Chinese-style MBO: A Trap Littered with Flowers

Author: Lang Xianping et al.
Publisher:
Publish Date: 2006-12-01
Features: Lang Xianping's views on MBO: China has fundamentally misunderstood the essence of MBO. It shares only a name and superficial resemblance with MBO in the U.S., lacking any common essence. China's MBO is not a panacea for corporate property rights reform, and even in the U.S., it is merely a tool for investment bankers to pursue profit. China's MBO must be subject to strong regulation; without robust legal oversight, every stage of MBO could become an opportunity for exploitation. The biggest bottleneck for successful MBO in the U.S. is financing, which relies on its developed bond market and numerous equity investment firms. In contrast, China currently provides almost no objective conditions for MBO financing. U.S. MBO pricing involves both valuation and competitor participation, whereas China's use of net assets as the pricing standard is a misconception in MBO, and there is virtually no competitor participation.
Lang Xianping's views on MBO: China has fundamentally misunderstood the essence of MBO. It shares only a name and superficial resemblance with MBO in the U.S., lacking any common essence. China's MBO is not a panacea for corporate property rights reform, and even in the U.S., it is merely a tool for investment bankers to pursue profit. China's MBO must be subject to strong regulation; without robust legal oversight, every stage of MBO could become an opportunity for exploitation. The biggest bottleneck for successful MBO in the U.S. is financing, which relies on its developed bond market and numerous equity investment firms. In contrast, China currently provides almost no objective conditions for MBO financing. U.S. MBO pricing involves both valuation and competitor participation, whereas China's use of net assets as the pricing standard is a misconception in MBO, and there is virtually no competitor participation.