Great Wall Animation's high-premium cross-border mergers and acquisitions were frustrated, nearly 60% of the target performance changed face

on May 3, Great Wall Animation released a correction to its 2016 annual report, which showed that four of the seven companies acquired in 2014 had changed their performance commitments.

the sequelae of the M & A frenzy are gradually emerging. Three years ago, Sichuan Shengda (the predecessor of Great Wall Animation) spent 1.016 billion yuan to acquire seven media companies, from the coking industry into the animation industry, the company changed to "Great Wall Animation" for short, and claimed to build "Oriental Disney".

the ideal is very plump and the reality is very bony. On May 3, Great Wall Animation released a correction to its 2016 annual report, which showed that four of the seven companies acquired in 2014 had changed their performance commitments.

on May 9, the reporter called the Great Wall Animation public phone many times, but could not get through. At the same time, the reporter also contacted Zhao Lu, the former secretary of the company, who said that he had just left his job and was inconvenient for an interview.

however, some financial analysts, who spoke on condition of anonymity, pointed out that after issuing shares at a low price to raise funds and restructuring, the target company broke its promises on a large scale, or involved arbitrage.

< strong > sequelae of crazy mergers and acquisitions: nearly 60% of the underlying performance has changed < / strong >

in 2014, Chinese films grossed 29.6 billion yuan at the box office, making it the second largest film market in the world after the United States. The film and television industry has become popular in the eyes of the capital, cross-border mergers and acquisitions are surging for a time, the Great Wall animation has also caught up with this tuyere.

in November 2014, Great Wall Animation announced the acquisition of seven pan-entertainment industry companies. the target companies include: 100% equity in Hangzhou Great Wall (100% equity in Mermaid Animation and 54.26% in Chuzhou Creative Park), 45.74% in Chuzhou Creative Park, 100% in Xuancheng Technology, 100% in Xinyu Brothers, 100% in Tianrui economy and Trade, 100% in Oriental Guolong and 100% in Hongmeng Cartoon.

the above seven companies priced 1.016 billion yuan, of which the highest value-added rate was 23883.6%. The valuation premium rates of Xuancheng Technology, Xinyu Brothers, Tianrui economy and Trade, and Oriental National Dragon reached 17098.27%, 12769.54%, 23883.6% and 1072.76%, respectively.

in the following time, Great Wall animation gradually stripped off the loss-making coal and coking industry and made great strides into the entertainment industry. However, it can be found from the 2016 results report of Great Wall Animation that four of the seven companies originally acquired failed to meet the performance standards.

specifically, according to the original agreement, Hangzhou Great Wall subsidiary Mermaid Animation promised to achieve net profits of no less than 3 million yuan, 3.6 million yuan and 4.32 million yuan respectively from 2015 to 2017. However, according to an audit report issued by the accounting firm, Mermaid Animation's net profit after deduction in 2016 (except for the agreed subsidies for the animation industry) was 2.5956 million yuan, lower than its promised performance of 3.6 million yuan in 2016. The company said that the reason for not fulfilling its promise is that in 2016, the company spent more energy on adjusting its business thinking, product structure and personnel, failed to launch new works in time, and most of its revenue still depends on works produced in 2015.

Xuancheng Science and Technology promises that the net profit after deduction will be no less than 5 million yuan, 6.5 million yuan and 8.45 million yuan respectively from 2015 to 2017. However, according to an audit report issued by the accounting firm, Xuancheng Technology's net profit after deduction in 2016 was 6.4091 million yuan, lower than its promised performance of 6.5 million yuan in 2016. The company said that the reason for not fulfilling its promise is that in 2016, the market competition was fierce, which affected the performance fluctuation.

Tianrui's economic and trade commitment from 2015 to 2017, the net profit after deduction will be no less than 9 million yuan, 11.25 million yuan and 14.07 million yuan respectively. However, according to an audit report issued by the accounting firm, Tianrui's net profit after deduction in 2016 was 2.5672 million yuan, lower than its promised performance of 11.25 million yuan in 2016. The company said that the reasons for not fulfilling its commitments were as follows: in 2016, costs rose due to warehouse relocation, rising logistics freight, increased sales costs, and an increase in the number of employees; Wal-Mart stopped cooperation, Tesco was acquired by China Resources and other reasons reduced the company's sales revenue; there was some pressure on operating capital; and the development of its own brand failed to proceed as planned.

Oriental Dragon promises that the net profit after deduction will be no less than 300000 yuan, 2.6 million yuan, 3.38 million yuan and 4.4 million yuan respectively from 2014 to 2017. However, according to an audit report issued by an accounting firm, Oriental Guolong's net profit after deduction in 2016 was 2.5672 million yuan, lower than its promised performance of 3.38 million yuan in 2016.

at the same time, Great Wall Animation issued a number of "apologies" to the company's Tianrui economy and Trade, Oriental Dragon, Mermaid Animation and other companies that failed to fulfill their performance commitments, "deeply regret" and "sincerely apologize".

< strong > issuing shares at a low price or involving regulatory arbitrage < / strong >

on the other hand, taking advantage of the east wind of film and television hotspots, the stock price of Great Wall Animation continues to rise. On July 3, 2014, trading in Great Wall Animation was suspended and reorganized, when the company closed at 6.31 yuan per share. In November of the same year, Great Wall Film and Television resumed trading of animation and game concepts, and the company's stock price successively stepped out of four trading boards.

the above financial analyst pointed out: "the failure of the restructuring target to meet the performance commitment is itself a matter that may be punished if it violates the agreement, and it is almost impossible for a large area of breach of trust to occur. There is reason to suspect that there is insider trading during the restructuring of listed companies, because even if the target company compensates for the corresponding performance, the transaction is not cost-effective. At the beginning, a private offering was made to acquire these companies. At present, the price of the shares issued has doubled, but the acquired companies have failed to meet the standards, and the suspicion of regulatory arbitrage cannot be ruled out. "

in fact, at the end of 2014, a fund-raising plan was released at the same time as the restructuring plan. At the beginning, Great Wall Animation planned to issue no more than 380 million shares at a price of not less than 5.61 yuan per share, and the total amount of funds raised did not exceed 2.1344 billion yuan to supplement liquidity. The non-public offerings are made to Great Wall Group, Zhejiang Furun Co., Ltd., Xiangsheng Industrial Group Co., Ltd., Xinhu Zhongbao Co., Ltd., Taizilong Holdings Group Co., Ltd., Zhejiang Shangfeng holding Group Co., Ltd., Chongqing Radio and Television Group (main station), Tianjin Yinuo Investment Center (limited partnership), Chuzhou New Great Wall Equity Investment Fund Management Center (limited partnership), Chuzhou Sinovel Investment Management Center (limited partnership) has a total of 10 specific investors.

according to the closing price of Great Wall Film and Television on May 9, the total floating profit of the above additional offerings is 1.573 billion yuan based on the fluctuation of the stock price alone.

in sharp contrast, the company's performance "falls endlessly". According to the 2016 annual report, the company's revenue during the reporting period was 327 million yuan, down 8.60 percent from the same period last year; the net profit belonging to shareholders of listed companies was 80.632 million yuan, down 538.54 percent from the same period last year; and the net profit after deduction was 140 million yuan, down 677.26 percent from the same period last year. At the same time, the company set aside 96.7135 million yuan for bad debts of various receivables in 2016.

in this context, Great Wall animation still does not give up the path of "buy and buy". In mid-2016, Great Wall Animation once again put forward the intention of merger and reorganization, planning to acquire two animation industry chain companies, Lingjing Technology and Mini World. at that time, the Securities Daily published an article that "Great Wall Animation completely shut down the coal coke business and transformed itself into a 235-fold premium to buy a children's experience hall." then the Shenzhen Stock Exchange issued an inquiry letter, and the deal finally fell through under strict supervision.

Edit: nancy