Research On The Issue Of Pricing Stated-owned Equity In Foreign Investors' M & A

Since the 1990's, multi-enterprises'cross-border Merger & Acquisition has been surging within the global scope. To be adapted to changes of the international environment and to fulfil Chinese government's commitments in the process of joining WTO, Chinese government has relaxed its restrictions on foreign investment and has introduced a series of laws and regulations to permit foreign investors to participate in the reorganization and transformation of state-owned enterprises since 2001. Many large multinational corporations and financial capitals in the world began to merge and acquire China's SOEs. In particular, in 2005, with the non-tradable share reform, many famous foreign enterprises paid more attention to Chinese leading SOEs, and showed more enthusiasm in the big backbone SOEs in some industries.M&A inevitably involves the issue of pricing. But it is not easy to determine a reasonable equity price in the process of the introduction of foreign capitals. China's capital market is under-developing, the property right transactions of SOEs are imperfect, and the policies and regulations about equity pricing are lagging behind and ambiguous, which makes the pricing of state-owned equity very messy in the process of M&A. The special background and severe principal-agent problem of SOEs also lead to some non-price element in the pricing process. The managers of SOEs, local governments and intermediary institutions play important roles in the pricing process.With foreign investors'M&A cases increasing and their influence enlarging, people pay more attention in the discussion about whether or not there is any loss of state-owned assets during foreign investors'M&A. Some think that the value and growth potential of SOEs are seriously under-valued and the transfer price of state-owned equity is too low when foreign investors merge and acquire it. Others believe that the low transfer price is reasonable. One reason is that foreign investors have experience and advanced management, so the introduction of these strategic investors contributes to the restructuring of SOEs. The second reason is that if we don't sell the good assets, it is worth nothing when it becomes bad. The discussion shows that how to evaluate the state-owned equity is the point at issue in foreign investor'M&A. People are concerned about questions like"Is there any loss of state-owned assets during the M&A process of foreign investors?""How should the price of state-owned equity be objective?""How should we reflect the fair value and avoid the loss of state-owned assets?"And so on.This paper makes scientific research along the following train of thought: raising the issue→documentary summary→problem description→survey analysis→empirical analysis→theoritical analysis→recommendations of the pricing model→giving suggestion.This article combines empirical analysis with normal analysis, and qualitative analysis with quantitative analysis. The empirical research methods used in the article include survey studies, case studies, statistical analysis and quantitative analysis. The normal research methods used include comparative analysis, game analysis, and economic analysis.It is divided into seven chapters.The first chaptert is introduction. It introduces the research background, research value, research methods, research train of thought and innovation, as well as the structure and organization of the paper.The second chapter is the ducument review. It commends the representative ducuments about the motivation and performance studies about M&A, studies in the pricing methods in M&A, studies in the pricing of stated-owned equity and studies in foreign investors M&A. Then it points out these ducuments'defects.The third chapter is comparisons and comments of pricing methods when foreign investors'merge and acquire the state-owned equity in China. First, it compares and comments the three common evaluation methods: asset valuation method, market comparison method and earning discount method. Asset valuation method and market comparison method have been applied in different periods in China. Combined with the questionnaire, it points out the shortcomings of current pricing method for stated-owned equity in China. It believes that, market-oriented pricing of state-owned equity is a goal. In current period, what we should do is to increase the market-oriented degree as much as possible, but the price should not be wholly determined by market. The value of equity is reflected by the value of the assets, the reaction to the market and the ability of earning totally. And qualitative factors should also be considered in pricing process. The fourth chapter is empirical analysis of the financial factors that affect the price of stated-owned equity in foreign investors'M&A. Based on data collection, it carries out factor analysis of various financial indicators from the state-owned listed companies, and extracts seven factors. They are growth factor, solvency factor, market reaction factor, management efficiency factor for long-term assets, and so on. It gives a preliminary estimate of the stared-owned equity valuation model with the seven factors. Then it estimates the coefficients in the model, tests the significance of the estimated coefficients and finds out the three key factors among them by using SPSS statistic software. They are market reaction factor, growth factor and solvency factor in order. Finaly, it builds stated-owned equity pricing model with three key financial factors found out.The fifth chapter is analysis of non-financial factors which affect the state-owned equity's price in foreign investor's M&A. First it analyzes the behavioral motivation of the involved parties in foreign investors'M&A, including the SOEs, foreign investors, government, managers of the SOEs. Second, it realizes the strengths, weaknesses, opportunities and challenges of the SOEs in foreign investors'M&A. Third, based on game theory, it builds up a bargaining game model between SOEs and foreign investors, revealing the inherent link between the price determinant and the participant of the two sides, as well as other parties in M&A. Finally, it explains the important non-financial factors that will influense the state-owned equity's transaction price.The sixth chapter is the structuring of the stated-owned equity pricing model in foreign investors'M&A. Based on chapter 3, 4 and 5, it puts forward the five periods to determine the trasaction price of state-owned equity in M&A. The trasaction price of state-owned equity in M&A consists of two components. They are the financial value and the premium that the buyers are ready to pay in M&A. The financial value of the state-owned equity depends on market reaction factor, growth factor and solvency factor. The premium that the buyers are ready to pay in M&A depends on the resourses, industrial standing, development prospect, and so on. It determines the weights of non-financial factors by using the analytic hierarchy method, and establishes the final form of pricing model at last.The seventh chapter is conclusions and suggestions. It summarizes and elaborates the main conclusions, and then gives some suggestions to the SOEs, supervise authorities and some other parties. Fanally, it points out the limitation and prospect of the paper. It suggests that, the SOEs and their shareholders should analyze the motivations and demands of foreigners carefully and fully understand their own strengths and weaknesses to win a beneficial transaction price in foreigner'M&A. Regulatory authorities should introduce the price discovery mechanism in M&A as soon as possible, improve the information disclosure system and speed up legislation to regulate government behavior.The innovations are mainly embodied in the following aspects: (a) it revealed the key financial factors and set up a financial evaluation model for state-owned equity; (b) it analysed the non-financial factors and explained the method to determine their weights; (c) it also set up a bargaining game model of foreign investors'M&A of the SOEs; (d) eventually it built up a pricing model.The limitations of this study include: (a) the samples of empirical analysis were constituted in state-owned listed companies only, the non-listed companies were not included in empirical analysis and the samples of questionnaire and empirical analysis were not enough; (b) due to inadequate reference material, it did not make thorough case studies, and did not discuss the details of bargaining between buyer and sellor and the forming of the price of stated-owned equity; (c) limitated by individual capacity, it didn't analyze the motivation, behaviourial result, pricing process of in M&A deeply.