Mergers & Acquisitions in China

119 Pages·2011·1.05 MB·English

by  Chris Devonshire-Ellis

China Briefing
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Chris Devonshire-Ellis (cid:2) Andy Scott (cid:2)
Sam Woollard
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Mergers & Acquisitions
in China
Second Edition
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Andy Scott
SamWoollard
Dezan Shira&Associates
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v

Contents
M&A Environment in China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Chinese Legislation on M&A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Structuring Your Own Mergers and Acquisitions. . . . . . . . . . . . . . . . 29
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Valuing an Acquisition Target. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Negotiation Strategy in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Buying Bankrupt Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Labor Issues in M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Tax Planning in M&A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Converting a Chinese Company into an FIE . . . . . . . . . . . . . . . . . . . 93
Common Mistakes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
vii

M&A Environment in China
1 Mergers & Acquisition
Mergers&Acquisitions(M&A)isageneraltermusedtorefertotheconsolidation
of companies. A merger is a combination of two companies to form a new
company,whileanacquisitionisthepurchaseofonecompanybyanotherwithno
new company being formed.
A merger occurs when one firm assumes all the assets and all the liabilities of
another. A majority vote of shareholders is generally required to approve a
merger. One company can acquire another in several other ways, including
purchasing some or all of the company’s assets or buying up its outstanding
shares of stock.
Introduction
China’s economic reforms and robust growth have fuelled an increased pace of
M&A activity. The country’s World Trade Organization (WTO) accession has
opened previously closed industry sectors to foreign investment, and is gradually
allowing greater access to its domestic market for Foreign-Invested Enterprises
(FIEs).
Inward M&A transactions offering immediate access to a very competitive
domestic market are becoming an increasing attractive alternative to green field
investments. In addition, outward M&A investments are booming, as many more
Chinese companies need, and are able to pursue, opportunities overseas.
Although it used to be more popular for foreign investors to establish FIEs in
China from scratch, in recent years there has been an influx of foreign investors
using M&A strategies with existing entities. In the current Chinese market there
are many benefits of using M&A over establishing new companies. Investors
C.Devonshire-Ellisetal.(eds.),Mergers&AcquisitionsinChina,ChinaBriefing, 1
DOI:10.1007/978-3-642-14919-1_1,(cid:2)AsiaBriefingLtd.2011