A Study On Management Buy-outs Based On Shengli Co., Ltd

In 1990s, Management Buy-outs (MBO) appeared and developed rapidly in China. As one of the approaches for state-owned enterprise reform, MBO is concerned by both practical use and theoretical study. MBO involves large funds, so financing is the key point of MBO. One of the purposes for MBO is to attain the expected gains, and the improvement of financial performance is the direct expression. This paper focuses on the financing of MBO and the improvement of financial performance after MBO.Firstly, this paper introduces the fundamental definition, the basic theories, and the development and application of MBO. Secondly, this paper presents a case study on the MBO of Shengli, which focuses on the financing and the performance after MBO. Because the financing channels and the tools of MBO are rather limited in China, like most of the other MBO cases, the source of the fund for Shengli is unclear. Through analysis of accounting numbers and financial indicators of Shengli, the author finds that the performance of Shengli doesn't improve significantly as expected. It is greatly related with the imperfection of the external environment for MBO market. Finally, based on the study of Shengli, this paper makes several suggestions on the application of MBO in China. In order to promote the healthy development of MBO, the related laws and regulations should be perfected and the market environments should be improved.The main contributions of this paper are as follows. (1) Through case study, the author finds that the difficulties of financing restrict the application of MBO in China. The proposed solution is to reform the existing financial regulation, provide preferential policies for financing under certain condition and provide more financing channels. (2) This paper reveals that the main reason of the low performance is the non-market way of purchase price determination. The price is lower than the true value of the shares, so the management may profit by just selling the share rather than through improve the performance of the company to attaint their own gains. In order to solve such problems, the purchase price must be determined in the market way to improve the cost of MBO for management. The benefits of the management are greatly related with the value of company, then the management will make their effort to improve the performance of the company. Besides, we should perfect the Manager Market. The information about the managers transmits through it, which can make incentive or restraint on manager. Under such circumstance, the managers will be impelled to improve the performance of the company.