Zhongxin Jingwei, January 22 (Xue Yufei) half a year after submitting the listing application, Wrigley Home Group Co., Ltd. (hereinafter referred to as Wrigley home) recently submitted a new prospectus to the Shenzhen Stock Exchange. Before that, its sponsor Citic Securities Company Limited(600030) received feedback from the application document for initial public offering of Wrigley home issued by the CSRC. This feedback with 61 questions and a total of more than 20000 words focuses on asset acquisition, equity transfer, persons acting in concert, etc.
who is acting in concert?
As a well-known manufacturing base in China, many well-known enterprises have been cultivated in Foshan, Guangdong. Wrigley home, which occupies a place in the ceramic sanitary industry, was born here. In 2013, the predecessor of Wrigley home, Wrigley Co., Ltd. (Note: refers to Foshan Lehua Hengye Sanitary Ware Co., Ltd. and Guangdong Lehua home Co., Ltd.) was funded and established by Xie Yuerong, Huo Zhenhui, the brother of Xie Yuerong’s spouse, and Huo Shaorong, the sister of Xie Yuerong’s spouse. Xie Yuerong is a major shareholder, with a capital contribution ratio of 65%.
According to public information, Wrigley’s products are mainly divided into seven categories: sanitary ceramics, faucet hardware, bathroom furniture, ceramic tiles, bathtub and bathroom, customized cabinet and wardrobe, and others. The main product brands include arrow Wrigley, Faenza farnsa and Annwa Anhua. The three brands have different market positioning.
At the beginning of the establishment of Wrigley home, Xie and Huo, represented by Xie Yuerong and his wife Huo qiujie, played a very important role in the company. When Wrigley Co., Ltd. was established in 2013, in addition to Xie Yuerong’s contribution of 65%, Huo Zhenhui and Huo Shaorong contributed 25% and 10% respectively.
In terms of equity, the prospectus shows that Lehua Hengye holds 55.24% of the shares of Wrigley home, which is the largest shareholder. In Lehua Hengye, Xie Yuerong, Huo qiujie, Xie Anqi (Xie Yuerong’s daughter) and Xie Wei (Xie Yuerong’s son) jointly hold 65% of the shares of Lehua Hengye, Foshan huochen Trading Co., Ltd., controlled by Huo Zhenhui, holds 25% and Huo Shaorong holds 10%. The second largest shareholder of Wrigley home is Xie Yuerong, holding 23.94% of the shares. The third and fourth largest shareholders are huochen trade and Huo Shaorong, holding 9.21% and 3.68% of the shares respectively.
Overall, Xie Yuerong, Huo qiujie, Xie Anqi and Xie Wei held 79.17% of the shares in Wrigley home. The four also signed the agreement on concerted action in October 2020 to clarify the relationship between the parties acting in concert in writing. However, Huo Zhenhui and Huo Shaorong, who are deeply bound with the Xie family, are not among the people who act in concert.
In this regard, the CSRC asked Wrigley home to supplement in its feedback that it did not identify other shareholders or actual controllers of shareholders with large direct and indirect shareholding ratios, such as Huo Zhenhui and Huo Shaorong, as the actual controllers of the issuer, and whether the basis was sufficient.
Dong Dengxin, director of the Institute of Finance and securities of Wuhan University of science and technology, believes that from the above relationship, Huo Zhenhui and Huo Shaorong are close relatives of the actual controllers, with a large shareholding ratio. They can be said to be actually acting in concert and should be recognized as one of the actual controllers of Wrigley home.
In addition, Zhongxin Jingwei noted that both Xie and Huo served as directors and senior executives in the company, with a strong family color of corporate governance. The board of directors of the company is composed of one chairman, five directors and three independent directors. Xie Yuerong is the chairman, and Huo Zhenhui, Huo Shaorong, Huo qiujie, Xie Anqi and Xie Wei are the five directors respectively. The senior management team is composed of a general manager, seven deputy general managers and a chief financial officer. Xie Yuerong is the general manager, and Huo Zhenhui, Huo qiujie and Xie Wei are the deputy general managers.
Dong Dengxin believes that the reason why listed or proposed listed companies with strong family color will be concerned is that the internal governance of family enterprises is not transparent enough, the management is relatively closed and lacks public attributes, “if there is no restriction of external forces, even if family enterprises are successfully listed on the market, it may take some time to move towards standardization and marketization.”
how about the capital increase price?
As the leading enterprise in China’s bathroom industry, Wrigley’s market share is in the forefront. According to the data of Euromonitor (Note: Euromonitor International), the prospectus quoted, in 2018, the market share of Wrigley ranked third in the industry, with 7.3%, lower than 20.4% of Kohler and 11.5% of toto.
In the past few years, Wrigley home, which has gradually expanded in scale, has carried out one equity transfer and seven capital increases. The first three capital increases and one equity transfer are only carried out internally by Xie and Huo. Since the fourth capital increase, ESOP platform and external capital have entered one after another.
In October 2019, Wrigley’s employee stock ownership platform, Lehua Jiayue, was established, and 50 core employees took shares at the price of “1.9 yuan / registered capital + 8% annualized interest when transferring the reserved share”. On October 24, 2019, the shareholders’ meeting of Wrigley Co., Ltd. passed a resolution to increase the registered capital of the company from RMB 800 million to about RMB 822 million, with a subscribed capital of RMB 13.5122 million by Lehua Jiayue, RMB 4.6956 million by CSI and RMB 3.5217 million by jinshikun.
Among them, the capital increase price of Lehua Jiayue is 1.90 yuan / registered capital; CSI investment and Jinshi Kunxiang are external investors. The capital increase price is based on the post investment valuation of 7 billion yuan, which is determined as 8.52 yuan / registered capital through negotiation between the two parties.
On October 21, 2020, Wrigley home introduced a number of war investments, among which Zhuhai Aoheng subscribed for 25.679 million shares with about RMB 338 million, Shenzhen Venture capital subscribed for 6.6577 million shares with RMB 87.5 million, and Hongtu Junsheng subscribed for 1.902 million shares with RMB 25 million. Two months later, on December 25, 2020, red star Xizhao subscribed 4116800 shares with RMB 54.1066 million, Qingdao Qingkun subscribed 228300 shares with RMB 3 million, and Beijing subscribed 8.69 million shares with about RMB 114 million.
The two capital increase prices are based on the post investment valuation of RMB 11.25 billion, which is determined to be RMB 13.14/share through negotiation. In other words, in just one year, the valuation of Wrigley home increased from 7 billion yuan to 11.25 billion yuan, an increase of 60%.
Industry and commerce information shows that there are some well-known enterprises in the last two rounds of war investment. CSI is the investment platform of the sponsor Citic Securities Company Limited(600030) . Shenzhen Venture Capital is funded by the Shenzhen municipal government and guided by social capital. Hongxing Xizhao is a company under Hongxing Red Star Macalline Group Corporation Ltd(601828) , and Qingdao Qingkun is controlled by Che Yiming, the daughter of Che Jianxin, chairman of Hongxing Red Star Macalline Group Corporation Ltd(601828) , Beijing is actually a company under Easyhome New Retail Group Corporation Limited(000785) .
As for the pricing basis in October 2019, October 2020 and December 2020, the prospectus states that it is determined through consultation on the basis of comprehensive consideration of various factors such as the macroeconomic environment, the company’s industry and competition, the company’s industry status, profitability and future growth.
However, in the feedback, the CSRC still requires Wrigley home to explain the reasons and rationality, price and pricing basis of previous capital increase and equity transfer, and the reasons and rationality of the difference in the price of previous / same capital increase or equity transfer.
Dong Dengxin said that as long as both sides can accept the specific price of capital increase or war investment, it will not be interfered by the outside world. If the price is higher and higher, it means that enterprises have won more favor. Generally speaking, the price of war investment introduced in the same batch is the same. If it is different, it may be related to the different scale or influence of the introduction institution.
why are the acquisition pricing bases different?
Over the past few years, Wrigley home has undergone several asset restructuring. According to the statistics of Zhongxin Jingwei, among the 17 asset acquisitions under the same control, there were 9 equity transfers “based on the paid in capital contribution of the original shareholders”, including the acquisition of Zhaoqing kitchen and bathroom, Zhaoqing Lehua, Wolong trade, Anhua Hengji, Shaoguan Lehua, Yingcheng Lehua, Zhaoqing Wujin, lejing hi tech, Sen Hefeng. In addition, when acquiring fane and Anhua in Jingdezhen, the price was based on the paid in capital contribution of the original shareholders after capital reduction.
For example, on November 26, 2018, Wrigley Co., Ltd. purchased 58.50% equity of Zhaoqing kitchen and bathroom held by Xie Yuerong at the price of 12 million yuan (corresponding capital contribution of 35.1 million yuan and paid in capital contribution of 12 million yuan). Since the paid in capital contributions of Huo Zhenhui, Huo Shaorong and Zhaoqing Lehua, as shareholders of Zhaoqing kitchen and bathroom, are 0 yuan, Wrigley Co., Ltd. purchased their shares at the price of 1 yuan. As of July 31, 2018, the audited net assets of Zhaoqing kitchen and bathroom were -501500 yuan and the assessed net assets were 11837600 yuan.
In several other acquisitions, the pricing basis has changed. When Wrigley Co., Ltd. acquired Shunde Lehua, the equity transfer became based on the assessed net assets, which was 38.9226 million yuan. During the acquisition of farnssa sanitary ware, the equity transfer is based on the assessed net assets and paid in capital contribution.
In these acquisitions, Wrigley home did not disclose in detail why the pricing basis was different. Therefore, according to the feedback of the CSRC, during the reporting period, Wrigley home has carried out a series of asset restructuring, including 17 asset acquisitions under the same control and 1 asset acquisition not under the same control. Wrigley home is required to supplement the basic information of the acquired enterprise, whether it constitutes a major asset restructuring, the pricing basis at the time of acquisition Whether there are hidden clauses that affect the determination of fair value and other issues.
Dong Dengxin told Zhongxin Jingwei that many enterprises conduct mergers and acquisitions before listing in order to expand the scale of the enterprise. If the acquisition transaction involves the relationship between parent and subsidiary companies or the same actual controller, it is easy to have the problem of benefit transmission, which is also the reason why the CSRC requires enterprises to specify the basis of acquisition price. Such mergers and acquisitions need to be reviewed by professional and independent third-party institutions for reference by regulators and investors. (Zhongxin Jingwei APP)
