The Legal Analysis Ctrip.com Case

The sustained and rapid economic development in Chian has led to the mushrooming ofPrivate Equity(PE)in recent years.The internatioal PE have poured into the domestic marketand enjoyed the "economic feast".PE play an important role in the "fortune myth" which hasbeen created by some successful Chinese private enterprises such as ctrip.com, snda.com inforeign capital markets.In the whole process of PE investment,the capital’s entry and exit aretwo key points.To avoid possible moral risks,PE usually prefer to adopt the preferred stockinvesting the target enterprise.But if PE choose the Preferred stock,it will undertake very bigrisk.There are not definite provisions about the system of the preferred stock that is in theCompany Law of the People’s Republic of China which was promulgated and came into forceon January1,2006.The Provisions on M&A of a Domestic Enterprise by Foreign Investors("NO.10Decree")that was jointly promulgated by six ministries supervised the red-chip modemore and more severe,hampered the retreat of PE through the red-chip mode.In thiscontext,the paper takes ctrip.com as an example,analyses the application of the preferred stockand the red-chip mod in PE investment combined with China’s current legal system,has acertain theoretical and practical significance.The paper is consisted of the introduction,the text and the conclusion.The introduction elaborates the conceps in PE investment,the study purpose ofctrip.com,and the analysis train of thought.The text is divided into four parts.The first part is case and legal issues.First of all,it introduces the ctrip.com case.Then itsums up the two major legal issues of the case which are the preferred stock and the red-chipmode.The second part interprets the preferred stock which is adopted by PE investingctrip.com.It analyses the application of the preferred stock in the ctrip.com case,anddiscusses the legal obstacles,the possibility of implementation,the set of the convertiblepreferred stock clauses under China’s current legal framework. The third part interprets the red-chip mode which is adopted by PE retreatingctrip.com.First of all,it analyses the application of the red-chip mode in the ctrip.comcase.Then it analyses the material retardation of the red-chip mode facing with thepromulgation of "NO.10Decree".At last,it analyses the legal risk of the new red-chip mode.The fourth part is inclusion.To promote the development of China’s PE investment,theauthor gives opinions to benefit the legal system of the preferred stock and the supervision tothe red-chip mode.The conclusion is the summary of the paper’s pionts.