"Wharf has been poorly run — the current share price already shows that. The reason I want to acquire it is because I believe I can lead Wharf out of its difficulties, improve its performance, and raise its market value. But for now, its value is about HK$1.1 billion."
After saying this, Lin changed tack: "As for your Cangjiang Industries, Mr. Li, I believe that under your leadership it will one day surpass Wharf. Right now its share price is definitely undervalued."
Li Jiacheng responded, "Cangjiang and Wharf are not remotely comparable — they're far apart. You can see that just from the scale."
"Mr. Li, you're chairman and the controlling shareholder of Cangjiang. Don't you have confidence that you can grow the company to exceed Wharf?" Lin said, with a hint of provocation.
"Of course I'm confident, but that will take quite a bit of time," Li answered. He couldn't admit any lack of confidence — if that got out it would cause huge negative repercussions for him and the company.
"I believe with your ability, Mr. Li, you could very quickly make Cangjiang a company that far outstrips Wharf," Lin flattered him, then added, "Since we're meeting today, I'd like to propose swapping Cangjiang shares for the Wharf shares you hold. What do you think?"
Li didn't immediately say whether he would agree; instead he asked, "At what share prices do you propose to make the swap for each company?"
"I think swapping at the current market prices of the two companies is most appropriate — share prices best reflect a company's market value," Lin replied right away, which of course suited him best.
Li shook his head. "It seems you have no sincerity. Wharf's current price is clearly undervalued."
"Mr. Li, Cangjiang's share price is undervalued too," Lin countered, then added, "If both are undervalued, then let's simply swap at today's prices."
"That's absolutely impossible. When I bought Wharf I paid a much higher price. If I swapped with you now I'd be taking a huge loss."
"If Wharf were a bad company that might be another matter, but Wharf is merely undervalued. I believe its price will rebound, so I won't sell at a loss," Li insisted — that was his honest position; he would not accept selling Wharf at a loss.
"Then what was your average purchase price?" Lin asked. He knew getting Li to accept a loss was nearly impossible.
"HK$25. I thought I'd wait and watch — I acted a bit late," Li said regretfully, which put his cost basis about HK$4 above the current price. "I've held since buying. Even if the price fell to today's level I didn't sell because I believe it will recover and make me a profit. I won't sell at a loss based on HK$25."
"Trying to extort me, are you?!" Lin raised an eyebrow but didn't get angry — after all, Lin had been secretly buying Cangjiang shares to pressure Li, so it was only fair Li might now press him back.
"Mr. Li, you must be joking. I can't accept that price," Lin said, shaking his head. "I now hold over 10% of Cangjiang — I'm already a major shareholder. I will continue to buy and increase my stake. I'm very willing to support you and be your friend. I only wonder whether you'd be willing to be my friend."
"What do you mean by that?" Li frowned. "So if I don't sell Wharf to you, it means I don't want to be your friend? Would that make us enemies?"
"Don't misunderstand. Of course whether to sell is your decision," Lin said. He couldn't state his real intention bluntly — doing so would ruin his image.
"Still, I really want to acquire Wharf. Hong Kong is still dominated by British capital, but times have changed — Chinese capital is rising. Major Hong Kong companies shouldn't all be controlled by British interests. As a member of Chinese business, I want to fire the first shot — I hope you'll support me."
"You're right; it really isn't what it was decades ago," Li agreed with a nod, then fell silent. Lin's appeal to a shared cause made it awkward for Li to refuse outright, but Li was still a practical businessman: he wouldn't sell simply for rhetoric.
*What if Li refuses to sell and holds tight?* Lin thought. With Li holding over 40% there was no straightforward way to threaten Cangjiang's control. Lin and his team — Cheng Yufeng, Mouri Haruko and Isabella — had contingency plans, but Lin didn't want to use them unless absolutely necessary; doing so would badly damage his reputation.
"Mr. Li," Li finally said, "I want to help you, but the price you've offered is far too low. Selling Wharf now at around HK$12 would make me lose over 50% compared to my cost. That's too much."
After a pause Li reiterated his refusal and explained his difficulty. Once Li put it that way, Lin had little ground to stand on — asking him to sell at such a loss would be shameless.
"All right, then I'll find another way," Lin said. "But please keep my intention to acquire Wharf confidential."
"Don't worry — this won't come from me," Li promised. Whether it actually stayed secret would depend on him.
"Thank you, Mr. Li," Lin replied.
Though they didn't reach an agreement, Lin was not overly disappointed — he'd prepared mentally for this outcome. He absolutely would not give up easily.
Li, likewise, did not expect Lin to back down. He decided to go back, think the matter over, and investigate how much real capital Lin actually had — where did Lin get the confidence to try to buy Wharf?