The four major "pits" of film, television and entertainment asset mergers and acquisitions: high premiums, high performance commitments, high leverage, and surprise equity arbitrage

A-share film and entertainment asset mergers and acquisitions are eye-catching and mostly controversial. The identities of the two parties to the transaction are always different, but the "pits" in the transaction plan are always similar.

The original title is the four major "pits" in film and entertainment asset mergers and acquisitions: "Three Highs"+ surprise shareholding arbitrage

Because of the existence of these "pits", the advancement of transactions may not only encounter "bumps" from market doubts and regulatory inquiries, but even the entire transaction may directly "fail" and eventually voluntarily terminate the transaction or be vetoed by regulators.

Looking at these "pits" together, it is like a speculator with a three-high health index: high premium, high performance commitment, high leverage, and surprise stock arbitrage.

High-premium "traps"

stars are often one of the reasons for high acquisition premiums. Last year's Tang De Film and Television's acquisition of Fan Bingbing Company was a typical combination of big stars adding higher premiums.

In this case, Tang De Film and Television planned to use 740 million yuan to acquire a 51% stake in Wuxi Aimei Film and Television Culture Co., Ltd., owned by actor Fan Bingbing, which had just been registered a few months ago and had a registered capital of 3 million yuan. There is almost no revenue yet.

Zhao Shuguang, associate professor at the School of Journalism and Communication at Tsinghua University, pointed out in an interview with the media that the core of star company mergers and acquisitions is the personal value of stars, which is largely not the valuation of companies, but the valuation of individuals. This valuation model is actually not suitable for mergers and acquisitions by listed companies, and the ultimate harm will inevitably be the interests of minority shareholders.

The transaction case of Tangde Film and Television's acquisition of Fan Bingbing Company finally entered the stage of voluntarily terminating the transaction against the background of market doubts and regulatory inquiries. However, similar star equity investments + high-premium acquisitions are still common in film and entertainment asset mergers and acquisitions cases.

In the December 2016 deal involving Great Wall Film and Television, director Gu Changwei, star actors Jiang Wenli and Ma Sichun participated in the premiere era. Although the book value of its net assets was only 42.0158 million yuan, its 100% equity price was as high as 1.35 billion yuan-a premium of 31 times.

The restructuring plan related to the deal is still in the process of meeting.

High

premiums are often accompanied by high performance commitments.

In the view of market analysts, in order to obtain a higher premium for film and entertainment assets that want to be acquired by listed companies, they often raise the asking price by promising high returns when performance is insufficient.

A typical case of high-performance commitments is the 3.15 billion yuan acquisition of Storm Group that was rejected by the China Securities Regulatory Commission last year. Among the plans, the most eye-catching one is Storm Group's plan to acquire a 60% stake in Caocao Bear Films for 1.08 billion yuan, of which Liu Shishi holds a 20% stake in Caocao Bear Films.

The review opinion of the China Securities Regulatory Commission's M & A Committee finally rejected the case was that the profitability of the target company was highly uncertain and did not comply with the relevant provisions of Article 43 of the "Measures for the Administration of Material Asset Reorganization of Listed Companies".

The performance commitments given by Liu Shishi and other shareholders of Caocao Bear Film are that the cumulative non-net profit deducted by Caocao Bear Film from 2016 to 2018 will not be less than 436 million yuan. However, Straw Bear Pictures 'net profit for the whole year of 2015 was only 28.5208 million yuan.

The case of Yongle Film and Television's backdoor HTC Xincai, which came out more than half a month before the China Securities Regulatory Commission vetoed the reorganization of Storm Group, also died due to performance commitment issues.

Yongle Film and Television shareholders promised that the company's net profit after deduction of non-profit from 2016 to 2018 will not be less than 243 million yuan, 333 million yuan and 423 million yuan respectively. In December 2016, HTC Xincai admitted when terminating this reorganization that Yongle Film and Television estimated its 2016 results and found that there was "a certain difference" with the announced 2016 promised results.

typical case of a highly leveraged buyout is the recent case of Zhao Wei's acquisition of Wanjia Culture's equity.

Zhao Wei's plan to hold a 3.1 billion yuan stake in Wanjia Culture raised questions about "high leverage" in the market after it was released in December last year. The reason is that of the nearly 3.1 billion yuan acquisition, only 60 million yuan is Zhao Wei's own funds, and the rest is 1.5 billion yuan in equity pledge financing and 1.5 billion yuan in loans.

In the end, this controlling stake transaction turned into Zhao Wei's acquisition of approximately 5% equity of Wanjia Culture for 529.28 million yuan.

According to Zhao Wei's Longwei Media later responded to a regulatory inquiry letter, the banks that initially promised to provide financing cooperation for the 3.1 billion transaction were not approved by the head office due to market doubts about the transaction structure and other reasons. Several banks that Zhao Wei subsequently contacted also did not agree to financing cooperation.

In addition, at the regulatory level, the China Securities Regulatory Commission's "Decision on Amending the Measures for the Management of Material Assets Reorganization of Listed Companies"(hereinafter referred to as the "Reorganization Measures"), which was officially implemented on September 9 last year and is called the "New Regulations for Backdoor Listing" by the market, there are also measures to curb "high-leverage" transactions.

For example, the "Reorganization Measures" eliminated supporting financing for backdoor listing transactions, increased the financial strength requirements for reorganizing parties, and also limited the opportunities for market funds to participate in backdoor borrowing through supporting financing.

Compared

with the above-mentioned "three highs", although a star's sudden shareholding is unlikely to lead to the aborted transaction, it has a certain impact on the reputation of the transaction case. For example, whether a star makes a sudden shareholding for arbitrage is related to other investors. Fairness issues.

Taiji shares, which have been suspended since March 7, 2016, announced a major asset reorganization announcement in September to acquire Runjin Culture. Star Han Xue accounts for 1% of the latter's shares. And her shareholding time is June 30.

In the 3.54 billion yuan reorganization plan of Dongfang Network released in November 2016, film and television stars Chen Jianbin, Wang Xuebing, Xu Qing and Jiang Qinqin are shareholders of Jiabo Culture, one of the underlying assets. All four reached a shareholding agreement in March and completed the equity transfer procedures in May.

At that time, Xu Qing accepted a 2% stake in Jiabo Culture for 3.4 million yuan; Chen Jianbin accepted a 1% stake for 1.7 million yuan; Wang Xuebing and Jiang Qinqin both accepted a 0.5% stake for 850,000 yuan. According to the transaction plan, Orient Network plans to purchase the equity held by Xu Qing in the form of a cash payment of 31.2557 million yuan.

This means that in just half a year, Xu Qing's 2% stake in Jiabo Culture has appreciated by more than eight times, and once the deal is concluded, Xu Qing can cash out all of it.

Editor: Nancy