The part that many people are confused about is the $7 billion in the rights issue.

The way of allotment of Hong Kong shares is different from that of the mainland, it does not need to issue new shares separately, but adopts the method of "exchanging old shares for new ones": that is, as long as old shareholders are willing to participate, listed companies can let old shareholders sell their old shares, and then allocate the same number of new shares to this (or several) old shareholders. In the end, the number of shares held by old shareholders remains unchanged, only the old shares are exchanged for new shares. Then the funds obtained from the old shares it began to sell will not go into its own pocket, but directly into the accounts of listed companies. Of course, old shareholders can buy some new shares in addition. For example, Tencent, a major shareholder of Meituan, did this by buying an additional $400m of Meituan's new shares.

According to data from the Stock Exchange's central clearing system shareholding record inquiry service, Meituan shares held by Goldman Sachs Group or valet increased from 132 million shares last week to 434 million shares this week, and the proportion of shares increased from 2.24% to 7.36%. This means that some investors have transferred more than 300 million shares or 5.12% of their real-name shares to Goldman Sachs Group.

Through tracking and analysis, the media found that the shareholder who sold was Tencent, and unanimously speculated that Tencent was cashing out, causing Meituan's share price to plunge 7.4%.

In fact, it is Tencent, as an old shareholder, who is cooperating with Meituan to do the placement "trade the old for the new".

This and the previous major shareholder of Tencent's South African company Naspers sold part of Tencent's shares to cash out are two different things.

Tencent entrusts his old shares to investment banks, which sell Meituan's old shares to global institutions and private placement through internal channels, and the final pricing depends on the enthusiasm of these institutions and private placement.

A total of 20 places are said to have attracted more than 300 institutional investors to queue up to place orders, so the final placing price was set at HK $273.8 at the top of the range, a 5.3 per cent discount to the closing price of Hong Kong stocks on April 19th.

There are two main reasons why these institutional investors are willing to place orders, one is that they are optimistic about the trend of Meituan's stock price for a long time, and the other is that they do have a little discount space. But these low-priced stocks have a six-month lock-up period, so if not long-term bullish, no institution should be willing to take the risk of a six-month lock-up for 5.3% discount space.

3 billion Convertible bonds are relatively easy to understand, including $1.483 billion zero-coupon convertible bonds maturing in 2027 and $1.5 billion zero-coupon convertible bonds maturing in 2028 that can be converted into Meituan Class B common shares.

The benchmark conversion price of Meituan's two bonds is HK $431.24.

Some readers may ask, how can anyone buy a bond with zero interest? The key here is "convertible", that is, if the bondholder is optimistic about the future trend of Meituan's shares, they can convert their bonds into Meituan shares at the benchmark price of HK $431.24 during the convertible period.

The "convertible period" of domestic convertible bonds is generally 6 months to 6 years after the issuance of bonds, or one year before the maturity of bonds. Take Meituan's convertible bonds maturing in 2027 as an example, bondholders can decide whether to convert their bonds into Meituan stock before 2026. If Meituan's stock price is well over HK $431.24 at that time, there will be a huge arbitrage space for conversion into stocks and holding or selling. If the stock price of Meituan is weak at that time, the holder can choose the principal deposit instead of changing shares. In essence, this is a very low-risk investment with relatively high potential returns, so it has two conditions: one is interest-free, and the other is that the conversion benchmark price is about 50% higher than the current stock price.

Meituan listed in Hong Kong on September 20, 2018, raising only US $4.2 billion.

This time, through a rights issue and bond issuance, the one-time financing reached 10 billion US dollars, which is much higher than the two IPO.

I have to say, Meituan's ability to attract money in the capital market is not what it used to be.

So, what does Meituan need to do with raising so much money in a short period of time?

In the fourth quarter of 2020, Meituan's annual operating cash flow reached 8.5 billion yuan, and his cash, cash equivalents and short-term financial products totaled 61.1 billion yuan, plus this round of financing was about 65 billion yuan. a total of about 126.1 billion yuan will be held in cash, cash equivalents and short-term financial products.

As a reference, JD.com 's cash, cash equivalents and short-term financial products totaled 151.1 billion yuan at the end of 2020; Pinduoduo's cash, cash equivalents and short-term financial products totaled 87 billion yuan at the end of 2020; BABA's cash, cash equivalents and short-term financial products totaled 456.3 billion yuan at the end of 2020.

Obviously, it is impossible to spend so much money on new technologies such as unmanned car distribution.

In 2020, the operating profit of Meituan takeout was 2.8 billion, and that of wine travel to the hotel was 8.2 billion. Without the impact of the epidemic, Meituan takeout would already be a business with an annual profit of about 3.5 billion yuan, and it is still rising rapidly. Wine travel to the hotel is already a mature business with an annual profit of about 10 billion yuan.

In addition to the community group-buying business, the new business loses about 7.5 billion yuan a year.

Meituan makes a profit of about 15 billion yuan a year from takeout and inbound wine travel. In fact, there is no problem with investing in new business and innovative technology.

The reason why Meituan raised so much money, the obvious gap is the money-burning war of community group buying.

Let's take a look at the loss of the new business in the fourth quarter of 2020, with a total loss of 6 billion, of which about 3 billion came from community group buying, and the other 3 billion came from new businesses such as bicycles, fast donkeys and Meituan buying vegetables. Bicycles can't lose so much money under normal circumstances because they accelerate the depreciation cost of replacing old cars. New business lost a total of 4.8 billion in the first three quarters of 2020, an average loss of about 1.6 billion in a quarter.

We can assume that new businesses such as bicycles, fast donkeys and Meituan still maintain an average quarterly loss of 1.5 billion yuan, while the average quarterly loss of the community group buying business expands to 4 billion. Then Meituan's annual operating loss in 2021 may reach 100 million 50-220 million-7 billion yuan.

Where does the loss of community group buying mainly come from? This model uses a platform model, not self-buying and selling, so its gross profit margin is actually good. The investment is mainly in warehousing construction, cold chain construction, transport and distribution team construction, operation team construction, advertising, head commission. On the whole, this is a business that focuses on assets and operations. with the completion of infrastructure construction and orders reaching a certain order of magnitude, revenue will become more and more abundant (from pure commission to commission + advertising). The gross profit is getting higher and higher (the commission rate of the head will decline slowly), but the expenditure may decline on the contrary, when the two sides reach an intersection and the tipping point appears, the profit and loss will naturally break even.

The fourth quarter of 2020 is a period of rapid expansion, with urban coverage expanding from more than 100 to more than 2000 (including counties). It also sponsored the second season of my sister, who braved the wind and waves, and the loss of 3 billion was not much. Even if Meituan is calculated on the basis of an average loss of 4 billion per quarter, the overall loss of the company in the next three years is only about 20 billion. In fact, with the increase in the number of community group orders, the loss will gradually shrink. The profits of takeout and inbound wine travel business will still rise steadily, so overall, Meituan may not really consume the operating cash flow.

Before that, Meituan's account used to have 61.1 billion yuan in cash, cash equivalents and short-term wealth management products.

However, Meituan still needs to replenish his ammunition.

The first is that it is possible that competition is likely to worsen to a level far beyond current reasonable estimates. So it needs to be a precaution.

The second is because the roof needs to be repaired in sunny days in case it rains for a rainy day. It is easy to borrow money when you are not short of money, but it is difficult to borrow money when you are really short of money, and the cost is very high.

The third is because acquisitions are likely to be needed in the process of supply chain construction.

We know that in the supply chain, implementation and user acquisition of community group buying, Meituan's weakest is the upstream supply chain capacity. The strongest is the ability to perform, because it has been exercised in the 30-minute distribution, and the 24-hour distribution should be familiar with it. Although Meituan has been doing food shopping and fast donkey business for several years, both of which involve upstream supply chain management, this is still very different from the supply chain management of the national and integrated platform of community group buying. Meituan's shopping covers only a few first-tier cities and suppliers of goods other than fresh food. Meituan was almost blank before.

Meituan opened the physical e-commerce business of group good goods while opening Meituan's preferred business, which shows that its train of thought is relatively clear. It aims at the end from the beginning, just like a chess player, taking one step and looking at three steps. Relatively speaking, DiDi Global Inc. did not start the physical e-commerce project until recently, while Orange Heart Optimization has been in operation for more than half a year.

To do community group purchase, you must do traditional physical e-commerce at the same time, because it is difficult to sell non-standard goods through the community group purchase mode, at least in a short period of time, and if a platform has only the standard products of community group purchase, if there is no other non-standard goods supply, then the reuse value of users pulled by it is significantly lower than that of other platforms.

Specific to Meituan, if a new user is obtained through community group buying, the probability of its cross-use to store wine travel or takeout business in Meituan is actually lower than that of buying non-standard physical goods. because more sinking users are already less likely to use takeout and to-store wine travel business, and the span is smaller from community group buying to non-standard physical goods.

Meituan opened the group good goods for three quarters, with more and more new users brought by community group buying, the demand for this kind of non-standard physical goods consumption is becoming more and more exuberant, and the supply pressure of the platform is getting higher and higher. the natural growth of group good goods obviously can not meet this demand, if the long-term can not well meet the needs of users, these users may be lost. Or simply regard Meituan as a pure community group buying platform, which is absolutely a result that Meituan cannot bear.

Therefore, buying a small integrated e-commerce platform can not only quickly improve the supply chain, but also obtain a mature e-commerce operation and management team, which may be the best choice that has to be made.

Dangdang, Gome, SUNING, Vipshop Holdings Limited?

Taken together, Vipshop Holdings Limited may be the best target, because it is deeply rooted in these non-standard strongholds in the field of clothing, shoes and hats, and has a history and experience of in-depth supply chain management, which is most in line with Meituan's needs. But it already has a deep overlap with JD.com; when it is weaker, the proportion of Gome's electrical appliances is too high, SUNING also has this problem, but at least the comprehensive category is a little more mature.

If you look at Meituan's needs, Vipshop Holdings Limited is the best choice, followed by SUNING, Gome again, and Dangdang for the first time.

The good news is that at this stage, the value of these companies is not at an all-time high, and there is unlikely to be a good liquidity reversal in the short term. The bad news is that they all have potential buyers more or less. Gome has equity cooperation relations with JD.com and Pinduoduo. Vipshop Holdings Limited and JD.com are deeply bound, and SUNING and BABA have a lot of intersection. Although there are signs of drifting away, it seems that they may be thrown into the embrace of bytes, while Dangdang does not have too strong strategic value.

Meituan's merger and acquisition is not particularly obvious, it is mainly concentrated in the field of local life, such as Xi Tea, Honey Snow Ice City, and so on, there are Meituan investments behind it, but in history, the merger between it and Dianping can be called a success, and the acquisition of mobike can also be regarded as a good thing. At that time, everyone thought that 2.7 billion US dollars was a catcher. Today, it seems that its synergy value may be far more than 2.7 billion US dollars.

In the face of the once-in-a-decade opportunity of community e-commerce, Meituan may really need a little gambling and pressure on the big one if he wants to seize the opportunity.