China Mergers and Acquisitions Full Analysis (Volume 1 and 2)

Author: Shanghai Sanlian Bookstore
Publisher:
Publishing Time: 2005-04-01
Features: This magnificent work is the result of Dr. Zhang Xin's extensive research and accumulation over more than four years, based on his personal work experience in the legislative, regulatory, and market innovation lines of mergers and acquisitions (M&A) restructuring both domestically and internationally. It constructs a comprehensive theoretical framework for China's M&A restructuring that integrates economics, law, finance, and management. It collects and authoritatively interprets all relevant regulations in China's M&A restructuring, originally elaborates on methods such as enterprise value assessment, asset valuation, payment methods, financing arrangements, accounting treatment, and tax arrangements in M&A restructuring, and provides an in-depth analysis of new market innovations and their practical operational processes in listed company takeovers, asset restructuring, absorption mergers, share buybacks, spin-offs, divestitures, reorganizations, bankruptcies, delisting, privatization, soliciting proxy votes, anti-takeovers, and insider trading.
Editor's Note: Dr. Zhang Xin, Deputy Director of the Listing Department of the China Securities Regulatory Commission (CSRC), combines his experience in leading the legislative, regulatory, and market innovation efforts in China's listed company M&A restructuring to comprehensively elaborate on the practice of M&A restructuring in China from the perspectives of economics, law, and financial accounting. He aims to establish a theoretical framework with Chinese characteristics for M&A restructuring, providing comprehensive theoretical guidance and operational guidelines for conducting M&A restructuring business. This book demonstrates a rigorous academic attitude, integrates theory with practice, blends international cutting-edge experience with China's local practices, and is rich in content, making it a authoritative work in the field of M&A restructuring. It holds positive significance for promoting the standardization and development of the M&A restructuring market.
—Shang Fulin (Chairman of the China Securities Regulatory Commission)
This book, which sits on my desk, is one of the most substantial works on corporate M&A restructuring that I have encountered. It is not only substantial in terms of its two volumes but also academically and practically. It is a classic work that perfectly combines economics and law to help solve real-world problems. On the occasion of its publication, I strongly recommend it to scholars and industry readers.
—Jiang Ping (Professor at China University of Political Science and Law)
With the advent of a revolution in capital markets driven by the market-oriented transformation of state-owned assets and the reform of state-owned enterprise management systems, the publication of Dr. Zhang Xin's work is timely.
—Gao Xiqing (Deputy Director of the China Social Security Fund Council)
This book is the result of Dr. Zhang Xin's accumulation of experience in legislative, regulatory, and market innovation work in M&A restructuring at the CSRC. Dr. Zhang Xin possesses profound theoretical expertise and is one of the main drafters of the "Management Measures for the Takeover of Listed Companies" and other M&A restructuring regulations. He is also one of the key designers of recent market innovation schemes such as tender offers, targeted capital increases, and the absorption merger of TCL Group and TCL Communication. It is believed that the publication of this book will have a positive impact on market development and become a fundamental reference book for the M&A restructuring market.
—Shi Meilun (Deputy Chairman of the China Securities Regulatory Commission)
In recent years, China's M&A restructuring and capital operations have been evolving rapidly, and the market urgently needs a guiding toolbook. "Comprehensive Analysis of M&A Restructuring in China: Theory, Practice, and Operations" is exactly such a toolbook. It was created over four years by Dr. Zhang Xin, Deputy Director of the Listing Supervision Department of the CSRC. The former Chairman of the CSRC, Liu Hongru, inscribed the title for this book, while the Chairman of the CSRC, Shang Fulin, and Deputy Chairman Shi Meilun, as well as Dr. Gao Xiqing, Deputy Director of the China Social Security Fund Council, and the legal authority Professor Jiang Ping, took the time to write prefaces for it. The book is divided into four parts: Theory, Practice, Operations, and Reference. The Theory section constructs a theoretical framework for China's M&A restructuring that integrates economics, law, finance, and management; the Practice section originally elaborates on enterprise value assessment, asset valuation, payment methods, financing arrangements, accounting treatment, and tax issues in M&A; the Operations section provides an in-depth analysis of the practical operational processes of listed company takeovers, asset restructuring, absorption mergers, share buybacks, spin-offs, divestitures, reorganizations, bankruptcies, delisting, privatization, soliciting proxy votes, anti-takeovers, and insider trading; and the Reference section collects and authoritatively interprets key regulations.
Excerpt:
Chapter 10: Operational Processes and Regulatory Value Orientation of Listed Company Takeovers
Core Ideas:
1. The implementation of the "Management Measures for the Takeover of Listed Companies" and its "Management Measures for the Information Disclosure of Changes in Shareholding of Listed Company Shareholders" marks the basic formation of an M&A restructuring legal framework based on full information disclosure and aimed at promoting listed company M&A restructuring and protecting investor rights.
2. Empirical research on the performance of M&A restructuring using event study and accounting research methods has shown that M&A restructuring creates value.
3. As China is in the transition phase of an emerging market economy under globalization, investors discovering undervalued companies through takeovers and many promising enterprises adjusting their main business through M&A restructuring will enhance the quality of listed companies and improve the industrial structure. China's economy and its listed companies need M&A restructuring to complete the transition to a market economy, gradually mature, and integrate into the global economy. This is the environment and practical issues that the takeover legislation faces and seeks to resolve.
4. The value orientation of the "Takeover Measures," i.e., the legislative principles, is to actively encourage and ensure procedural fairness. These two principles are mutually supportive and contribute to the transformation and sustainable development of listed companies. Through an in-depth study of the "Takeover Measures" and the "Information Disclosure Measures," the process of takeovers and information disclosure becomes clear.
5. The framework and process of the "Takeover Measures" reflect the following major issues: institutional innovation to encourage takeover activities, clear procedures to reduce takeover costs; focusing regulatory efforts on "actual control"; attaching great importance to the formulation of agreement takeover rules; emphasizing fiduciary duties; full tender offers and reducing takeover costs; determining the offer price; emphasizing the role of independent directors in M&A restructuring and corporate governance; strengthening the role and responsibilities of intermediaries in listed company takeovers.
Questions Addressed:
1. What is the value orientation of the "Management Measures for the Takeover of Listed Companies"?
2. According to the "Management Measures for the Takeover of Listed Companies," what are the basic operational processes for agreement takeovers and tender offers of listed companies?
3. While stipulating the system of full tender offers, what measures does the "Management Measures for the Takeover of Listed Companies" take to reduce takeover costs?
4. According to the "Management Measures for the Takeover of Listed Companies," what fiduciary duties should the parties involved in takeovers fulfill?
5. According to the "Management Measures for the Takeover of Listed Companies," what behaviors are defined as control of a listed company? What are "associated persons"?
6. What obligations do the independent directors of the target company have in listed company M&A? Why is the role of independent directors in M&A restructuring and corporate governance emphasized?
7. What are the main information disclosure documents and submission documents in listed company takeovers? According to relevant regulations, how should they be prepared?
I. Introduction
As an emerging market in the transition phase under globalization, China's economy needs M&A restructuring to complete the transition to a market economy, promote the structural adjustment of industries from emerging to mature, and integrate into the global economy. The newly implemented "Management Measures for the Takeover of Listed Companies" and its "Management Measures for the Information Disclosure of Changes in Shareholding of Listed Company Shareholders" are tailored to this broader context, adhering to the principles of active encouragement and procedural fairness, and are distinctly Chinese in character. This chapter provides an in-depth interpretation of the legislative background and value orientation of the new takeover rules, as well as an analysis of the new takeover process and its key considerations.
The "Management Measures for the Takeover of Listed Companies" (hereinafter referred to as the "Takeover Measures") and the "Management Measures for the Information Disclosure of Changes in Shareholding of Listed Company Shareholders" (hereinafter referred to as the "Information Disclosure Measures") officially came into effect on December 1, 2002. The two "Measures" provide detailed regulations on the procedures and information disclosure matters related to listed company takeovers. The implementation of these two "Measures" marks the basic formation of a takeover legal framework based on full information disclosure and aimed at promoting listed company takeovers and protecting investor rights. Coupled with breakthroughs and innovations in specific provisions, the two "Measures" are driving a revolution in M&A in practice, with far-reaching impacts on improving the quality of listed companies, fully leveraging the resource allocation function of the securities market, and even on strategic adjustments of the national economy.
The legislation on listed company takeovers is an interdisciplinary field combining economics and law, and it involves many complex and controversial issues. The "Takeover Measures" and the "Information Disclosure Measures" were formulated after summarizing China's experience in listed company M&A restructuring over the past decade, widely absorbing suggestions from domestic and international institutions, experts, and market participants, and after years of careful design and diligent work. The "Takeover Measures" draw on useful experiences from M&A restructuring legislation in other countries while maintaining distinct Chinese characteristics. Given that the "Takeover Measures" have now entered the operational phase, this chapter discusses the author's views on the value orientation and operational processes of the "Takeover Measures" to help readers better utilize them.
II. Value Orientation of the "Takeover Measures" Legislation
Prior to the promulgation of the "Takeover Measures" on September 28, 2002, China's M&A restructuring market had already achieved significant growth in quantity. Statistics show that from 1993 to mid-2002, over 5,300 listings of shares in listed companies occurred, involving 800 listed companies and a total value of over 27 billion yuan, with nearly 300 changes in major shareholders (times). Thirteen listed companies had also conducted pilot programs for absorption mergers with over-the-counter trading companies. The asset restructuring market following equity takeovers was also very active. Only from January 2001 to the end of September 2002, about 160 listed companies underwent major asset restructuring, involving nearly 60 billion yuan, with almost daily non-major asset restructuring.
Before the promulgation of the "Takeover Measures," China's M&A restructuring market faced many challenges in quality and depth. In addition to restrictions on state-owned asset management policies and limitations on the qualifications of acquisition entities, the main bottleneck was the lack of a comprehensive regulatory system for listed company takeovers. Without a set of operational rules for takeover activities, the uncertainty of such actions increased, leading to chaos in the M&A market. A relatively complete regulatory system for listed company M&A restructuring consists of multiple regulations, including takeovers, mergers, restructuring, and their supporting measures. However, before September 28, only the "Notice on Several Issues Concerning Major Asset Purchases, Sales, and Exchanges of Listed Companies" (commonly referred to as the "No. 105 Notice") had been issued and implemented to regulate major restructuring.
So, how should the "Takeover Measures" be formulated? The first step is to clarify the value orientation of the legislation. To establish this, it is necessary to study the national economic environment and the status of listed companies facing the legislation, thereby clarifying the legislative background and the issues the "Takeover Measures" aim to solve.
(A) Issues to be Addressed by the "Takeover Measures"
China's economy is an emerging market in the transition phase under globalization, and listed companies, as representatives of advanced productivity, must lead the transition. This historical context gives M&A restructuring enormous significance and value in China. These insights provide profound guidance for formulating the "Takeover Measures." Specifically, "transition" refers to China's ongoing shift from a planned economy to a market economy; "emerging market" refers to China's gap in industrial maturity, economic development, legal systems, and citizen education compared to mature markets, yet it possesses the high-speed economic growth prospects that mature countries lack. At the same time, with China's entry into the WTO and increasing integration into the global economy, structural adjustments in the global economy and industrial shifts will lead to significant changes in China's existing economic model and industrial structure. China's economy needs M&A restructuring to complete the transition to a market economy (through equity takeovers to achieve property rights transition), to help industries move from emerging to mature (through restructuring to achieve industrial adjustment and maturity), and to help address the challenges and opportunities brought by the WTO (through foreign investment takeovers and M&A of foreign enterprises to achieve structural adjustments in integrating into the global economy). Listed companies must lead the transition. There are two ways to improve the existing structure of listed companies and achieve their transition: one is through increment, by introducing a large number of private and collective enterprises to issue new shares. However, this method has significant limitations. On one hand, the capacity of the capital market is limited, and its expansion speed cannot be too fast, meaning only a small number of companies can be listed. On the other hand, these enterprises face multiple barriers to listing, including institutional and enterprise size constraints. The other way is through adjustment, i.e., improving the structure and operational efficiency of listed companies to enhance their overall quality. This is a more realistic and rapid approach, and such reform must be achieved through M&A restructuring.