A subsidiary acquired by many years ago has become the root of Shanghai Kehua Bio-Engineering Co.Ltd(002022) trouble.
On January 19, after two extensions, Shanghai Kehua Bio-Engineering Co.Ltd(002022) finally replied to the attention letter of Shenzhen Stock Exchange on the issue of its subsidiary Tianlong company. The company said that at present, it is difficult to actively lead the operation and financial activities of Tianlong company, and the possibility that the company has lost control of Tianlong company cannot be ruled out for the time being.
Affected by this news, as of the closing on January 19, Shanghai Kehua Bio-Engineering Co.Ltd(002022) shares closed at 15.67 yuan / share, down 2.43%.
parent child relationship collapse
In June 2018, Shanghai Kehua Bio-Engineering Co.Ltd(002022) announced that the company obtained 62% equity of Xi’an Tianlong and Suzhou Tianlong (hereinafter referred to as “Tianlong company”) with 554 million yuan in cash. The company said that Xi’an Tianlong and Suzhou Tianlong have certain technical advantages in the field of molecular diagnosis. The acquisition of them will further enrich the company’s molecular diagnosis product line and improve the layout of the company’s molecular diagnosis and testing instruments.
In the severe situation of the global epidemic, the originally unpopular molecular diagnosis has become hot. The net profit of Tianlong company has increased greatly, which has made a great contribution to the performance of the parent company Shanghai Kehua Bio-Engineering Co.Ltd(002022) .
According to the data, in 2020, the net profit deducted by Tianlong company was 1.106 billion yuan, and the net profit attributable to shares in Shanghai Kehua Bio-Engineering Co.Ltd(002022) 2020 was 675 million yuan. It can be said that most of the high growth of Shanghai Kehua Bio-Engineering Co.Ltd(002022) performance is attributed to Tianlong company. Shanghai Kehua Bio-Engineering Co.Ltd(002022) split the main financial data of the company’s consolidated financial statements for the third quarter of 2021 in the reply letter. It is not difficult to find that Tianlong has actually occupied a core position in Shanghai Kehua Bio-Engineering Co.Ltd(002022) .
For example, in the data of monetary capital, accounts receivable, construction in progress and total assets, Tianlong accounted for 77%, 51%, 93% and 44% respectively in the consolidated statements; In addition, Tianlong’s operating revenue and net profit attributable to the parent company account for 53% and 85% of the consolidated statements of listed companies respectively.
In this regard, Shanghai Kehua Bio-Engineering Co.Ltd(002022) explained that Tianlong company mainly sells nucleic acid extraction, amplification instruments and supporting reagents. The prevention and control of covid-19 epidemic since 2020 has brought significant growth to the operating performance of Tianlong company. The proportion of Tianlong company in the items related to operating revenue, profit contribution and cash flow from operating activities in the company’s consolidated financial statements has increased significantly.
frequent acquisition friction
Why did Shanghai Kehua Bio-Engineering Co.Ltd(002022) turn against its subsidiary Tianlong company when they could have worked together to create wealth?
The problem lies in the acquisition of Shanghai Kehua Bio-Engineering Co.Ltd(002022) .
Shanghai Kehua Bio-Engineering Co.Ltd(002022) was listed in 2004 and its main business is the research, production and sales of in vitro clinical immunodiagnostic reagents, in vitro clinical chemical diagnostic reagents, nucleic acid diagnostic reagents, genetic engineering drugs and automatic testing and diagnostic instruments matched with in vitro diagnostic reagents.
After acquiring 62% of the shares of Tianlong company with RMB 554 million, the two sides also agreed to dispose of the remaining shares in 2021. The listed company may request to purchase all the shares at the higher price of 1.2 billion yuan and 30 times PE, or other shareholders may request to sell the remaining equity to the listed company at the higher price of 900 million yuan and 25 times PE.
Tianlong’s better than expected performance made the subsequent agreement signed at the time of acquisition an obstacle to the continued cooperation between the two sides.
According to the agreement, the listed company shall 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.
Facing the huge price difference, Shanghai Kehua Bio-Engineering Co.Ltd(002022) said after receiving the application for acquisition that the explosive growth of performance caused by the epidemic has constituted a “change of circumstances” situation stipulated by law, and proposed to renegotiate.
In addition to the subsequent acquisition negotiations, Tianlong company has made the matter of not cooperating with the consolidated statements of listed companies.
On December 27, 2021, Shanghai Kehua Bio-Engineering Co.Ltd(002022) announced that Li Ming, director and general manager of Tianlong company, a holding subsidiary, clearly stated in the audit response letter that he could not cooperate with Shanghai Kehua Bio-Engineering Co.Ltd(002022) pre-trial accounting statements and subsequent audit.
Listed companies require subsidiaries to provide financial information, but subsidiaries do not cooperate. Tianlong company’s reasons are: 62% of the equity of Tianlong company held by Shanghai Kehua Bio-Engineering Co.Ltd(002022) has been frozen, Xi’an Weiyang District People’s court has ruled to prohibit Shanghai Kehua Bio-Engineering Co.Ltd(002022) from exercising all shareholders’ rights of 62% of the equity of Xi’an Tianlong company, and there is a risk of disclosure of trade secrets when opening financial data to Shanghai Kehua Bio-Engineering Co.Ltd(002022) .
In response, Shanghai Kehua Bio-Engineering Co.Ltd(002022) responded that the so-called “reasons” of Tianlong company were completely lack of factual and legal basis, and expressed “the strongest” indignation and condemnation.
In the reply letter, Shanghai Kehua Bio-Engineering Co.Ltd(002022) refuted the above reasons why Tianlong company did not cooperate. He believes that as of the reply date, Shanghai Kehua Bio-Engineering Co.Ltd(002022) is still the legal controlling shareholder of Tianlong company, occupies a majority in the board of directors of Tianlong company, and has the power to approve and make decisions on major matters. The board of directors of Tianlong company also still has the power to approve major matters of Tianlong company. Therefore, Shanghai Kehua Bio-Engineering Co.Ltd(002022) can still influence the decisions of the board of directors of Tianlong company through its appointed directors.
However, at the same time, Tianlong company does not cooperate with listed companies in pre-trial accounting statements. On January 10, 2022, Shanghai Kehua Bio-Engineering Co.Ltd(002022) sent a letter again asking Tianlong company to cooperate with the accountant’s annual report audit. However, as of the reply date, Tianlong company had no sign of implementing the resolution.
Based on the above reasons, Shanghai Kehua Bio-Engineering Co.Ltd(002022) believes that it is difficult to actively lead the operation and financial activities of Tianlong company, and the possibility that the company has lost control of Tianlong company cannot be ruled out for the time being.
For Shanghai Kehua Bio-Engineering Co.Ltd(002022) , the consequences of Tianlong losing control are unimaginable. Shanghai Kehua Bio-Engineering Co.Ltd(002022) said in the reply that if the merger control over Tianlong company is lost, it will have a significant impact on the performance of the company’s consolidated financial statements.
actual control of human anxiety factors
The case brought to court may be related to the change of Shanghai Kehua Bio-Engineering Co.Ltd(002022) actual controller.
In May 2020, Shanghai Kehua Bio-Engineering Co.Ltd(002022) announced that its largest shareholder, LAL company, transferred 95.863 million shares (accounting for 18.63% of the total share capital) to Zhuhai Baolian, which is a wholly-owned subsidiary of Gree Real Estate Co.Ltd(600185) .
Before and after this transaction, Shanghai Kehua Bio-Engineering Co.Ltd(002022) has no actual controller. In June 2020, after the completion of the above equity transaction, Gree Real Estate Co.Ltd(600185) director and executive vice president Zhou Qinqin served as the chairman of Shanghai Kehua Bio-Engineering Co.Ltd(002022) and Gree Real Estate Co.Ltd(600185) President Lu Junsi served as the chairman of Shanghai Kehua Bio-Engineering Co.Ltd(002022) board of supervisors.
It is not the current Shanghai Kehua Bio-Engineering Co.Ltd(002022) helmsman who originally decided to acquire Tianlong company and intends to subsequently acquire the remaining equity. He believes that the current situation of Tianlong company constitutes a “change of situation”, which is also based on this point.
What makes Tianlong company uneasy is that in May 2021, Zhuhai Baolian plans to give up the position of the largest shareholder to Sansure Biotech Inc(688289) , which will undoubtedly lead to another change in the helm of Shanghai Kehua Bio-Engineering Co.Ltd(002022) . Sansure Biotech Inc(688289) is on the same track as Tianlong company. After the founding shareholder of Tianlong company filed an arbitration, the above equity transfer was soon terminated.
In an interview with the international finance news, PI Haizhou, an independent financial commentator, said that in recent years, more and more subsidiaries of listed companies have been “out of control”. But in fact, as long as the major shareholders really care, “iron fist” management, there will be no such phenomenon at all. In terms of the problems faced by Shanghai Kehua Bio-Engineering Co.Ltd(002022) , those who hold more than 60% of the shares can be said to be absolute major shareholders. They can recover their control without even going through legal procedures. For example, as long as they hold a shareholders’ meeting and directly dismiss the management of Tianlong subsidiary, they can complete their control. However, such “out of control” problems occur frequently. In the final analysis, it is because the management has the problem of interest transfer. In fact, “out of control” is beneficial to some individuals. It is difficult for regulators to intervene in this kind of “internal struggle” for power and profit.
