Dongfang Network responded to inquiries and provided evidence stating that the high-premium acquisition was reasonable and intended to enhance content delivery capabilities

in replying to the announcement, Dongfang Network listed several M & A cases of listed companies to prove the rationality of its evaluation by using the market method. However, the reporter noted that although the comparable targets of the Oriental Network have been evaluated by the market method, the acquirer finally adopted the valuation of the income method as the basis for the transaction.

on November 4th, Dongfang Network, which had been suspended for six months, threw out a draft merger and acquisition. The company wants to spend 3.536 billion yuan to acquire 100% equity in three cultural media companies, Jiabo Culture, Hua Hua Culture and Yuanchun Media. What is noteworthy is that the premium of the subject matter of the merger and acquisition of Oriental Network is astonishing, with a comprehensive asset appreciation rate of as much as 13 times. The target company has previously been approved by many stars such as Qing Qing, Chen Jianbin, Wang Xuebing, Jiang Qinqin and so on. The market is concerned about the value-added rate of Yuanchun Media, Jiabo Culture and Hua Hua Culture, which are more than 2000 times.

the data in response to the announcement show that the price-to-earnings ratio of Jiabo Culture is 13.58 times, that of Hua Hua Culture is 13.64 times, and that of Yuanchun Media is 13.59 times, all lower than the average price-to-earnings ratio of 59.79 times for comparable listed companies in the same industry.

against this background, the Shenzhen Stock Exchange issued a "reorganization inquiry letter" on November 14, requiring Dongfang Network to make additional disclosures. there are ten issues, such as the reasons for the significant difference between the valuation and book value of the subject matter of the transaction, as well as the sustainable profitability of the subject matter of the transaction. After several days of waiting, Dongfang responded to the question on November 18 and will resume trading on November 21.

among the three targets of this merger, Jiabo Culture is mainly engaged in film and television development, production and investment, while Hua Hua Culture is mainly engaged in film investment, publicity and copyright operation at home and abroad. Yuanchun Media is a production management company covering the whole process of content creativity, program production and business operation. The inclusion of these three companies will greatly enhance the content delivery capacity of Oriental Network in related fields.

data show that many commercial films controlled or invested by Jiabo Culture, such as "the Dragon of the Old Boy", "tiny Times 3: the Golden Age", "you are still here" and so on, have achieved good results, with a total box office of more than 1.7 billion yuan. In June this year, Garbo Culture announced plans for a new film, which will be filmed by a number of well-known directors, including Kang Honglei and Hollywood director TimoVuorensola. Hua Hua Culture focuses on film investment and promotion business at home and abroad. From July 2016 to 2018, projects such as "God of War", "Transformers 5", "Mission impossible 6" and "the Edge of the Mirror" are expected to be released. Yuanchun Media has a strong innovative ability to meet the needs of the market for entertainment programs.

according to reports, starting from 2013, Yuanchun Media complied with the development trend of the industry and moved its business center to variety shows and online drama production. In 2015, Yuanchun Media successively launched a number of variety shows, such as "Dreammaker", "pattern Boys" and "Tonight Le Men".

in 2016, 2017 and 2018, Yuanchun Media has broadcast or will broadcast 13 variety shows, online dramas, short films and documentaries, respectively. People related to the company said that with the development momentum at this stage, the scale of Yuanchun media business is expected to maintain a relatively rapid growth level, promising net profit to be realizable.

after the announcement of the Dongfang network reorganization plan, some media raised the situation of the listed company's "heavy financial support". The company said in its reply that the business relationship between the listed company and the target company has a real transaction background and business logic, and the transaction price is reasonable.

some people in the industry said that judging from the details disclosed in the company's reply to the announcement, the transaction between Dongfang Network and the underlying company is mainly focused on the purchase of relevant rights and interests in which it has exclusive resources, such as the exclusive purchase of Garbo Culture "a spoon", "you are still here for Youth", Hua Hua Culture "Star Trek 3: beyond the Stars" and other films.

A person close to the listed company said that the content reserves of the three companies that Dongfang Network plans to acquire reflect their strength in the creative field, and if the merger is successful, it will enhance their content production capacity.

the ultra-high premium of this M & An is the focus of capital public opinion. in response to the announcement, Oriental Network said that the high value-added rate of Yuan Pure Media, which is more than 2000 times, is mainly because it is currently in a period of business transformation. the net assets accumulated in the historical accounts are relatively small. Oriental Network will bring Jiabo Culture, Hua Hua Culture and Yuanchun Media under its command, which will help to enhance the company's ability to provide content in related fields. In addition, Dongfang Network also lists several M & A cases of listed companies to prove the rationality of its evaluation by using the market method. However, the reporter noted that although the comparable targets of the Oriental Network have been evaluated by the market method, the acquirer finally adopted the valuation of the income method as the basis for the transaction.

in the vast majority of restructuring and M & A cases, the parties to the transaction often list cases of the same type or strong similarity as the reference and comparison object of the current transaction. In reply to the announcement of the "reorganization inquiry letter", the reporter noticed that Oriental Network listed five major reference comparison companies, which are Blue Flame, perfect Film and Television, China Television wonderful, Rui Jixiang, Muwei Fashion.

Oriental Network said that according to the actual situation of this evaluation and the degree to which data can be collected, the main criterion for selecting comparable cases is that business and business models are similar. Among them, the comparable enterprises are film and television culture companies, and the operation modes are in many forms. It is similar to the target of this transaction in terms of business structure and business model. after reasonable comparative analysis and adjustment, these cases can be used for market method evaluation.

in the comparison, Muwei Fashion is especially mentioned. In 2015, domestic cinema giant Wanda Cinema offered 1.2 billion yuan for the former.

from 2013 to 2014, the operating income of Muwei Fashion was 161 million yuan and 264 million yuan respectively, and the net profit was 19.05 million yuan and 30.96 million yuan respectively. According to the assets Evaluation report issued by Tianjian Xingye, the income method and the market method are used to evaluate all the shareholders' rights and interests of Muwei Fashion, and the result of the income method is taken as the final evaluation conclusion.

Wanda Cinema announced that the market method assesses the value of enterprises based on the performance of the capital market at the base time and future expectations, without taking into account the impact of market cyclical fluctuations on valuation. Due to the large fluctuations in the capital market in the past two years, there are many non-objective factors, and the lack of in-depth understanding of comparable objects, there may be greater uncertainty in the parameter selection of the market method.

accordingly, the income method uses the discounted expected income to evaluate the investment value of the enterprise, taking into account not only the assets measured by accounting principles, but also the resources actually owned or controlled by the enterprise, which can not be reflected in the balance sheet, and the contribution of these resources to the enterprise is reflected in the enterprise's net cash flow, so The evaluation conclusion of the income method can better reflect the overall growth and profitability of the enterprise.

it should be pointed out that Muwei Fashion is not alone. Blue Flame, perfect Film and Television, CCTV and Rui Jixiang are also priced by the M & A party in the end.

< strong > Yien is sorted out and released according to the relevant reports of Securities Times and China Securities Network. < / strong >

Edit: nancy