What is a shell listing

The so-called shell listing, is a non-listed company through the securities market to buy a certain percentage of equity in a listed company to obtain the status of listed, and then through the "reverse takeover" way to inject their own business and assets, to achieve the purpose of indirect listing. The non-listed company can utilize the listed company's ability to raise funds in the securities market to raise funds for the development of the enterprise.

Generally speaking, the listed companies purchased by the enterprises are those which have difficulties in their main business. After purchasing the listed companies, in order to achieve the purpose of financing in the securities market, the enterprises usually inject some of their high-quality assets into the listed companies, so as to enable their performance to reach the standard set by the management to participate in the allotment of shares. In addition, the better the performance of a listed company, the higher the price of its allotment can be set, and the more money the enterprise raises.

Buying a shell company has advantages that a direct listing cannot match. The most prominent advantage is that the profitability of the shell company is greatly improved due to asset replacement, and its value in the stock market may increase rapidly, so the value of the equity purchased by the enterprise may also increase exponentially, and the enterprise may get a very huge benefit.

How a buyout listing is achieved

A typical buyout listing generally goes through two steps.

The first step is the transfer of equity, or buying a shell. By looking for companies in the stock market that are experiencing operational difficulties and purchasing a portion of their equity, the purpose of controlling corporate decisions is achieved. Purchase of equity in listed companies is generally divided into two kinds, generally the purchase of unlisted and circulating state-owned or legal person shares, this way of purchase cost is generally lower, but there are many obstacles. On the one hand, it is whether the original holders agree or not, and on the other hand, such transfers are subject to the approval of government departments. Another way is to buy shares of listed companies directly in the stock market, which is suitable for those companies whose outstanding shares account for a high proportion of the total share capital. But this method is generally more costly. This is because once the acquisition of shares of listed companies in the secondary market begins, it will inevitably cause the price of the company's stock to rise, resulting in an increase in the cost of the acquisition.

The second step, asset replacement, that is, shell change. The original non-performing assets of the shell company will be sold, and high-quality assets will be injected into the shell company, so that the performance of the shell company will undergo a fundamental transformation, thus enabling the shell company to meet the qualifications for share allocation. If the company's performance remains high, the company will be able to raise money in the stock market at a very high allotment price.

How to choose a shell company

Considering the cases of previous years, we can find some basic characteristics of shell companies.

1. Smaller share capital. Shanghai, for example, in 1997 and 1998 **** 103 companies for shell, of which the total share capital of less than 100 million has 39, the circulation of less than 30 million shares of 38, accounting for 38%, the total share capital of more than 100 million of the shell company, the vast majority of the share capital of less than 300 million.

Obviously small-cap stocks to buy shells and reorganizers, with low intervention costs, reorganization after the expansion of equity and other advantages, especially the circulation of the disk is small, easy to speculate on the secondary market, so the opportunity for profit is great. Like Shanghai's Guojia industry (600646), a total share capital of 86.6 million shares, after the reorganization of the share price rose from 6.05 yuan to 46.88 yuan, an increase of 674.88%; and such as the deep alloy shares (0633), a total share capital of 51.69 million shares, after the reorganization of the share price rose from 8.50 yuan to 42.39 yuan, an increase of 398.71%.

2, industry recession, low return on net assets. Like textile (Jiafeng, United, Guanghua, Nanhua), commercial (Huanning, Shao Bai, Guihua, stone persuasion, etc.) and the main business is not clear of the declining category (Liannong, Nongkeng, Steel Transportation, Zhefeng).

3, the relative concentration of equity. In China, due to the secondary market acquisition cost is high, and the target company is less, so buy shell listing mostly take the equity agreement transfer method, the relative concentration of equity is easy to equity agreement transfer, easy to be unlisted companies, thus creating conditions for the secondary market speculation.

4, the shell company has the qualification of share allocation. According to the provisions of the China Securities Regulatory Commission, listed companies can only apply for share allocation if the average return on net assets for three consecutive years is above 10% (minimum 6%). Therefore, when choosing a shell company, it is important to examine the company's return on net assets for the previous years. If the company has not met this standard in the last one or two years, then the value of the company will be greatly reduced.

The main way to buy a shell

1, over-the-counter acquisitions or known as the agreement transfer of non-circulating shares is the main way to buy shell listing behavior in China.

In the over-the-counter acquisition method, the highest frequency of the three ways for the transfer of state-owned shares (40%), the transfer of shares of legal persons (40%) and the acquisition of controlling shareholders (12%) (according to the Shanghai market in the first half of 1999, the shell of the purchase of listing behavior statistics). Shell purchases and listings were particularly frequent among enterprises held by state-owned capital bureaus and government departments. In addition, securities companies and investment companies involved in buying shell listing phenomenon is increasing. Such as Chongqing state-owned stock holding Chongqing Road and Bridge (600106), Haitong Securities transfer Guihua Tourism (600791), Beijing Capital Holdings Ningbo Zhongbai (600857), Baotou Trust transfer of ST outlets (600880), Fubon Investment acquisition of Yunnan Baoshan (600883).

In the first half of 1999, the Shanghai market *** occurred 24 buy shell listing events, involving 24 listed companies, including Yunnan Baoshan (600883) in the first half of the year occurred twice to replace in the shareholders event. The main way to buy shell listing of state-owned stock transfer (Luohe silver pigeon, three gorges water conservancy, Taiji Group, Yatong shares, Dongda Apai, Liaoning Chengda, Dali paper, ST Zhongchuan, Ningbo Zhongbai, Sichuan electrical appliances, etc. 10), legal person stock transfer (Chang'an information, Guihua tourism, A city steel, ST North Brigade, Yunnan Baoshan, etc. 6), the acquisition of controlling shareholders (Shenhua industry, ST outlets, Beidaxi car line, etc. 3) ), the transfer of state-owned shares (ST Songliao, Sichuan Investment Holdings and other 2 cases), state-owned shares authorized to operate (ST Hongguang, Chongqing Road and Bridge and other 2 cases), the transfer of legal person shares (National Pulse Communications 1 case). We believe that the transfer of state-owned shares and legal person shares at a lower cost, the acquisition of controlling shareholders of listed companies can indirectly achieve the purpose of listing. State-owned enterprises to get rid of difficulties, grasp the big and let go of the small, the separation of government and enterprises as well as the standardization of the governance structure of listed companies and other aspects of the requirements of the State-owned Assets Supervision and Administration Bureau and other government departments holding small and medium-sized listed companies have become the ideal object of buying shells; securities firms and investment firms for the purpose of capital appreciation of the shell of the purchase and sale of shells.

2, the secondary market acquisition

The secondary market acquisition refers to the merger and acquisition company through the secondary market acquisition of listed companies, so as to obtain the controlling stake in the merger and acquisition behavior. China's first secondary market mergers and acquisitions case is a household name, "BaoYan" storm. 1993 September Shenzhen BaoAn through its Shanghai subsidiary and two related enterprises to buy YanZhong industry shares, thus opened the prelude to China's secondary market acquisitions. At present, the secondary market mergers and acquisitions are mainly concentrated in the "three no" plate, the main cases are: Tianjin Dagang Oilfield acquisition of love to make the stock.

Price payment methods in the transaction

1, cash payment methods

2, asset replacement payment: such as Topper's acquisition of Chuan Changzheng, Kang Feng reorganization

3, debt payment methods

4, mixed payment methods

5, zero-cost acquisition: this method is mainly realized through the form of gratuitous transfer of state-owned shares.

6. Equity payment method

For example: Tsinghua Tongfang (600100) absorbed and merged with Luying Electronics

Zhenghong Feeds (0702) absorbed and merged with Xiangcheng Industry

Among these payment methods, cash payment, asset exchange and mixed payment accounted for the absolute majority, and the equity payment, because the proportion of the exchange of shares is not easy to be determined, was less frequently used by the The company has adopted this method of payment.

Case studies in previous years

From the first case of shell listing in 1993 to the present, 163 cases of shell listing have occurred in ****. Among them, 48 cases of shell buying and listing occurred in *** in '99; 70 shell buying and listing occurred in '98; 33 cases of shell buying and listing occurred in *** in '97; and 12 cases before '97.

In '98, for example, in these three ways, the number of legal person stock equity transfer of 48, the transfer of state-owned shares of 21, the secondary market acquisition of 1, the transfer of equity is much higher than the number of secondary market acquisitions, the main reason is that the agreement to buy the price of the acquisition is much lower than the secondary market acquisitions, acquisitions of a shorter period of time and a large number of target companies, so for the vast majority of companies wanting to buy a shell Therefore, for the vast majority of enterprises wishing to buy a shell to go public, the agreement acquisition is the preferred way.

(I) Changes in equity after buying a shell:

It can be seen that the buyer's main purpose is to obtain a relative controlling stake, which can save money and reduce the acquisition cost.

(ii) Percentage of success (as measured by the possibility of share allotment)

Only the case of buying a shell listing as a long-term investment is considered here. Since buying a shell listing mainly depends on the listing status of the shell company, and the main purpose is to obtain the qualification for share allotment, the buyer has to consider not only the issue of consideration but also the qualification for share allotment of the shell company when choosing a shell company. Among the 70 cases of shell listing in '98, 39 had the qualification for share allotment, which laid the foundation for the buyers to realize their purpose quickly.

Only about 15% of the shell companies in the '96 and '97 cases had their benefits improved for a longer period of time (2 years) after buying the shell, and the vast majority of them only saw their earnings grow for a short period of time (that year) after buying the shell, and a lot of this growth in earnings was due to the formation of connected transactions through the divestment of non-performing assets, injection of quality assets, and so on. Whether the restructuring of the small nuns after buying a shell listing is durable will have to be judged by the performance of the next few years.

There must therefore be sustained profit growth when buying a shell listing as a long-term strategic investment.

(C) transfer price analysis

In the 43 cases of shell-buying and listing selected in '98, there were 39 cases with transfer prices less than $3 and 4 cases with transfer prices greater than $3. There were 29 cases with transfer amounts less than $100 million and 14 cases with transfer amounts greater than or equal to $100 million. In these samples, the lowest transfer price is about $30 million, which is mainly due to the small share capital of the shell company and the small percentage of the buyer's equity after buying the shell.

Of the 40 cases selected in '98, share prices rose in 18, fell in 19, and were essentially flat in 3 of the 3 months. This shows that in a longer period of time, the share prices of shell companies will then tend to be rational, and the fundamentals of the company are the decisive factor in whether the share prices can go higher.

(4) Shell companies' industry affiliation

Shell companies are mostly in traditional industries, mainly in the commercial, textile and machinery categories. In '97, there were 7 textile shell companies, the proportion of 21.2%, retail catering department stores, hotels, 7 shell companies, the proportion of 21.23% to 70 cases in '98, for example, of which there are 7 department store shell companies, 7 real estate, iron and steel machinery shell companies have 11.

Some Changes in Shell Listing

1, the number of shell listings has gone through a phase of rapid development from none. 3 cases before 94 to 70 cases in 98, the number of rapid increase; to 48 cases in 99, the number of shell listings declined, but the total amount of transaction value has been rising;

2, the cost of shell listing has been rising year by year. For example, the average cost was $62.5 million in '97 and rose to $99.1 million in '98. The main reason is that with the development of shell-buying and listing, the vast majority of shell companies recognize the importance of their own shell resources, and at the same time, more and more enterprises want to go public;

3, the transfer of equity, especially the transfer of state-owned shares are mostly supported by the local government;

4, in the process of shell-buying, the buyer are injected into the shell company's new business, all of them are enterprises or projects with higher profitability, which In the process of shell buying, the buyers injected new businesses into the shell companies, all of which were enterprises or projects with strong profitability, and among which those involving high and new technologies accounted for a large portion of the total;

5. The buyer is mainly concentrated in the information and biomedical industry, and most of the relative shortage of funds for the private sector; from the seller's point of view, mainly concentrated in the commercial, textile and machinery industries with fierce competition and slow development; from the way to buy the shell, mainly on the poor operating performance of non-high-tech listed companies for the controlling shareholding, and then injected into the high-tech products, and ultimately to achieve the purpose of the shell to go public. Typical cases are the acquisition of Yanzhong by Beida, the second largest shareholder to control the Yanzhong industry, as well as the acquisition of Acheng Iron and Steel by Collyer, Topper acquisition of Chuan Changzheng, etc.;

6, the overall financial situation after the shell listing has been significantly improved, the company has a new outlook. 1997, January 1, 1998, to 1998, June 30, between the shell-listing of the high-tech companies there are 10 companies, the weighted average per share Earnings jumped from RMB 0.002851 in 1996 and RMB 0.08806 in 1997 to RMB 0.24148 in 1998, and the weighted average return on net assets was 11.34 in 1998, both higher than the average level of RMB 0.1993 and 7.9663% in Shanghai and Shenzhen stock markets during the same period, showing the stronger profitability of the reorganized high-tech listed companies. However, among these companies, there are great differences in the level of profitability. For example, the earnings of both Si-Tong High-Tech and ST Stone Persuasion in FY98 have slipped sharply, which is very much related to the way of dealing with bad debts on non-performing assets. While other companies have different levels of efficiency growth, Guojia industry is 1.32 yuan of earnings per share among the top performing stocks in Shanghai.

7, the company's reorganization before the shell resource characteristics are obvious. In the 10 buy shell listed companies, in addition to Wanjiale share capital is larger, the other companies have a total share capital of 200 million shares, the circulation of the disk is smaller or the absolute dispersion of equity "three conceptual stocks", such as Yanzhong Industrial. And these companies before the reorganization of more poor benefits or even losses, the original controlling shareholders to let the controlling interest of the stronger will. In addition, from the reorganization of the industry involved in the view, 8 out of 10 is the electronic information industry, indicating that as an emerging industry, the electronic information industry in China has attractive prospects for development.

8, the reorganization of the operation of a variety of ways. Mainly: 1, social public stock transfer mode, such as Beida affiliated enterprises through the secondary market acquisition of social public stock holding Yanzhong industry; 2, legal person stock transfer mode, such as the four group holding Huali high science and technology, SiDa technology transfers stone persuasion of legal person stock, in addition to the Bailong shares, the Northeast China United, Guojia industry, Wankel are this mode; 3, the national stock transfer mode, such as the Top Group transfers the national stock of Sichuan Long March's national shares, Galaxy Hi-Tech Holdings Rong Power and so on. In particular, Top Group first injected high-quality assets, and then the acquisition of the state-owned equity of Sichuan Changzheng way to reduce the restructuring process of financial costs, it is worthwhile to learn; 4, joint venture to form a high-tech companies, the indirect introduction of high-quality assets, such as the first shareholder of the first five a text Changsha five a text and the creation of a software park limited

9, in general, the first half of the year 1998, "buy the shell of the market" high-tech content is very high. Listing" high-tech content is very high. This shows that, with the further deepening of the shell listing, focusing on the substance of the "shell listing", long-term benefits has become the mainstream direction of future asset reorganization. Injection of high-tech, high-growth, high-efficiency high-quality assets or high-quality projects, has become a non-listed companies "buy shell listing" of the new trend.

10, buy shell listing in the buyer and seller in the same region in the proportion of the year-on-year increase, there are 97 years of 57.5% rose to 98 years of 61.7%. This shows that the shell company equity transfer occurs in the same region occupies a considerable proportion of the fast regional acquisition there are still some difficulties, mainly due to the local government of the local local localism factor.

Typical cases:

A: The acquisition of Chuan Changzheng by Top Technology Development Company took the way of capital injection first and then acquisition. Firstly, at the end of 1997, Chuan Changzheng purchased 53.85% of the shares of Chengdu Topo Technology Co., Ltd (the holding company of Topo Development) at a price of RMB 7.42 per share and paid cash of RMB 77.91 million to Topo Development.In April 1998, Topo Development purchased from Zigong State-owned Assets Supervision and Administration Bureau (SASAC) 48.37% of the shares of Chuan Changzheng at the price of RMB 2.08 plus RMB 0.5 compensation for intangibles per share. shares. This way of capital injection before acquisition was adopted, firstly, because the procedure of transferring the state shares was complicated and required layers of approval, and secondly, the main reason was that Chuan Changzheng, as a state-owned enterprise, obtained the purchase price of Chengdu Top as a state-owned enterprise from the fund for preservation and appreciation of the value of the state-owned assets, so as to avoid the loss of borrowing eligibility due to the change of the nature of the enterprise, and to substantially reduce the acquisition cost of Top Development.

B: The acquisition of Wuyiwen by Chuangzhi Software Park is even more unique, indirectly holding the listed company through the formation of a joint venture, i.e., the first major shareholder of Wuyiwen will use its shareholding in the legal shares of Wuyiwen as a capital contribution to set up Chuangzhi Science and Technology Company Limited in a joint venture with Chuangzhi Software Park, which owns 51% of the shares, so that the Chuangzhi Software Park indirectly becomes the first major shareholder of Wuyiwen through absolute holding of the joint venture company. Wen's largest shareholder. This approach is much less costly than the direct acquisition of legal person shares, and effectively avoids the future earnings of its own high-quality assets being diluted by other shareholders of the listed company.

C: Collyer's takeover of A-Cheng Steel was no simpler. The company purchased 28% of Acheng Steel's shares from Asteel Group at a price of 2.08 yuan per share, with a payable price of 134 million yuan, an amount that seems quite large, but at the same time, Acheng Steel purchased 80% of the shares of Xiaojun, a subsidiary of Collyer, and a software copyright for 50 million yuan, which was paid in 100 million yuan in the form of a claim on Asteel Group, so that Collyer only used 34 million yuan in cash and the claim to pay off the debt. In this way, Collywood only used 34 million yuan in cash and this debt to pay off A Giang Group as the share purchase price. The main purpose of adopting this practice is also to significantly reduce the actual acquisition cost by hedging the vast majority of the purchase price through the book figure