The Motivation Of Tunneling In Cash Acquisition

In recent years,the CSRC has tightened its supervision over the mergers and acquisitions of listed companies.In September 2016,it reset the “Management Measures for Major Asset Restructuring of Listed Companies”,which is called “the most stringent new rules in history” and set up a series of conditions about asset restricting,such as the proportion of the equity transfer,the proportion of the restricting assets.After the release of this new regulation,the number of cash acquisitions in 2017 increased by 89.29% compared with 2016.For example,Deao Airlines acquired Zhenai.com,San Aifu acquired Aowei,and Vignas acquired Yi Nian Hong Kong.Acquisitions.Although many media are concerned about this phenomenon,few people have dug the logic behind this.This article focuses on the increase in cash acquisitions after the promulgation of the new regulations,and explores the logic behind it.This paper finds that the increase in cash acquisitions is the choice under the new rules of asset restructuring to making the acquisition of stocks more difficult.For example,Jinma Shares had to change the original acquisition plan of Yongkang Zhongtai Automobile because it triggered a number of indicators of the new regulations.At this point,investors who want to complete the acquisition quickly will tend to choose cash acquisitions.Because the acquisition of major assets that do not constitute a backdoor does not need to be submitted to the SFC for review and only needs to be reported to the exchange,this has greatly reduced the number of approval procedures for the acquisition of listed companies.However,it is worth noting that many major shareholders who intend to obtain excess benefits from the acquisition also aim at this point,and may use regulatory loopholes to transport benefits and ultimately lead to the loss of the interests of listed companies.This article will delve into the motivations of major shareholders in the cash acquisition.The case of the second acquisition of Jinghang'an by the Smart Energy selected in this paper is exactly under the background of supervision which is stricter and stricter in 2016,and it has certain particularity and representativeness.For the first time,Smart Energy and the major shareholder Far East Holding Group jointly acquired Jinghang'an in cash.Smart Energy purchased 51% stake in Jinghang'an for about 730 million yuan,and the major shareholder bought 49% stake in Jinghang'an for about 700 million yuan.The second time Smart Energy intends to acquire the remaining 49% stake of Jinghang'an from the major shareholder,the price is about 911 million.As a result,the major shareholder will be able to benefit more than 200 million from these two acquisitions.Whether or not there is a motive for the transmission of the interests of major shareholder is worth considering.What is more worthy of discussion is that in the day when the regulation of mergers and acquisitions is becoming more and more perfect,by what kind of acquisition method does the major shareholder evade supervision to implement the plan of benefiting more than 200 million? What are the motives and means during the process? How does the motivation of the major shareholder ultimately affect the choice of acquisition method? This article analyzes the case of smart energy's second acquisition of Jinghang'an on these issues.The chapters in this article are organized as follows:The first chapter is the introduction,introducing the research background,research significance and methods of this paper and so on.The second chapter is a literature review.It sorts out relevant literatures on acquisition methods and interest transfer at home and abroad.It finds that the choice of acquisition method is related to control and financial status,while the interest transfer occurs mostly in equity concentration and in the weak external supervision.The third chapter is the theoretical analysis and the institutional constraints analysis.It analyzes the supervision system of mergers and acquisitions,summarizes the theory of acquisition methods and interest transfer,and constructs a theoretical analysis framework.It finds that when equity is highly concentrated and when the external supervision for cash acquisition is loose,the major shareholder has the motivation to use the absolute control and information advantage to avoid the supervision and transfer of interests through cash acquisition.The fourth chapter is the case analysis part of this paper.After expounding the two acquisitions of Smart Energy in detail,this paper focuses on the analysis of whether the major shareholder has the motivation of interest transmission in the second acquisition.Firstly,this paper analyzes its motivation to choose cash acquisition,and finds that its financial status and control status are not suitable for cash acquisition.The cash acquisition is chosen in the motivation to evade supervision.Then,this paper analyzes whether there are any reasons that make major shareholder have the motivation to transfer interest.This paper finds that Smart Energy is a listed company with a high concentration of equity and corporate governance is weak,while the major shareholder is currently in a state of financial shortage.At this time,the major shareholder may use the absolute control in the company to transfer interest in order to obtain cash in the case of weak governance.Finally,this paper analyzes whether the second-time acquisition shows the large shareholders' motivation to transfer interests,which is the possibility of motivation to transfer interests.This paper finds that the two premium rates of Jinghang'an are much higher than the same industry level,and the valuation of the second acquisition is 28% based on the first high premium.At the same time,Smart Energy has not achieved significant synergy since the first acquisition of Jinghang'an,and the second acquisition of Jinghang'an's market performance is not good.Therefore,Smart Energy is likely to overestimate the purchase price of Jinghang'an.In other words,the added value of Jinghang'an which is more than 200 million in the second acquisition is unreasonable.The fifth chapter is the conclusions and suggestions: combining the situation that Smart Energy overestimated the assessment value of Jinghang'an,the motivation of Smart Energy to avoid the supervision by using cash acquisition,and the fact that there are reasons for the major shareholder to generate the motivation of transferring interests,the case study conclusions is as follow : In the second acquisition of Jinghang'an by Smart Energy,the major shareholder is currently in a state of financial shortage.In order to quickly cash out the funds,the major shareholder intends to obtain 200 million from the second acquisition by raising the target asset's purchase price.And in order to achieve this intention,the major shareholder intentionally used the cash acquisition without submitting to the SFC for review to evade supervision.This is consistent with the conclusions in the theoretical analysis in the third chapter: When external supervision has less constraints on cash acquisitions,among listed companies with concentrated equity,major shareholders are likely to use their own absolute control and information advantages to transfer interests through cash acquisition which can help shareholder evade supervision.The research in this paper confirms that there is a phenomenon in which the major shareholders intend to use cash acquisition to avoid the supervision and transfer interests behind the cash acquisition boom.Therefore,this paper puts forward suggestions,such as improving the market supervision system,improving the company's shareholding structure and governance mechanism.The main contribution of this paper is to study the motive of transferring interest from the perspective of cash acquisition,to provide some reference value for the further supervision of mergers and acquisitions.The shortcoming of this paper is that because Jinghang'an is a non-listed company and there is less relevant information,which may make this article still have some inadequacy in the process of analyzing the motives of the interests of major shareholders.