Gree Group's acquisition of Changyuan failed, Changyuan fell to the limit in advance

After a month, Gree Group's 5.2 billion acquisition of Changyuan Group failed. The early limit drop of Changyuan Group became the focus, and investors questioned whether the information was leaked in advance.

On the evening of the 12th, Changyuan Group announced that because the Zhuhai State-owned Assets Supervision and Administration Commission did not agree with the acquisition plan submitted by Gree Group, Gree Group decided to terminate the tender offer.

Before this announcement came out, Changyuan Group hit the limit down near the closing of the market that afternoon; on the 13th, Changyuan continued its decline, closing down 2.98% that day at 13.99 yuan.

On the 12th, an investor asked on the Shanghai Stock Exchange's e-interactive platform: Today, without any announcement, the company's stock suddenly fell to the limit in the afternoon. Was there any major negative information leaked, such as Gree's tender offer not being approved by the Zhuhai State-owned Assets Supervision and Administration Commission? If so, is the company's internal control system not sound? How are the interests of small shareholders guaranteed? Changyuan Group did not respond.

Why Zhuhai SASAC disagreed with the acquisition is another focus of public opinion. Reporters noticed that Changyuan Group, which was originally to be acquired, had accumulated a large amount of goodwill on its books, accounting for more than 1/4 of its total assets. This is undoubtedly a potential performance mine. Its 2017 annual report data showed that as of the end of 2017, the balance of goodwill on the books of Changyuan Group was about 5.476 billion yuan, accounting for 26.66% of total assets, of which Hunan Zhongli, which was acquired last year, had a book value of goodwill of 1.325 billion yuan at the end of last year.

Zhuhai State-owned Assets Supervision and Administration Commission disagrees with Gree Group's acquisition plan

On the evening of the 12th of this month, Changyuan Group issued an announcement stating that because the Zhuhai State-owned Assets Supervision and Administration Commission did not agree with the acquisition plan submitted by Gree Group, Gree Group decided to terminate the tender offer. This was about a month after Changyuan Group announced the matter.

On May 11, Changyuan Group announced that Gree Group decided to acquire part of the company's shares through a tender offer due to its optimistic outlook for the company's future development, and the company will be suspended from trading from that day. On the 16th, Changyuan Group disclosed the relevant details of the tender offer through an announcement, saying that Gree Group intends to acquire 20% of Changyuan Group's shares, approximately 265 million shares, at a price of RMB 19.80 per share, and the total amount of funds required for this acquisition is approximately RMB 5.246 billion.

However, the announcement also mentioned that this tender offer still needs to be approved and registered by relevant regulatory authorities such as the Zhuhai State-owned Assets Supervision and Administration Commission and the Guangdong State-owned Assets Supervision and Administration Commission, and there is uncertainty in this approval matter.

On the same day, Changyuan Group also announced that it had received an inquiry letter from the Shanghai Stock Exchange regarding Gree Group's tender offer, inquiring into four aspects: the purpose of the tender offer, source of funds, competition among peers, and the risk of acquisition failure.

On May 18, Gree Group responded, saying that the purpose of the tender offer was not to seek control, that the group had a large asset scale and strong financial strength, and that it provided a detailed explanation of the business of its subsidiaries Gree Electric and Changyuan Group, stating that the specific products of both parties, their applicable industries, and target customers were different, and that they did not constitute substantial competition among peers. It also reminded that it was still uncertain whether it could obtain approval and filing from relevant regulatory authorities.

The stock price limit before the announcement was questioned as "information leakage"

After the news that Gree Group's tender offer for Changyuan Group was not approved, Changyuan shareholders said they were "very hurt." The most striking thing is that Changyuan Group's stock had "fallen to the limit in advance" before the announcement came out on the evening of the 12th. When the market opened on the afternoon of the 12th, Changyuan's stock price suddenly continued to fall, and fell to the limit in the last half hour of trading, closing at 14.42 yuan. On the 13th, the decline continued, and Changyuan Group closed down 2.98% that day at 13.99 yuan.

This made some shareholders suspect "insider trading". Was the news that Gree Group terminated its tender offer leaked in advance? Data showed that the sales department with the largest sales amount on that day was Guotai Junan's Guangzhou Renmin Middle Road Sales Department, with a sales amount of 217 million yuan, accounting for 29% of the total transactions on that day.

During the last ten minutes of trading on the afternoon of the 12th, an investor asked a question on the Shanghai Stock Exchange's e-interactive platform: "Today, the company's stock suddenly fell to the limit in the afternoon without any announcement. Has there been any major negative information leakage, such as Gree's tender offer not being approved by the Zhuhai State-owned Assets Supervision and Administration Commission? If so, is the company's internal control system incomplete and how are the interests of small shareholders guaranteed?" As of now, Changyuan Group has not responded.

"I added to my holdings in Changyuan Group yesterday morning, and it dropped to the limit down in the afternoon." A Changyuan Group shareholder expressed his helplessness.

Behind the suspension of the acquisition, Changyuan Group's goodwill exceeded 5.4 billion

According to the company's official website, Changyuan Group was founded in 1986 and listed on the A-share market in December 2002. In the past, the company was mainly engaged in the research and development, production and sales of new materials. Public reports show that Changyuan was once a holding subsidiary of Li Ka-shing's Cheung Kong Investment, but Cheung Kong Investment gradually sold its equity around 2014.

With the withdrawal of Cheung Kong Investment, Changyuan's development direction has also changed. In addition to the original business, the company began to deploy the "electric vehicle-related materials and other functional materials" business through equity acquisition. From 2014 to 2017, the company successively acquired Changyuan Huasheng and Hunan Zhongli in the field of electric vehicle-related materials, and invested in Xingyuan Materials, Watma and other related companies. According to the 2017 financial report data, Zhongli New Materials' goodwill reached 1.325 billion yuan.

After continuous premium acquisitions, Changyuan has accumulated a large amount of goodwill on its books. Financial report data shows that as of the end of 2017, the book value of the company's goodwill was about 5.476 billion yuan, accounting for 26.66% of total assets and about 72.07% of the parent company's equity (7.598 billion yuan) during the same period, an increase of 37.32% year-on-year. The financial report said that the growth was mainly due to the acquisition of Zhongli New Materials and Opfi.

Some analysts say that the larger the goodwill, the greater the impact of impairment provisions on profits once the performance of the acquired company fails to meet expectations.

According to the 2017 financial report, due to the performance not meeting the promised target, Changyuan Group made goodwill impairment provisions for Changyuan Heying, Beijing Guodian Keyuan, and Wuhan Wanshenghua, totaling about 85.0897 million yuan. Among them, Changyuan Heying had the largest amount (65.8378 million yuan). In 2016, Changyuan Group acquired 80% of the equity of Changyuan Heying for about 1.88 billion yuan, generating goodwill of about 1.602 billion yuan.

Gree Group was questioned about whether its acquisition of Changyuan would lead to competition among peers

In fact, the Shanghai Stock Exchange had sent an inquiry letter regarding Gree Group's acquisition of Changyuan Group, one of which was whether there was any competition or potential competition in the same industry.

Gree Group responded to the inquiry letter from the Shanghai Stock Exchange, saying that after further understanding with Gree Electric and Changyuan Group, there is no substantial competition in the main business currently engaged in by the two parties. Gree Group promised that the company and its holding subsidiaries other than the listed companies controlled by the company will not engage in business that constitutes substantial competition with the main business of Changyuan Group.

In January this year, Gree Group published an article on its official website titled "Gree Group Starts a New Journey of "Second Entrepreneurship", stating that it had clarified the group's development strategy of "one core, four pillars". The so-called "one core, four pillars" development strategy refers to the four pillars of manufacturing and financial investment, construction investment, island tourism, and building installation sectors with Gree Electric as the core. Changyuan Group specializes in the research and development, manufacturing and services of electric vehicle-related materials, smart factory equipment, and smart grid equipment.

Gree Electric and Gree Electric Chairman Dong Mingzhu's "preference" for new energy vehicles are well known. In 2016, Gree Electric spent tens of billions of yuan to acquire the new energy vehicle company Zhuhai Yinlong at a high premium, but ultimately failed. Afterwards, Gree Electric Chairman Dong Mingzhu personally invested in Zhuhai Yinlong, and some people with Gree Electric resumes also joined Zhuhai Yinlong. An industry insider once analyzed to the Beijing News reporter, "Gree Electric already has a layout in related fields, why doesn't Gree Group acquire Changyuan Group through Gree Electric?"

Liu Buchen, an analyst in the home appliance industry, believes that "when it was first reported that Gree Group intended to make a tender offer for Changyuan Group, there were related concerns, because Changyuan Group, which Gree Group wanted to acquire, had a large overlap in business with Gree Electric Appliances, a subsidiary of Gree Group, and it was easy for horizontal competition to occur. Zhuhai State-owned Assets Supervision and Administration Commission's decision not to approve the acquisition may have been based on this consideration."

In addition, the state's subsidy policy for new energy vehicles is declining. In February this year, the Ministry of Finance and other four departments jointly issued the "Notice on Adjusting and Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles" (hereinafter referred to as the "Notice"), proposing a new subsidy plan for new energy vehicles. According to the new plan, subsidies for pure electric vehicles with a range of 150-300 kilometers will be reduced by 20%-50%, and models with a range of less than 150 kilometers will no longer enjoy subsidies; subsidies for models with a range of 300-400 kilometers and above 400 kilometers will be increased by 2%-14%.

This notice will be implemented from February 12, 2018, and the transition period will be from February 12, 2018 to June 11, 2018.

Changyuan Group said in its annual report last year that with the long-term development of the country's electric vehicle industry, the lithium battery electrolyte additive products should have seen better growth. However, due to the impact of the phased adjustment of the national industrial policy and the cost pressure of downstream battery customers, the operating income of related businesses increased by 24% compared with the same period last year. Beijing News reporter Chen Weicheng

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.