Research On The Enterprise Value Impact Of Huapont-nutrichem’s Spin-offs

Spin-off refers to the act of the parent company to divest the subsidiary from its own operations and distribute the shares of the subsidiary owned by it to the existing parent company shareholders in proportion.On December 13,2019,the China Securities Regulatory Commission officially issued the "Regulations on the Pilot Program of Listed Companies Spinning Off Subsidiaries to Domestic Markets",which represents the breaking of the ice in China’s regulations related to spin-offs.Since then,the number of companies that choose to spin off has begun to increase.However,compared with the more mature Western spin-off models and the richer cases of spin-off of the companies,the development process of spin-off in China is relatively short,and it is still in the exploratory stage.Spin-off can enrich the means of corporate reform and strategic development.With the gradual relaxation of our country’s supervision on spin-off in recent years,more companies will choose to use this method to expand financing channels and clarify core businesses in the future.Then,why the company chooses to spin off and go public,and to what extent the spin-off can bring about the improvement of the company’s enterprise value has become a question worth thinking about.Based on the motives of spin-off and listing and the relevant theories of its impact on corporate value,this paper takes Huapont-nutrichem Co.,Ltd.’s spin-off subsidiaries of Shandong Kaisheng New Materials Co.,Ltd and Yingtai Nutrichem Co.,Ltd as examples to explore why listed companies choose spin-off.This paper discusses how the spin-off affects the long-term and short-term market value of the company,and observes whether the increase in corporate value obtained after the spin-off meets the original motivation and goal of the spin-off and listing.This paper first introduces and sorts out the reasons and implementation process of Huapont-nutrichem’s two spin-offs.It is found that the main reasons for its spin-off listing are that it needs to return to its main business,adjust its revenue structure,and hope to alleviate its liabilities by broadening financing channels.In the case of high rate and high risk of goodwill impairment,it hopes to take this opportunity to regain the attention of investors.Secondly,this paper analyzes the impact of spin-off on the company from the perspectives of governance,operation and financing.In terms of governance effect,before the spin-off,Huapont-nutrichem has lowered the shareholding ratio of the two subsidiaries several times,which not only meets the requirements for spin-off,but also alleviates the excessive concentration of equity in the previous parent company.The risk of improper control increases the possibility of obtaining a better level of returns.In terms of operating effects,combined with the profit margin,ROA and ROE,Kaisheng New Materials and Yingtai Nutrichem can both strengthen their own management after the spin-off,and their operating performance is relatively good;Huapont-nutrichem’s performance is not satisfactory,mainly because it still has many acquired subsidiaries in other industries,and the operating conditions of these companies will still bring a lot of drag on the company’s management..In terms of financing channels and scale,after the spin-off,the subsidiary increases the financing scale through the increase of financing channels,and the parent company increases the financing scale due to the expansion of financing entities,which is of great help to the parent and subsidiary companies.Next,in order to analyze the impact of the spin-off on the company’s market value,this paper uses the event study method to analyze the excess returns and cumulative excess returns obtained by Huapont-nutrichem after the two spin-offs.This paper judges the impact of spin-off on the company’s short-term value,and uses Tobin’s Q ratio to evaluate the long-term value impact of Huapont-nutrichem’s spin-off of two subsidiaries.In the short term,it was found that the capital market’s response to Huapont-nutrichem’s spin-off of Kaisheng New Materials was generally moderate,while it gave a relatively good response to its spin-off of Yingtai Nutrichem.In the long run,Huapont-nutrichem’s Tobin’s Q value is always greater than 1.It can be considered that the spin-off will be beneficial to the long-term value of the company.Investors are more optimistic about the development prospects of Huapont-nutrichem.Overall,the short-term and long-term positive value effects of these two spin-offs and listings on Huapont-nutrichem are obvious.Finally,this paper summarizes the motivation,method and effect of the case of Huapont-nutrichem’s spin-off of two subsidiaries,and provides some references for other companies planning to spin off and go public.This paper believes that when an enterprise holding more subsidiaries with a large business span needs to clarify its main business,adjust its revenue structure,reduce management pressure,improve management efficiency,and help its subsidiaries to expand financing channels,they can consider using this method.To meet the policy requirements,the companies can adjust their operation structure,improve the quality of assets to meet the requirements of the "Spin-off Regulations",and choose to carry out the spin-off and listing of subsidiaries on the Growth Enterprise Market,the Beijing Stock Exchange and other platforms according to the company’s characteristics and specific needs.After the spin-off and going public,the company is expected to achieve breakthroughs in management structure,management efficiency,and long-term and short-term value of financing channel enterprises.