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The transfer of control of listed companies with hidden management buyout

Author: YuPengYi¡¡FanCong¡¡ChenDeNing From: www.yourpaper.net Posted: 2009-04-02 17:14:38 Read:
Abstract: This paper analyzes the Erie executives to implement the process of recessive MBO, recessive MBO impact to the value of the company as well as the reasons caused by the recessive MBO. Show that management uses implicit the MBO transfer company equity and control of a serious impact on the value of the company, leading to the interests of shareholders and even the loss of state assets. In order to effectively prevent the occurrence of recessive MBO corporate governance structure should be optimized through the split share structure reform, in order to avoid the unnecessary loss of state-owned assets.
Keywords: hidden MBO; corporate governance; shareholding structure

First, control is transferred and ownership structure

Control of the Company, in essence, the benefits of a new mode of existence, is a product of conflict of interest. Because it is derived of shareholder ownership, the characteristics of the shareholding structure determines the distribution of the control of the Company, to determine the composition of the board of supervisors and managers and be vested in, and to obtain control of the company, and one of the most effective way is to get more company shares. Therefore, control of the company in recent years increasingly fierce competition for most of the performance of the race for control of a controlling stake in the fight, which appeared the phenomenon of management buyouts. The management buyout managers or managers of the target company's use of borrowings used to finance the purchase of shares, thus changing the ownership structure of the company, holding ownership structure, thus achieving individuals or groups to further the purpose of control of the company. This will be Yili, for example, analysis Yili some executives hidden MBO and the incentive for this MBO.

Yili recessive MBO program

Management buy-outs (Management Buy-out, MBO) was introduced in the late 1990s, with the implementation of expanding the scope, it gradually deviated from the track, became part of high position management, particularly the management of state-owned enterprises for personal gain tool. March 2003, MBO is the Ministry of Finance stopped, but the wind of the MBO does not really gripping part of corporate executives use various means to make MBO secret, also appeared curve MBO, recessive MBO. The Yili formerly red cows factory in Hohhot, in 1984 renamed the Muslims milk food plant the shares restructuring in 1992, 17.15 million public shares, issued in September 1995 and listed in 1996. Some executives of the Queen through the following three steps to achieve the purpose of the recessive MBO.
The first step, through the relationship of control options. Order to control more shares of Erie, part of the management, led by Zheng Junhuai use the various relationship controlled directly or indirectly shares of the Company. Figure 1 shows the four shareholders, are suspected of Erie executives controlled directly or indirectly the: Kinghing suspected by Zheng Junhuai control, we will be back further analysis; Boshi Value Growth Securities Investment Fund is a holding subsidiary of Kinghing; The Hohhot Kai Yuan Investment Co., Ltd. is the investment company consisting of more than 20 senior executives from Erie, Zheng Junhuai shares; Zheng Junhuai to the acquisition of Hohhot Li Xin Industrial Development Corporation, Tianjin Chang Printing Co., Ltd., Changchun victory Grain Trade Company held by Erie social legal person shares of the Company for personal gain, without the Board of Directors of the Company agreed to secretly inspired Yanggui Qin, Zhang Xian, Li Yongping registered private nature of Hohhot, China World Trade Co., Ltd.. The relationship between Hohhot, China World Trade Limited Company executives Erie is shown in Figure 1.

The second step, the state-owned shares transfer legal person shares. Erie originally as a state-owned enterprise to achieve management buyouts, we must solve the problem of state-owned shares. The transfer of state-owned shares must be approved by the Ministry of Finance, the difficulty is relatively large, but once the state-owned shares transferred to non-state-owned company, the nature of equity into a social legal person shares, once the MBO policies release, the subsequent transfer easy. Therefore, the Erie shares to achieve MBO, state-owned shares transfer legal person shares is a critical step. In fact, the support of the local government, the Queen has long been at the beginning of operation of MBO. In 2002, the State-owned Assets Supervision and Administration Commission of the State-owned shares in Hohhot all allocated to the name of the Municipal Finance Bureau, and began to convert to the legal person shares. Erie shares some of the state-owned shares shown in Figure 2: The third step of the process of conversion to a legal person shares, legal person shares of management buyouts. This is implemented by the management the recessive MBO last and most hidden step. First commissioned Kinghing to the acquisition of state-owned shares held by the Finance Bureau of Hohhot. July 2003 Kinghing to 10 yuan / share, the total price of 280 million yuan acquisition of the the Hohhot Finance Bureau held Erie 14.33% state-owned shares, Kinghing officially became the largest shareholder of the Erie. The acquisition of Erie, Jin Xinming indeed made "Offeror intends to maintain the independence and stability of the Queen on the staffing, management, support the company's existing management under the leadership the predetermined development planning and management operations, in principle, non-interference in the day-to-day business activities of the Erie commitment. In subsequent practice, Kinghing indeed did not send a directors, supervisors, do not nominate a management. This market has reason to suspect, Kinghing just entrusted with the acquisition of the principal Zheng Junhuai and its senior management team. It is reason to believe that the trust company to obtain the shares of listed companies, only for the equity transfer to the executives of listed companies in the hands of lay the foundation. Management managed to the secret acquisition Kim Shin Trust Company equity. In this process, the acquisition of the source of funding, become the focus of the recessive MBO. 3 months after Kim Shin acquisition of state-owned shares, Erie chairman Zheng Junhuai on the board of directors proposed the idea to buy treasury bonds. November 3 billion yuan of funds gradually injected into the Minfa Securities. Erie through the purchase of government bonds, animal husbandry, Quan Yuan Xing Feed Co., Ltd., it is Guo Shunxi original milk Division subsidiary, Guo Shunxi has previously served as the company's chairman. January 2004 and February 1999, the Queen has a total of 280 million yuan of funds into the holding subsidiaries, animal husbandry, Quan Yuan Xing. The Erie bonds purchased is loss Yili braved the risk of loss to buy government bonds, and the amount of number Kinghing of the acquisition of state-owned shares in line with this part of the funds most likely MBO needs funds, also could not help but suspect that external investment in bonds the Erie AG CPB funding channel. It is reported that Erie executives misappropriation of public funds which is suspected of illegal operation, to achieve the purpose of the recessive MBO allegedly for the funding of the purchase of government bonds, capital of 2.8 billion yuan. In addition, Erie portion executives also take advantage of the Queen hosted eight thanks to a dairy farm and the convenience of its loan guarantee, 15 million yuan of its loans go to China in the World Trade for its natural person shareholders to buy 422 million shares of Erie equity. Eight thanks to the dairy farm the statutory representative is Guo Shunxi., Is also one of the directors of the Erie shares.
This three steps, the Queen some executives control about 25% of the outstanding shares of Yili Group, so far, successful management of MBO to become the largest shareholder of the Yili.
Observed the Erie to achieve MBO process, we can see the hidden nature of the MBO is that: Erie executives intricate relationship, which involves Erie executives, the families of executives, managers of affiliated companies, and even the local government; borrow Kinghing as an intermediary for the acquisition of the Yili Group shares from the state-owned shares into legal person shares to become executives shares; through the proper name of misappropriation of corporate funds, the nominally the purchase of government bonds, managed loan guarantees, but in reality to raise funds for the realization of MBO .

Third, the conclusion

Due to the special nature of China's capital market, management buyouts, especially state-owned listed companies management buyout led to internal control, loss of state assets and other issues. But many executives of listed companies in order to obtain various purposes such as control of the company is still keen on the implementation of MBO, hidden MBO usually hidden in a variety of complex relationships and legitimate under the name, we can see from the example of the Yili Group, and the form will certainly become more and more complex and diverse. Recessive the MBO its concealment, will bring more problems, such as causing serious management nepotism, misappropriation of corporate or shareholders 'funds, providing false information, so that the value of listed companies and shareholders' interests are harmed.
Therefore, in order to prevent hidden MBO MBO development in our country moving in a favorable direction, it is necessary to improve the relevant laws and regulations, strengthen supervision system, so that the listed companies, especially the rationalization of the corporate governance structure of the state-owned listed companies really play the role of independent directors , the shareholding structure more reasonable, as far as possible through the split share structure reform to reach dispersed ownership or owner diversified equity while avoiding overly dispersed prevent option instability caused by the MBO pressure.
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