Research On Management Buy-outs In Present Economic Environment Of China

MBO originated in U.S. at first. Three Americans established a company that was called KKR in the 1970s. It is the first company that is engaged in MBO in the world. Mike Wright, who was a British economist, found this phenomenon in 1980 and gave it an exact definition. Specifically, MBO means that the managers utilize the financing capital to buy shares of their own companies. Thus it can change the ownership structure, control structure and assets structure of the targeted company, and then achieve the goal of recombining the company and get prospective earnings. With the development of MBO in practice, other two kinds of forms have appeared: One is that the managers in the targeted company combine with outside investors or acquisition experts to form investing group and implement MBO. MBO of this form is easier to succeed; the other is that MBO and ESOP (Employee Stock Ownership Plans) or EBO (Employee Buy-outs) are together in use. It can be exempt from taxes and reduce the cost of MBO by selling shares to the employees in the targeted company and carrying on stock right financing. MBO had a great vogue in U.S. and U.K. in the 1980s. In the beginning of the 1990s, Russia and some countries in Eastern Europe were lying in the economic transitional stage. When they campaigned for privatization, MBO was considered one of the most operational ways, by which the state –owned assets were withdrawn at that time. MBO appeared at the end of 1990s and developed rapidly in China. There are nearly 100 enterprises eager to have a try besides the 20 enterprises that announced to have carried out MBO. The heavy background and origin of the listed companies' MBO campaign lie in the property right reform of the state-owned enterprises in China, which the strategic reorganizations and shrinking of the state-owned economy caused. Carry on strategic reorganizations of the state-owned economy in order to centralize state-run capital from general competition departments to strategic departments. It is the important content about the SOE reform of the Fourth Plenary Session of the Fifteenth Central committee of the CPC. The great transition of this guiding theory makes it possible for domestic enterprises to carry on MBO. MBO have three important meanings to the reform of Chinese enterprises: (1) MBO is an effective way that the state-owned stock is reduced; (2) MBO helps to perfect legal person's management structure further; (3) MBO helps to perfect the property right structure of enterprises further and encourage the managers.MBO forms Chinese own characteristics in practice. Unavoidably some problems appear. We have chosen and analyzed 8 sample companies. Combining the situations of other enterprises, we have summarized the characteristics of Chinese MBO enterprises. Such as they always have good business structure, financial situation and growth potentialities. The administration and supervision authorities of the enterprise have made enormous contribution to the growth of the enterprise, and received the support of their staff. The enterprises have already carried out some legal encouragement plans to the managers and staff before implementing MBO. The government and society approve of managerial values, and support energetically their MBO plans. These are important conditions for MBO to succeed.A lot of questions exposed in the Chinese enterprises while implementing MBO: (1) About the purchasing price. Regard net assets as the main basis now, but is it rational pricing basis? Generally the purchasing price is lower than the net assets now, but is it fair to the shareholders for circulating and the country? Does the possibility of loss of the state-run assets exist? (2) About way and legitimacy of financing. At present there are the very limited financing channels in China. But huge funds are needed for implementing MBO. Few enterprises published their sources of financing. People pay close attention to the problem. Is it proper about MBO capital? Is it legal? Are there repaying abilities in the enterprises? Wha...