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Management subsidiary of the listed company MBO: Motivation and regulatory proposals

Author: LvFan¡¡HeHong From: www.yourpaper.net Posted: 2009-04-27 05:52:20 Read:
[Abstract] China's capital market appears more and more listed companies management subsidiary of MBO, interests encroached avoid regulatory response to funding pressures and asset stripping angle analysis of the reasons behind this phenomenon, and put forward relevant policy proposals, hoping to provide a useful reference to relevant laws and regulations to further improve the management of listed companies subsidiary MBO.
[1] management subsidiary of MBO; transfer of benefits; equity incentive

First, the issues raised
Agency costs in the separation of ownership and management rights, to allow the operator to become the owner of the company through the ownership of shares of the Company to achieve the unity of the interests of the owners and operators can effectively resolve the problem of agency costs. Therefore, the management buy-out is the inheritance of the modern enterprise system based on the separation of ownership and ownership, the right to operate on the basis of a critical sense, agency costs too much condition and an antidote to excessive decentralization lead , and therefore many of the economies in transition will be applied as an important means of state-owned enterprises reform of property rights.
From the capital markets practice, 1998 Stone MBO "fired the MBO the first shot," and subsequently Guangdong Midea victory shares a series of the enterprise successful implementation of the MBO. But after 2003, because of concerns about the loss of state assets, the regulatory body of state-controlled MBO of Listed Companies set up a lot of restrictions, the management of the state-controlled listed companies MBO into the trough has not stalled, management subsidiary MBO as a kinds of alternative means of frequent appearances in the capital markets, including both Hangxiao, Changchun High-tech, the Pearl River Industrial ST through Kinmen and Matsu successful experience of failures Nanjingxinbai, Changchun High-tech market, the management of listed companies The layer is to try it. Why management does not directly attributable to the acquisition of listed companies turned to the acquisition of a subsidiary of the listed company? Management subsidiary of MBO would bring about the loss of state assets? These issues deserve the dynamic of the company's management subsidiary, MBO Analysis of depth.

Second, the motivation analysis
Management Why not just mergers and acquisitions of listed companies, but the acquisition of a subsidiary of the listed company, I think it is mainly based on the following motivation.
(A) the interests of the occupation
From a revenue point of view, the management of listed companies be able to grab more subsidiaries. Such as the value of the assets of its subsidiaries, profitability, future development prospects, the management as the best natural person holding company operating results, a subsidiary of the best prospects for development, can effectively avoid investment risks, more investment interests. And subsidiary small-scale, relatively flexible mechanism upside potential, especially in the subsidiary Listing possibility in the future, management will get a greater return. From a cost point of view, the management of listed companies is the best candidate of the subsidiary in relation to the equity price game with the shareholders of listed companies to use its dominant position in the listed companies, management can get legal minimum Price. In the case of China's securities market regulatory system is not perfect, is not perfect the corporate governance structure of listed companies, the management is sufficient motivation for the implementation of MBO quality subsidiary of the listed company.
(B) to avoid regulatory
Listed companies suffering from market dispute management buy-in option pricing, information disclosure, illegal financing, the state has stepped up supervision of the management buyout. SASAC promulgated the "Opinions on the specification of the state-owned enterprise reform, the" Interim Measures for the acquisition of the management of state-owned enterprises "and the" Securities Act "and" Company Law "certain restrictions in terms of the MBO of listed companies is difficult to bypass the policy restricted area . A subsidiary of the listed company are generally non-listed companies, management subsidiaries MBO is not easy to attract people's attention, less regulatory disclosure of information. When the management of the MBO of Listed Companies limited by the regulatory authorities, the familiar M & A management subsidiary of potential to become an alternative management.
(C) ease funding pressures
Management buy-outs as a leveraged buyout, which itself implies huge profits while also hidden a huge risk. The subject of the amount involved in the management buy-out is generally very huge, and rely on their own energy is often difficult to complete, in accordance with the foreign business practices, about 80% of the acquisition of funds through the financing of the external financing required by management. Typically, the credit funds from commercial banks because of its low cost of capital, financing convenient, it is suitable for management buyouts, most of the foreign management buyout funds are derived from this channel. China's state-controlled listed companies management system reasons, the Remuneration income has been low, and management for the purpose of loan applications difficult to get the support of financial institutions to acquire equity. The People's Bank of China promulgated the "General Principles of the purchase price" clearly states: prohibit the borrower loan equity investment in securities, futures and other speculative operations. This means that both the original company or management buyout of the company by way of collateral assets can not obtain loans as acquisition purposes, at the same time as the management of the individual can not stocks as collateral for loans to acquire equity. Therefore, if the MBO of listed companies, the management will face greater financial pressure. Subsidiary of MBO, the amount of the acquisition will not be very high, financing pressure is relatively small, high-quality yield subsidiaries to ensure that the management of the revenue from the acquisition can reimburse the cost of external financing.
(D) The divestiture
Listed company equity interests in subsidiaries transferred to the management of the subsidiaries listed companies management buyout from a subsidiary of view, from the point of view of the parent company divestitures, the company tightening. Therefore, this approach is also known as tight-MBO of the parent company. The main reason of the divestiture of the listed companies diversified operating company formed to meet the changing needs of the company's strategy; change the company's public image; meet the company's cash needs; correct the error acquisitions; get rid of some business "fix"; The burden of operating losses; acquisition of defense. Divestitures can increase the degree of specialization of the company, to improve the company's core business concerns, enhance the efficiency of the company's management to achieve the purpose of separation of the primary industry and secondary industry. Management after the acquisition of a subsidiary, can still maintain normal economic ties with the parent company, to reduce the transaction costs increase because of external intervention, which is conducive to the interests of the parent company.
In addition to the main motivation addition, listed companies for the purpose of protect confidential business deal with a hostile takeover, to maintain good relations of cooperation in the future, under the same conditions also tend to disposal of the entire equity interest in a subsidiary to management, management of listed companies layer subsidiary MBO.

Third, the proposed regulatory measures and Thinking
Management subsidiary of the listed company MBO situation of insufficient incentive to improve management, reduce agency costs and improve the efficiency and effectiveness of capital operation has a certain practical significance. But at the same time, we also can not ignore the negative impact of the possible. "Enron" the United States also shows that even the most severe capital market regulation, information disclosure is the most complete market, may also occur and interests of minorities prejudice to the interests of small investors. Therefore, we should focus on prevention management uses its dominant position in the behavior of listed companies occupied high-quality resources. Specifically the following aspects should start:
(A) improve the relevant laws and regulations system and information disclosure system
About MBO of Listed Companies relatively clear regulations introduced on December 1, 2002 "listed company acquisition management approach. "Approach" involving management, staff acquisition of listed companies, but its content is more general, but only limited to the acquisition level of listed companies, there is no specific regulations for subsidiaries of listed companies MBO. MBO laws and regulations fragmented views on the specification of the state-owned enterprise reform, the restructuring of state-owned enterprises further standardize the implementation of the views of the notice "," state-owned property transferred to the management of the Interim Provisions, "" transfer of state-owned property Management Interim Measures ". On subsidiary MBO, which is in a vacuum state, the establishment of a legal and regulatory system for the management subsidiary of MBO perfection, the system is imminent, which should focus on strengthening the trading price formation mechanism, enhance the transparency of the transaction process, by forcing Sufficient information disclosure system, detailed disclosure of the information management subsidiary of MBO. Including the time of the assignment, the number of holders of, the amount of the assessment of assets of the subsidiary, sources of funding, of listed companies to ensure that the acquisition process is open, fair. Disclose such information to minimize the management of information superiority, and related risks are fully disclosed to all shareholders, reduce the risk of shareholder decision-making, safeguard the interests of all shareholders.
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