It is planned to convert shares to absorb the merged Midea Electric Appliances. The conversion price of Midea Electric Appliances is 15.96 yuan/share, and the conversion ratio is 0.3582:1.
Midea Electric (000527) is about to celebrate the 20th anniversary of its listing, and it has put forward a plan to realize the overall listing of the group by absorption and merger.
Share swap and merger of listed companies
According to the announcement issued by Midea Electric today, Midea Group plans to issue A shares, and the legal person qualification of Midea Electric will be cancelled. As a surviving company, Midea Group will inherit all assets, liabilities, business, personnel, contracts and all other rights and obligations of Midea Electric.
According to the relevant information in the announcement, in 2012 Midea Group achieved a total operating income of 102.7 billion, an operating profit of 7 billion, a net profit of 6.14 billion and a return on net assets of 24%. Midea Group intends to issue shares at 44.59 yuan per share, and Midea’s electrical circulation shareholders will exchange shares issued by Midea Group at 15.96 yuan per share. The share exchange ratio between the Group and listed companies is 0.3582:1. Among them, Midea Electric’s share exchange price is based on the average transaction price of 9.46 yuan/share on the announcement date of the resolution, and the premium rate is nearly 70%, far exceeding the increase of companies in the same industry during the suspension of Midea Electric and the average premium level of other share exchange and merger cases.
The dissenting shareholders of Midea Electric Appliances can declare and exercise the cash option in whole or in part at the price of 10.59 yuan per share (12% higher than the average stock transaction price in the 20 trading days before the pricing benchmark date) for every effectively declared share of Midea Electric Appliances. This share swap and merger will provide Midea Holdings and/or other appropriate third parties with cash options to Midea Electric’s dissenting shareholders.
After the completion of the share swap, Midea Group will increase the dividend, and the annual cash dividend will not be less than 1/3 of the distributable profit of that year within three years. At the same time, Midea Electric’s profit distribution in 2012 is planned to be distributed to 6 yuan for every 10 shares, totaling 2 billion yuan.
Fang Hongbo’s plan
At yesterday’s media communication meeting, Midea Group executives said that in the past year or so, Midea Group has experienced a series of adjustments and changes. Since the strategic transformation was first put forward in July 2011, the handover between the founder and the professional manager was completed in August 2012. Subsequently, Midea Group’s industrial system began to be adjusted, the secondary industrial group was cancelled, and it was integrated with Midea Group’s professional functional system, and the product division was merged and reorganized. After the overall listing, it aims to build Midea Group into a market-oriented sharp integrated modern enterprise group and become one of the top three white electricity enterprises in the world as soon as possible.
Fang Hongbo, chairman of Midea Group, introduced at the communication meeting that Midea Group chose to inject assets of small household appliances, motors and logistics to realize the overall listing of the Group. This move will help to further promote the standardized operation of the company as a whole; Consolidate the group’s industry position and core competitiveness; Realize resource sharing and make the best use of the company’s resources, costs and efficiency advantages; Fully realize industrial collaboration, purchasing collaboration, warehousing collaboration, sales collaboration, financial collaboration and channel collaboration.
In 2012, Midea Group’s total operating income was 102.7 billion yuan. After the overall listing, it is expected to become the largest household appliance listed enterprise in China with the largest manufacturing and sales scale and the most categories. According to reports, this restructuring is mainly considered from the organizational structure and management of the company. The restructuring plan avoids large-scale adjustment of the group’s management and control structure. If Midea Group’s subordinate assets except Midea Electric are injected into Midea Electric, the group company needs to be cancelled. After the reorganization, the group leaders need to work in listed companies, and the internal management structure will be readjusted, which is not conducive to the stable operation of the group.
As for the assets to be listed, Fang Hongbo said that Midea’s small household appliances are the absolute leader in the domestic small household appliances industry, with the most complete small household appliances product group in China and complete categories, and the market share of many products has been in the absolute lead for a long time. Small household appliances have abundant channel resources, with more than 5,000 specialty stores and 55,000 outlets, covering 100% of the primary and secondary markets and more than 95% of the tertiary and fourth markets. In the future, the profitability will be continuously improved through the improvement of product structure and manufacturing level.
The motor business is the largest household appliance motor company in China, with a well-known brand "Weiling". The main products are air-conditioning motors, washing motors, industrial motors and servo motors, with a total production capacity of over 100 million units, leading the industry in market share. With high starting point/level technical equipment and strong continuous research and development capability, DC frequency conversion technology will be vigorously developed. Now it has been involved in emerging fields such as automobile power steering motor, pump and servo motor, and will become a new profit growth point in the future.
The logistics business has integrated logistics service capabilities such as efficient warehousing, accurate transportation and lean distribution. It is a national logistics company with wide network layout, great synergy potential, focusing on fast-moving warehousing and distribution of household appliances, and a high degree of business specialization. There are more than 140 logistics service platforms in China, with warehouses covering an area of nearly 4 million square meters, and its comprehensive strength ranks in the forefront of domestic third-party logistics.
Fang Hongbo believes that after the overall listing, Midea will realize all-round coordinated management from industry, procurement, warehousing, sales, finance to channels, and will realize the sharing of internal management, research and development, supply chain, downstream (warehousing and logistics), channels and brands, with the effect that 1+1 is greater than 2.
Safeguard the interests of circulating shareholders
Regarding the protection of minority shareholders’ interests and merger pricing, Huang Xiaoming, senior vice president of Midea Group, said that this restructuring plan has safeguarded the interests of circulating shareholders to the maximum extent. First, after the completion of this transaction, Midea’s electric appliance conversion shareholders will enjoy a higher valuation level brought by the business of small household appliances, motors and logistics, which will bring about an improvement in the valuation level. Second, the share exchange premium rate was 68.71%, far exceeding the average cumulative increase of the share prices of comparable listed companies as of March 31 after the suspension, the average increase of Shenzhen 100P was 5.69%, and the average increase of Shanghai and Shenzhen 300 Index was 9.64%. Third, the share swap premium rate far exceeds the share swap premium rate of similar merger cases. The average premium rate of the share swap price of the merger case in the market is 24.34% compared with the average price of the 20 trading days before the suspension, which is far lower than this case. Fourth, the shareholders of Midea Electric’s tradable shares enjoyed an increase in earnings per share in 2013 after the completion of this restructuring.
It is understood that there are three main factors to consider in the price of Midea’s electrical appliances, which are comparable to the increase of listed companies since the suspension of trading; Comprehensively consider the historical cost of minority shareholders and the overall trend of A shares in the near future; Similar to the case of share swap and merger, the share swap premium is given. Based on the above factors, the circulating shareholders are given a higher premium and the conversion price is determined to be 15.96 yuan/share.
Midea Group’s issue price comprehensively considers the valuation of A-shares in various business segments of the Group compared with listed companies, and at the same time gives certain liquidity discount to unlisted assets, which is then comprehensively weighted according to the predicted profit ratio of each business segment in 2013. The issue price is 44.56 yuan, and the issue P/E ratio is 10 times, which is 13.97 times higher than the market average comprehensive P/E ratio, with a discount of 36% and a discount of about 23% compared with the US P/E ratio of electrical appliances, which fully protects the interests of circulating shareholders.
In addition, before the listing, the Group implemented the shareholding plan for senior management by means of equity reward, and the shares came from the existing shares of the controlling shareholders, which would not dilute the rights and interests of minority shareholders; At the same time, the share payment fees generated by the shareholding plan have all been reflected in 2012.
Midea Group will continue to give high returns to shareholders after listing, and the company will distribute dividends in cash, stock or a combination of cash and stock. Based on industrial synergy and efficient management and operation system, Midea’s future business performance is expected to improve steadily.
Efficient operation system
Regarding the reorganized organizational structure, Huang Xiaoming said that after the reorganization, Midea Group will be presented as a complete entity, which is a consumer-oriented and market-oriented organization. The existing structure is a "group-division" two-level structure, and the division "9+2+1 structure": 9 end consumer goods divisions +2 industrial chain core components divisions +1 international operation platform, and 13 business units of the national network layout logistics company, with clear and concise structure. The current structure is conducive to the effective implementation of Midea Group’s future development strategy.
At the same time, with the help of this adjustment, Midea Group will establish a market-oriented and efficient operation process system and build an agile organization by standardizing organizational setup, reducing organizational levels, realizing organizational flattening, diagnosing and sorting out existing systems and processes.
Huang Xiaoming said that Midea Group has formed a diversified shareholding structure in which actual controllers, strategic investors and middle and senior management jointly hold shares, and at the same time, it has solved the problem of medium and long-term incentives for management. Midea Group adheres to the principles of authorized operation and decentralized management, establishes a mature management system for professional managers, successfully completes the handover of the founders to professional managers, gives full play to the enthusiasm of professional managers, and cultivates an experienced and young management team for the company’s industrial development and expansion.
The management stock ownership plan has established and improved the company’s long-term and effective incentives and constraints. The company has implemented employee rewards for 47 major senior managers. The incentive target is 3% shares of Midea Group, which comes from the holding transfer of Midea, the controlling shareholder of Midea Group. There is no exercise condition and the lock-up period is three years, which ensures the stability of the management and its consistency with the interests of shareholders. In the future, the company will launch a wider range of equity incentives in a timely manner according to the actual operating conditions.
Profitability has steadily increased.
After more than a year of transformation and adjustment, Midea has achieved phased results. Fang Hongbo said that the environment of high-speed growth of home appliance industry has changed, and the mode of over-reliance on scale has been challenged, so it is necessary to find a new business model to adapt to the current market environment. Therefore, Midea takes the initiative to adjust its strategy, focusing on sustainable profitability, and giving up the development model of blindly pursuing scale in the past. By improving the product structure, enhancing the added value of products and enhancing the competitiveness of products, we can maximize profits on the basis of moderate scale.
Over the past year or so, the company’s transformation has involved many adjustments such as equity governance, company structure, business model and channels. In terms of industrial structure, focus on core business, cut off non-household appliances business and low-margin products, and adjust product categories to 20 core categories with market position and space; In terms of marketing channels, the company has returned to the big agency mode of the division, integrated operation of R&D, production and marketing, clear rights and responsibilities, restored terminal confidence and stronger profitability than before. According to reports, after more than a year of adjustment, the company’s business structure is clear, the asset bubble is digested, the channel inventory is greatly reduced, and the financial optimization, most of the product shares have returned to the pre-transformation level, and the effect will be further revealed in the next 2-3 years.
According to Midea Electric’s 2012 annual report, the annual operating income was 68.1 billion, and the net profit attributable to the parent company was 3.5 billion, of which the fourth quarter income was 14.2 billion, a year-on-year increase of 27%, and the overall growth resumed. Since the transition, the gross profit margin has steadily rebounded, and the profitability has been enhanced. The comprehensive gross profit margin for the whole year reached 23%, up nearly 4 percentage points. The annual operating profit margin was about 7%, up by 1.6 percentage points. (Securities Times reporter Gan Lin)
(Source: Securities Times)
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