3 billion acquisitions promote a surge in goodwill!

Judging from the comparison of the assets of the two parties, the scale of Wanlihong is larger than that of Orient. The inquiry letter requested Orient Zhongke to explain the possible impact of this transaction on the determination of the company’s equity structure and control rights, and to further demonstrate whether this transaction constitutes a restructuring and listing

3 billion acquisitions promote a surge in goodwill!

“Investment Times” researcher Yu Fei

Knowing that premium acquisitions are a double-edged sword, many listed companies still enjoy it.

A few days ago, Beijing Oriental Zhongke Integration Technology Co., Ltd. (hereinafter referred to as Oriental Zhongke, 002819.SZ) announced that it intends to issue shares to 20 counterparties including Wanli Jincheng, Liu Da, and Jintaifu to purchase their holdings. Wanlihong has 78.33% equity, and the transaction consideration is 2.98 billion yuan.

After the completion of this transaction, Oriental Zhongke will hold 78.33% of the equity of Wanlihong. At the same time, the company intends to raise supporting funds for non-public issuance of ordinary shares from the controlling shareholder Oriental Science Instrument Holding Group Co., Ltd. (hereinafter referred to as Oriental Science Instrument), and the total amount of funds raised shall not exceed 600 million yuan.

The acquisition plan shows that this transaction constitutes a major asset reorganization, and the total assets and net assets of the target asset Wanlihong are much higher than those of Oriental Zhongke.

After the announcement was disclosed, Orient Zhongke received a restructuring inquiry letter issued by the Shenzhen Stock Exchange, requesting the listed company to discuss the possible impact of the transaction on the company’s equity structure and control determination, whether the transaction constitutes a reorganization and listing, and the achievability of performance commitments And so on.

On the evening of March 10, Dongfang Zhongke announced that as related issues still need to be supplemented and improved, in order to ensure the accuracy and completeness of the reply content, the company will postpone the reply to the inquiry letter.

Doubts about the transaction plan to be solved

Dongfang Zhongke is a company engaged in the agency sales of electronic test and measuring instruments. The company was listed on the Shenzhen Stock Exchange in 2016.

Judging from the performance of 2019, although Orient’s net profit has increased, the growth rate has declined. From 2017 to 2019, the company achieved net profits of RMB 37,393,200, RMB 46,848,500 and RMB 56.125 million, respectively, with year-on-year growth rates of 21.57%, 25.29%, and 19.77%.

According to the data, Wanlihong, the subject of this transaction, has been deeply engaged in information security and confidentiality products, government integration solutions, and iris recognition equipment for many years. Dongfang Zhongke said that after the acquisition of Wanlihong, the company will be able to quickly enter the field of information security, which is an important opportunity and measure for business expansion.

Researchers of “Investment Times” consulted relevant announcements and noticed that there are many doubtful points in the arrangement of Oriental Zhongke’s acquisition.

The acquisition report shows that Oriental Zhongke’s transaction counterparties for this acquisition reached 20, among which Wanli Jincheng holds 29.46% of Wanlihong’s equity. However, in this transaction, Wanli Jincheng only sold 28.04% of Wanlihong’s equity, and the remaining 1.42% of the equity remained unsold.

Why leave a small amount of equity? Is this the reason for Wanli Jincheng or the arrangement of Dongfang Zhongke? This situation has also caused doubts among regulators. According to the content of the inquiry letter, Oriental Zhongke needs to explain the arrangement of the remaining equity of Wanlihong and the reason why the remaining equity held by Wanli Jincheng was not purchased in this transaction.

In addition, whether this transaction constitutes a reorganization and listing is also one of the contents of the inquiry.

Judging from the comparison of the assets of the two parties, the scale of Wanlihong is larger than that of Orient. Among them, Wanlihong’s total assets and net assets were 1.66 billion yuan and 1.5 billion yuan, respectively, while Dongfang Zhongke’s total assets and net assets were only 1.02 billion yuan and 570 million yuan.

According to the plan, Orient Zhongke intends to issue shares to the controlling shareholder Orient Key Instrument to raise supporting funds. The total raised funds will not exceed 600 million yuan. The raised funds are intended to be used to supplement the liquidity of the listed company. Orient Zhongke said that after the completion of the transaction, Orient Science and Technology Holdings will remain the largest shareholder of the listed company. After the completion of the supporting financing, its shareholding ratio will be 23.93%, which is 9.21% behind the second largest shareholder Wanli Jincheng. .

However, due to the large number of counterparties in this transaction, and the relationship between the counterparties, this also raises questions about whether the counterparties constitute a concerted action relationship.

Therefore, the restructuring enquiry letter requires Orient Zhongke to exclude the shares to be subscribed by Orient Science and Technology, explain the possible impact of this transaction on the company’s equity structure and control determination, and further demonstrate whether this transaction constitutes a reorganization and listing.

At the same time, Orient Zhongke also needs to explain whether the counterparty has a concerted action relationship, and calculate the company’s equity controlled by all parties after the transaction, and further disclose whether the transaction has caused a change in the control of the listed company.

Orient Zhongke’s net profit from 2017 to 2019

 

Acquisition risks should not be underestimated

Judging from the current situation, it is not an easy task for Dongfang Zhongke to swallow Wanlihong that is larger than its own.

The first is the transaction price of Wanlihong. According to the evaluation results of the income method, Wanlihong’s evaluation value is 3.804 billion yuan, and its book value of shareholders’ equity attributable to the parent company is 1.5 billion yuan, with an estimated appreciation of 2.3 billion yuan, and an appreciation rate of 153.64%. After negotiation between the parties to the transaction, it was determined that the transaction amount for the 78.33% equity of the target company was 2.98 billion yuan.

Orient Zhongke stated in the acquisition report that the target assets of this transaction were evaluated using the income method and the market method, and the income method evaluation result was used as the final evaluation conclusion, and the value of the evaluation was greater. If the actual situation in the future is inconsistent with the assessment assumptions, especially the macroeconomic fluctuations, major adverse changes in the market environment, etc., it may cause the target company’s profitability to fall short of the asset assessment forecast.

At the same time, the difference between the cost paid in this transaction and the fair value of the identifiable net assets obtained is 1.61 billion yuan, which will be included in the goodwill of the consolidated statement after the transaction is completed.

From the data point of view, after the completion of this transaction, Oriental Zhongke’s goodwill accounted for 35.29% of the total assets in the latest period and 41.08% of the net assets in the latest period. If Wanlihong cannot realize the expected return in the future, such goodwill will have impairment risk. If a large amount of goodwill impairment occurs in the future, it will have a greater adverse impact on the operating performance of the listed company.

The second is the realization of Wanlihong’s performance promises. Wanlihong’s net profits deducted from non-parents in the last two years and the first period were 114 million yuan, 126 million yuan and 9,763,600 yuan respectively. According to the commitment of the performance commitment party, Wan Lihong will achieve net profits attributable to shareholders of the parent company after deducting non-recurring gains and losses in 2020, 2021, 2022 and 2023 to be 71 million yuan, 210 million yuan, 310 million yuan and 391 million yuan, respectively. yuan.

What’s interesting is that the various parties involved in this large number of transactions have different proportions of their performance commitment shares.

According to the performance compensation agreement signed by Orient China Technology and the counterparty, Wanli Jincheng, Zhao Guo, Wang Xiuzhen, Liu Dingquan, Zhang Xiaoliang and Sun Wenbing’s performance pledged shares are 100% of the new shares held by each of them through this transaction; Hangzhou; Mingjie, Liu Da, Zhang Linlin, and Yu Liangbing’s performance pledged shares are 61.60% of the new shares held by each of them through this transaction; Zhuhai Zhongtai, Zhuhai Zhonghong, Jintaifu, Accurate Intelligence, Gree Ventures, Da Hengqin Innovation, Taihe Growth, Guofeng Dingjia, Tibet Tengyun, Zhuhai Zhongcheng Performance Commitment Shares are 30.80% of the new shares held by each of them through this transaction.

This means that all the counterparty’s performance commitment shares are only 70.53% of the new shares held by their respective counterparties through this transaction, and there is a risk that the number of performance compensation commitment shares does not cover 100% of the new shares.

According to the requirements, Orient Zhongke needs to supplement the disclosure of the reasons for the different proportions of the performance commitment shares of the parties to the transaction, and whether the performance commitment party has the ability to perform the contract and supplement the disclosure of the achievability of the performance commitment.

In addition, there are some doubts about Wan Lihong’s financial data.

According to the prospectus data, Wan Lihong’s net cash flows from operating activities in 2018, 2019 and the first three quarters of 2020 were 106 million yuan, -10.274 million yuan, and 238 million yuan, and net profits were 112 million yuan, 128 million yuan and 25.625 million yuan. Generally speaking, even if the cash flow and net profit are not synchronized, such a big deviation will not occur.

In this regard, the Shenzhen Stock Exchange requires the company to supplement the disclosure of whether the net cash flow of Wanlihong’s operating activities matches its net profit, and the collusion relationship between the cash flows generated from operating activities, and requires independent financial consultants and audit institutions to verify and express clear opinions.

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