The rocket growth of the performance of the subject matter of M & A is a happy event, but it has become a sweet “trouble” for Shanghai Kehua Bio-Engineering Co.Ltd(002022) : the sequelae of M & a not only makes the original shareholders of the subject matter go to court with the company, but also makes the target company “out of control”.
Xi’an Tianlong and Suzhou Tianlong (collectively referred to as “Tianlong company”), the subsidiaries of Shanghai Kehua Bio-Engineering Co.Ltd(002022) holding company, refuse to cooperate with the company’s annual review, which may lead to the issuance of an audit opinion of “unable to express an opinion” in the company’s 2021 annual financial report. According to relevant regulations, the company’s shares may be subject to delisting risk warning.
There are no double blessings and no single misfortune. Tianlong’s “out of control thunder” also detonated rapidly in the secondary market, making Shanghai Kehua Bio-Engineering Co.Ltd(002022) fall by the limit for two consecutive days.
Surprisingly, as the controlling shareholder, is Shanghai Kehua Bio-Engineering Co.Ltd(002022) really unable to take Tianlong company?
“For the controlling shareholder, if the relevant personnel of the subsidiary refuse to cooperate with the audit and hide the financial statements or constitute a criminal act, the company can choose to report to the public security organ.” A lawyer familiar with the M & a business of listed companies told reporters that generally speaking, the controlling shareholders have control over the governance structure and management appointment of subsidiaries. Unless special arrangements are made in the M & a agreement, this makes the company fall into today’s passivity.
subsidiary “out of control” and refused to cooperate with the annual review
Looking back, Shanghai Kehua Bio-Engineering Co.Ltd(002022) 4 announced on April 19 that Tianlong company, the holding subsidiary of the company, refused to cooperate with the company’s annual audit, or the company’s 2021 financial report would be issued with an audit report of “unable to express an opinion” by Lixin accountant. According to relevant regulations, the company’s shares may be subject to delisting risk warning.
According to the announcement, the specific manifestations of Tianlong company’s refusal to cooperate with the Shanghai Kehua Bio-Engineering Co.Ltd(002022) annual review are as follows: the senior executives headed by general manager Li Ming (hereinafter referred to as the “management of Tianlong company”) violated the provisions of Shanghai Kehua Bio-Engineering Co.Ltd(002022) on the management rules and regulations of the holding subsidiaries, violated the provisions of the articles of association of Tianlong company, and refused to implement the resolutions made by the board of directors of Tianlong company, Refuse to cooperate with Lixin certified public accountants engaged by the company to carry out the audit work in 2021, and refuse to provide important information such as the financial account book of Tianlong company in 2021.
In fact, Shanghai Kehua Bio-Engineering Co.Ltd(002022) since February this year, it has sent people to negotiate with the management of Tianlong company for many times, but with little effect, and even “closed the door” because the other party doesn’t return wechat and doesn’t answer the phone.
For the “refusal to cooperate” of Tianlong company, Shanghai Kehua Bio-Engineering Co.Ltd(002022) believes that the company legally holds 62% of the equity of Tianlong company and is the controlling shareholder of Tianlong company. The management and relevant responsible persons of Tianlong company shall not obstruct the normal audit work of listed companies on the basis of disputes between shareholders of Tianlong company.
The reporter noted that although the management of Tianlong company took a tough attitude, Shanghai Kehua Bio-Engineering Co.Ltd(002022) still exercised restraint.
For the above situation, Shanghai Kehua Bio-Engineering Co.Ltd(002022) said that the company has always been patient and hoped that the two sides can properly resolve the audit differences and ensure that the audit work of Tianlong company and the audit and information Phi work of the company’s 2021 annual report can be completed on time.
How important is the tough Tianlong company to Shanghai Kehua Bio-Engineering Co.Ltd(002022) ?
According to the annual report of Shanghai Kehua Bio-Engineering Co.Ltd(002022) 2020, the consolidated net profit of the company in 2020 was 1.142 billion yuan, while the net profit of Xi’an Tianlong reached 1.086 billion yuan, accounting for 95%. From the company’s 2021 semi annual report, the company’s consolidated statement profit is 741 million yuan, while Xi’an Tianlong’s contribution is 596 million yuan, accounting for more than 80%.
It is not difficult to see that Tianlong company is of great importance to Shanghai Kehua Bio-Engineering Co.Ltd(002022) .
Regarding Tianlong’s refusal to cooperate with the company’s annual audit, Shanghai Kehua Bio-Engineering Co.Ltd(002022) said that in addition to continuing to exercise the management rights of the listed company over its holding subsidiaries, the company will take all legal and necessary measures to investigate the legal responsibilities of relevant responsible persons and safeguard the legitimate rights and interests of the company and shareholders.
the sharp rise in the performance of the subject matter of M & A has become the “fuse”
As an important subsidiary of Shanghai Kehua Bio-Engineering Co.Ltd(002022) company, why does Tianlong biology take such a tough attitude? The matter also starts with the “successful” acquisition in 2018.
In June 2018, Shanghai Kehua Bio-Engineering Co.Ltd(002022) announced to acquire 62% equity of Tianlong company in cash of RMB 554 million. Tianlong has certain technical advantages in the field of molecular diagnosis. After the outbreak, the profits of the molecular diagnosis industrial chain company increased significantly. In 2020, Tianlong’s net profit returned to the parent company after deducting non profits will reach 1.106 billion yuan!
It is obviously a successful investment to spend only 554 million yuan to obtain an asset earning hundreds of millions of yuan a year. However, due to the subsequent terms signed during the acquisition, the two sides “turned against each other”.
At that time, the two sides also agreed to dispose of the remaining shares in 2021 – the listed company can request to purchase all the shares at the higher price of 1.2 billion yuan and 30 times PE, or other shareholders can request to sell the remaining shares to the listed company at the higher price of 900 million yuan and 25 times PE.
As a result, the higher than expected performance made the subsequent acquisition agreement signed at the time of acquisition an obstacle to the continued cooperation between the two sides – according to the agreement, the listed company should acquire the remaining 38% equity of Tianlong company at the price of 10.504 billion yuan, far exceeding the 554 million yuan when acquiring 62% equity. Faced with the huge price difference, the two sides could not reach an agreement, so they had to resort to arbitration.
It should be pointed out that the management of Tianlong company refused to cooperate with the annual review of the company.
Li Ming, the general manager of Tianlong company, sent a letter to Shanghai Kehua Bio-Engineering Co.Ltd(002022) chairman, President and chief financial officer by email on December 25, 2021. On the grounds that the arbitration dispute has not been resolved and there is a risk of leakage of trade secrets, he made it clear that he is unable to cooperate with the preliminary review of accounting statements and subsequent audit of listed companies at present.
In addition, the relationship between Shanghai Kehua Bio-Engineering Co.Ltd(002022) and the management of Tianlong company continues to “deteriorate” or is related to the fact that the arbitration has not yet reached a conclusion. It is disclosed that as of April 20 this year, the Shanghai International Economic and Trade Arbitration Commission has formed an arbitration tribunal to hear the arbitration case, but has not yet made an award.
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