Research On The Value Effects Of Listed Corporations’ Equity Carve-outs In China

From the year2012to2013, due to the rapid development ofmobile internet, it’s becoming a common occurrence to hear about aseries of mobile internet enterprises going public after partitions. TakingSina Microblog and WeChat for example, they aim to go listed overseasafter their partitions from Sina and Tencent respectively. It’s becoming ahot spot again for listed companies to split up and go public sinceOctober2009. In May7,2013, Tong Ren Tang Chinese Medicine（08138,HK）went public on the gem board in Hong Kong with itsbreak-up from Tong Ren Tang Technology (01666.HK). As a result,Tong Ren Tang(600085.SH) became the first domestic company to splittwice and list on the SEHK again after becoming the first split stockshare in the mainland.This essay focuses on discussing the value impact of the corporatecarve-outs on parent companies and subsidiaries by way of studying thecases of Tong Ren Tang Corporation’s two time carve-outs. What thisessay discusses is merely the carve-out in its narrow sense, that is, thecarve-out of listed corporations. According to the relationship betweenthe parent companies and subsidiaries before and after break-up inbusiness and industrial chain, the carve-outs can be classified ashorizontal, longitudinal and mixed carve-outs. In accordance with themain factors of the partition’s motivation and business features ofparent companies and its subsidiaries, the pattern of carve-outs can bedivided into three categories, which are defined as PE incubator mode，business differentiation mode and similar business mode. This essay attributes the motives of carve-outs to internal and external aspects.Afterwards, it analyses the basic access conditions of listedcorporations’ carve-outs, as well as the effects of carve-outs.On this basis, by way of studying the motivation as well as theequity value and financial value effects based on CAR Time WindowModel of the cases of Tong Ren Tang Technology’s partition from TongRen Tang Corporation in2000and Tong Ren Tang Chinese Medicine’sbreak-up from Tong Ren Tang Technology, it finally comes to theconclusion that carve-outs exert remarkable and positive effects on themarket value as well as the financial value of the listed parentcompanies.