Research On The Performance Commitment And Compensation Of Listed Companies In M&A

In recent years,listed companies are increasingly active in M&As.In practice,more and more listed companies set performance commitment and compensation agreements to reduce the valuation risk and ensure the fair trading rights of both parties.At present,the performance commitment has been fully recognized for its role in stimulating the performance of the target company and improving the synergy effect,however,the deterioration of financial performance after the completion of the performance commitment and compensation arrangement should not be ignored.Through the study of specific failing cases,it will help the academic community to have a deeper and more comprehensive understanding of the increasingly serious performance deterioration problem in practice,summarize the experience and lessons of cultural industry enterprises signing performance commitment compensation agreements in merger and acquisition activities,and put forward corresponding suggestions to better prevent and control related risks.In terms of theoretical research,the study of specific cases can also improve the research methods and theoretical system of performance commitment and compensation in China,and enrich the research cases of setting performance commitment and compensation arrangement in mergers and acquisitions.The performance commitment and compensation studied in this paper refers to the specific provisions of the "Measures for the Administration of the Material Asset Restructurings of Listed Companies" by the China CRSC.That is,if the valuation of the underlying asset is based on the future profitability of the underlying asset,including the income method,then the parties of the transaction must enter into a performance commitment and compensation agreement.Usually the target company and its management team shall make a prediction and commitment to the listed company on the net profit level of the underlying asset within the future commitment period.If the target company fails to reach the promised profit level within the future commitment period,the listed company shall be compensated to some extent.This paper adopts the research method of literature research and case analysis,taking the merger of Xiangtong animation by Sunriver culture(formerly known as WanJia culture)as an example,and studies the specific implementation process and fulfillment of performance commitment and compensation agreement set by listed companies in the process of merger and reorganization.In terms of literature research,this paper reviews and summarizes relevant studies on the setting of performance commitment and compensation arrangements in M&A transactions,introduces the specific concepts,main contents and theoretical basis of performance commitment and compensation,and briefly analyzes the motivation and risks of listed companies to set performance commitment and compensation arrangements in M&As.In terms of case analysis,besides giving a basic introduction of both dealing parties and analyzing the specific motivation,implementation process,specific content,characteristics of the terms of this merger and acquisition,this paper focuses on the risks of setting performance commitment and compensation agreement under the background of this merger and reorganization using charts and financial data.In order to quickly achieve the strategic transformation from a real estate company to a internet and related service company and adapt to the policy direction of China,the listed company Sunriver culture(formerly known as WanJia culture)for the interests of it’s shareholders,decided to instill high-quality assets to improve company’s profitability.Sunriver culture(formerly known as WanJia culture)decided to purchase the 100%equity of Xiangtong animation from its shareholders through a combination of non-public issue of shares and cash payment,and signed a four-year performance commitment and compensation arrangement with acquired company’s three shareholders.Xiangtong animation completed the performance commitments in 2015,but failed to meet the performance commitments in 2016 and 2017,which made the listed company have to take a huge impairment of goodwill.In the course of this merger and reorganization,due to the artificially high" forecast of the profitability of the underlying assets,the performance commitment index setting is unreasonable to some extent.Acquired company doesn’t have enough ability to fulfill the performance commitment,which resulted in the continuous failure to meet the performance commitment.Finally,based on the above analysis,this paper draws the corresponding conclusions and puts forward some constructive suggestions on the application of performance commitment and compensation in China’s culture industry M&As.The research conclusions of this paper are as follows:Firstly,the acquired company is an emerging cultural enterprise with relatively poor sustainability of performance growth and insufficient ability to fulfill commitments.Secondly,companies in traditional industry are faced with high integration risks in cross-industry mergers and acquisitions.There are often some problems in resource integration and personnel incentive,and the synergy effect is not obvious.Finally,the Income Method is often used to evaluate the assets of cultural industry enterprises,which often does not have enough accuracy and objectivity.In order to better its positive role of performance commitment,listed companies should pay attention to the following issues when setting performance commitment and compensation clauses in mergers and acquisitions:(1)improve the asset evaluation methods and standards so that it can be more accurate;(2)choose the target of merger and acquisition carefully and avoid blind merger and acquisition;(3)pay attention to the coordination and integration work after merger and acquisition;(4)improve the information disclosure system and enhance the transparen-cy of mergers and acquisitions.