Bitmain Co-Founder Offers Share Buyback at $4B Valuation to End Power Struggle

Zhan Ketuan, the formerly-ousted Bitmain co-founder who returned to power earlier this month, is proposing a solution to end the firm’s internal war.

In a letter Sunday, Zhan, who as Bitmain’s biggest shareholder owns 36% of its stock, offered to buy back shares possessed by his rival co-founder Wu Jihan, several founding members and some of Bitmain employees, at a company valuation of $4 billion.

Wu alone controls about 20% of Bitmain and three other founding members own about 15% in total. Bitmain’s employee stock option pool has another 19% and the remaining 10% belongs to external investors.

But Zhan’s $4 billion valuation of the firm is significantly down from a market high seen in the summer 2018. Bitmain had been valued at around $1 billion in September 2017 during its Series A round. When it went on a high profile fundraise in August 2018, it was valued at $12 billion and eventually $14.5 billion in a pre-IPO round.

The offer comes in an effort to bring about negotiations that could end the divisions that have been tearing the company apart since Zhan clawed his way back into the firm after being ousted by Wu last October.

Chip threat

In addition to causing division among employees, the power struggle is now endangering the firm’s miner manufacturing processes.

Zhan’s letter had been in response to a Sunday statement on Beijing Bitmain’s official website, which is controlled by Wu, saying that its Hong Kong parent entity had cut off the chip processor supply chain to its Shenzhen factory.

“Bitmain Hong Kong has suspended the chip supply for the time being to Century Cloud Core, which is now controlled by Zhan’s relatives, until we are assured, through negotiation with Zhan’s relatives, that they are committed to protecting the interest of Bitmain’s customers and of the company as a whole,” the statement reads.

Bitmain Technologies Limited in Hong Kong is Bitmain’s offshore sales and procurement center for crypto mining hardware. The bitcoin miner’s manufacturing business relies on computing chips supplied by semiconductor companies.

Since Zhan’s forceful return to the firm, he had seized control of Century Cloud Core, Bitmain’s packaging factory and warehouse in Shenzhen, and paused shipments to customers. According to a former employee at Beijing Bitmain who is familiar with the matter, Zhan’s brother-in-law, Zhou Feng, has been placed in charge of the Shenzhen entity.

In his letter, Zhan responded that, if necessary, he would procure chips directly via Beijing Bitmain, even if that would cause a great deal of loss for the company as a whole.

He further accused Wu of, among other things, forging a resolution passed by a claimed “shareholder meeting” last November at the Bitmain’s Cayman Islands-based holding entity. In fact, the meeting was never held because “several other shareholders including Zhan Ketuan as the biggest stakeholder never received a notice of such meeting ever,” Zhan claimed.

Beijing Bitmain Technology Ltd. is a fully owned subsidiary of Hong Kong-based Bitmain Technologies Ltd. That, in turn, is fully owned by the ultimate controlling entity, BitMain Technologies Holding, which incorporated in the Caymans but also registered in Hong Kong.

When ousting Zhan in October last year, Wu filed to the Hong Kong government to have Zhan’s name removed as a board director at the Cayman holding company.

The two sides now have an ongoing legal case in the Cayman Islands with regards to disputes over Zhan’s 60% voting power at Bitmain.