Analysis On The Cash-option System Of Stock-for-stock M&A

In today’s capital markets, Stock-for-stock has gradually become the mainstreamway of M&A. The Cash Option system, as an original institutional arrangement inChina, plays a pivotal role in the Stock-for-stock M&A practice. On its legal nature,the Cash Option is shareholders’ equity exit right when their expectations in vain.And On its economic nature, the Cash Option is a financial instrument same as putoption. The dual property determines that the cash option both has function onprotecting the interests of company minority shareholders and improving theeffectiveness of M&A. As most of companies’ shareholding structure areover-concentrated, the Cash Option system is particularly crucial to balance interestsbetween the minority shareholders and majority shareholders.Although China Securities Regulatory Commission has issued " Measures for theAdministration of the Takeover of Listed Companies (2012)" making legalfoundations for the Cash Option institutional arrangements. The regulations ensure theright to withdraw for cash under general offer to shareholders or stock-for-stock MÂumstances. However, as yet none domestic laws and regulations have made clearprovisions for the Cash Option. The only two normative documents are "ShenzhenStock Exchange listed company Cash Option Practice Statement" and "Cash Optioninvestors’ operational guidelines." Absence of peremptory norms thereof and thearticles of association for listed companies, results the Cash Option many legalproblems and regulatory risks in application, such as pricing standards diversificationand lack of third-party compliance mechanism, etc. To solve these problems, it’s urgent tomade recommendations to make Cash-Option system better.Corporate Law clearly defines the share repurchase claims for dissentingshareholders. In system value perspective view, the Cash Option and shareholders repurchase claims go hand in hand, that is to provide exit path for the dissentingshareholder, thus speeding up the process of company mergers and acquisitions. Inpractice, there are some typical cases in which they are both applicable. Nevertheless,they exist essential differences whether in the nature or scope of the applicability. Onbasis of clarifying their differences, it is necessary to explore and research on how to improvingthe Cash Option system basis on as common mechanism for minority shareholders toexit smoothly.There are five parts for the full-text. The first chapter respectively analyzes natureand function of the Cash Option from the perspective of economic and legal, anddemonstrates its dual effect. The second chapter introduces theoretical analysis on theapplicable principles, the legal relationship, the price formation mechanism and thescope of application. The third Chapter analyzes the problems and risks when theCash Option applies via Panzhihua Iron and Steel restructuring cases. The forthchapter overviews the current legal provisions for the Cash Option and sharerepurchase claims, as well as the similarities and differences between them. The fifthchapter puts forward legislative proposals to improve the Cash Option system.In the process of writing this paper, I mainly use the logical analysis andnormative analysis, case studies and comparative analysis research methods. Confinedto limited time and master data, there are still some deficiencies. I would continue topay attention to make future studies of related issues.