Wanda Cinema changed its performance compensation plan "annual clearing" model to segment the performance commitment amount

This adjustment will undoubtedly improve the accuracy of performance appraisal for Wanda Film and Television, and greatly reduce the risk of performance fluctuations and failure of promises for investors, further protect the interests of investors, and may also represent the current regulatory thinking. Relevant sources said that judging from the policy trends in the early stage, the regulatory authorities have noticed problems such as arbitrary manipulation of performance compensation commitments, and do not rule out that corresponding measures will be taken in the future to regulate these behaviors.

Original title: From "calculating the ledger" to "clearing every year" Wanda Cinema's performance compensation plan

Not long ago, Wanda Cinema announced a reorganization plan, planning to acquire 100% equity of Wanda Films at a price of more than 37 billion yuan. The performance commitment is from 2016 to 2018 The cumulative net profit after deduction of non-profit achieved by Wanda Films and Television in 2016 is no less than 5.098 billion yuan. On June 13, Wanda Cinema Line issued another announcement to adjust the performance compensation plan in the material asset reorganization. The most significant change was that the original three-year packaged commitment was refined into a certain amount of promised profits required to be achieved each year while the target total performance remained unchanged. This adjustment has undoubtedly improved the accuracy of performance appraisal for Wanda Film and Television, and greatly reduced the risk of performance fluctuations and promises failure for investors. It may also represent the current regulatory thinking.

The original performance commitment of Wanda Cinema's reorganization plan is: The counterparty Wanda Investment promises Wanda Film and Television's net profit after deducting non-profit for 2016, 2017, and 2018 (hereinafter referred to as the "Profit Forecast Compensation Period")(hereinafter referred to as the "Promised Net Profit") The cumulative amount is not less than 5.098 billion yuan.

After negotiation between Wanda Cinema and Wanda Investment, the two parties signed the "Supplementary Agreement to the Profit Forecast Compensation Agreement" on June 12, adjusting the performance compensation plan for the purchase of assets by this issue of shares. The latest performance compensation plan shows that Wanda Investment has promised that Wanda Film and Television's net non-profit deduction in 2016, 2017 and 2018 will not be less than 1.3 billion yuan, 1.66 billion yuan and 2.138 billion yuan respectively. (Three years add up to 5.098 billion yuan.)

Although the total amount of promised net profit deducted from non-profit remains unchanged, this adjustment clarifies the net profit deducted from non-profit of Wanda Films during the profit forecast compensation period, that is, the original "general ledger calculation" has been changed to a clearer "annual settlement". For Wanda Cinema, in the context of the original performance commitment, although the profit forecast compensation period covers three years, it only needs to review the difference between the cumulative non-net deduction actually realized by the underlying asset Wanda Film and Television during the 2018 annual audit; If a situation arises that requires Wanda Investment to make compensation, Wanda Cinema will convene a board of directors within 30 working days after the disclosure of the 2018 annual report to determine the number of shares that Wanda Investment should compensate. Judging from the disclosure period of the annual report of listed companies ending at the end of April each year, the relevant performance matters of this performance commitment may not be put on the agenda until around May 2019 at the latest. The latest performance commitment is clearly a review of Wanda Film and Television's current non-net profit deduction for each year, and a breakdown of the "annual settlement" performance commitment amount, which undoubtedly puts forward higher requirements for Wanda Film and Television.

In addition, under the "annual clearing" model, the revised performance compensation plan further protects the interests of investors. According to the adjusted plan, during the profit forecast compensation period, if Wanda Film and Television's accumulated actual net profit as of the end of the current period is lower than the accumulated committed net profit as of the end of the current period (all after deducting non-profits), Wanda Investment shall compensate the company. If the number of shares that should be compensated in that year is less than 0, it will be calculated as 0, that is, the compensated shares will not be reversed. In other words, assuming that Wanda Film and Television's performance in 2016 did not reach the promised profit, and its performance in 2017 exceeded the promised profit, Wanda Investment will compensate for the difference that was not reached in 2016, but the excess in 2017 cannot be used to offset the aforementioned difference.

In fact, regulatory authorities have long paid attention to the performance commitment link in mergers and acquisitions. Judging from previous plans, many companies have failed to fulfill their restructuring performance commitments; in addition, listed companies have used the method of changing "year by year" to "cumulative" to reduce the difficulty of annual performance assessment. Relevant sources said that judging from the policy trends in the early stage, the regulatory authorities have paid attention to these common issues in mergers and acquisitions, and have given certain considerations to issues such as the arbitrary control of performance compensation commitments. It is not ruled out that corresponding measures will be taken in the future to regulate these behaviors. Well, compared with the latest plan of Wanda Cinema, the "breaking up into parts" approach actually puts forward higher requirements for performance appraisal and protects the interests of investors. This may represent the latest ideas of the regulatory authorities.

Editor: Nancy