Yihai, Li Hui this “iron triangle” has been cleared out of the board, but in fact is the “iron triangle” back, Lu Zhengyao Liu Yihai, Li Hui kicked out of the board.

On July 1, The Luckin Coffee Special Committee, supported by Liu Yihai and Li Hui, led the release of internal investigations, former CEO Qian Zhiya and former COO Liu Jian were accused of being major counterfeiters, while the announcement also suggested that Lu Zhengyao may also be involved in fraud, and did not cooperate with the internal investigation.

At the time, a source close to the special committee told Sina Technology that Lu Zhengyao refused to hand over his computer and mobile phone during the special committee’s investigation and refused to take part in the investigation interview. Mr Lu’s argument is that he does not trust the special committee.

The results of the July 1 investigation were just released, and on July 2, Liu Yihai, Li Hui, Yu Xiaoheng and others impeached Lu Zhengyao at a board meeting, demanding his resignation as director and chairman. But with the support of the three managementmen, Guo Weiyi, Wu Gang and Cao Wenbao, Lu Zhengyao was unable to move on, and the impeachment ended in failure.

The July 5 special shareholders’ meeting is already the second round of power-grabbing within Luckin’s board of directors, with Mr Lu also gaining an advantage.

Judging from the composition of the current Luckin Coffee board, Guo Weiyi, Wu Gang and Cao Wenbao are supporters of Lu Zhengyao, and newly added independent directors Ying Zeng and Jie Yang are nominated by Lu Zhengyao and are likely to be supporters of Lu Zhengyao. Although he is no longer chairman and board member, Mr Lu is still able to take the initiative of the next internal investigation and control of the future development of Luckin Coffee.

How does Luckin survive?

Liu Yihai and Li Hui are founding and executive partners of Pleasant Capital and chairman of 钲 Capital. In Luckin’s development, the two men have been instrumental in participating in multiple rounds of investment.

In fact, Liu Yihai was involved in the investment when Lu Zhengyao founded Shenzhou car rental, Li Hui even served as vice chairman of Lu Zhengyao’s Shenzhou Youcar, why would the two have an imostime feud with old friend Lu Zhengyao?

This is closely related to internal investigations and the future development of Luckin.

In the context of internal investigations, the two men need to remain positive to demonstrate that they were unaware of the fraud, which would have a significant impact on the reputation and future development of the capital and the large 钲 capital. But continuing to press ahead with the investigation would infringe on Mr Lu’s own interests; both are institutional shareholder stakes in Luckin’s control, and the desire to maximize the reduction in investment losses involves questions about Luckin’s future direction, such as whether to continue to inject capital to maintain operations or sell cash.

Although Lu Zhengyao temporarily gained an advantage in the internal power grab, Luckin’s next development is not bound to be plain sailing.

Luckin said that more than 4,000 stores will operate normally after the de-listing, and that nearly 30,000 employees will continue to provide products and services to users as usual. But the loss of high-quality financing channels after the de-listing is extremely bad for The Loss-making Luckin;

Luckin will also face lawsuits from domestic and foreign investors. In an interview with SinaFa, Yu Junbo, director of The Law Firm of Beijing, one of the lawyers representing Luckin coffee rights investors, said that Luckin’s withdrawal did not affect the obligation to compensate investors, but he also pointed out that in the long run, a company forced to withdraw from the market lost its ability to raise capital, the future development prospects are worrying.

A life service e-commerce analyst told Sina Technology, if people are optimistic about Luckin’s development prospects, there is continued investment in capital, there will still be a certain chance of survival. “It’s a business model that’s set up in a way, but who controls the company has a big impact on the future.”

It is worth noting that while Mr Lu still controls the board, it is likely that Luckin will lose control of the board.

According tomedia reports, several banks led by Credit Suisse are suing Summer Fame Limited, which is controlled by the Chanjia family and holds a 15.43 percent stake in Luckin, and Haode Investments Inc., which is controlled by the Lu Zhengyao family and holds a 23.94 percent stake in Luckin, demanding that the two institutions be liquidated to pay their debts.

The case will be decided on July 6th, and once the two institutions’ shares in Luckin are liquidated, Mr Lu will no doubt lose control of Luckin. By then, the new majority shareholder will have the power to restructure the board, and Luckin’s future development will again face uncertainty.

Is there any salvation in the Shenzhou department?

Under the false wind, Lu Zhengyao wants to become a “non-trump”. But the dominoes fell in succession, and Lu Zhengyao’s Shenzhou system was already in jeopardy.

After Luckin’s fake East Window incident, shares plunged after Lu Zhengyao, who is Luckin’s chairman, was also chairman of the Board of Directors of Shenzhou Car Rentals, sparking concerns about the development of car rental in Shenzhou.

In order to achieve cutting, while raising funds, Lu Zhengyao resigned as chairman of the board of directors of Shenzhou Car Rental, and in the capital market again showed his long-sleeve dance. He has for The Shenzhou car rental to find Huaping investment and BAIC Group two intention to take over, the transaction has not yet proceeded, Shenzhou car rental because of the news of the positive share price rebounded;

It is important to note that if the SAIC takeover goes through, Lu Zhengyao will lose control of Shenzhou’s car rental car completely.

Looking at Shenzhou Uber, after the acquisition of Baovo Automobile in early 2019, Shenzhou Uber began to bear a huge financial burden. Its results for the first half of 2019 showed revenue of RMB1,919 million, down 48.98 percent year-on-year, while net profit attributable to shareholders of listed companies was RMB652 million, down 550.28 percent YoY.

Under the outbreak and the Luckin storm, Shenzhou Uber is facing another difficult time.

In June, Shenzhou Youcar announced that the company’s shareholder and chairman Lu Zhengyao’s 270 million shares were judicially frozen by the Beijing No. 1 Intermediate People’s Court, accounting for 10.05 percent of the company’s total share capital. If all of the frozen shares are exercised, there may be changes in the controlling shareholder or actual controller of the Company.

In addition, the company’s shares have been suspended since July 1 due to the failure to disclose the 2019 annual report on time and may run the risk of being forced to close the listing by the new three boards.

Conclusion:

On the day Luckin received the NASDAQ de-listing notice, Lu Zhengyao issued a statement overnight, imploring all sectors of the community to give Luckin tolerance and support. But Mr Lu, who declared at the time that he was “willing to accept any investigation”, did not appear to be in coherent.

At its peak, Lu Zhengyao owned three listed companies, Luckin Coffee, Shenzhou Car Rental and Shenzhou Youcar. Now that Luckin Coffee is about to go out of the market, Shenzhou car rental may lose control, Shenzhou Uber is also at risk of being delisted.

Lu Zhengyao, who wants to do “not to fall”, is witnessing the successive downfalls of the Shenzhou system.