The Legal And Policy Analysis Of Using Preferred Stock As Payment Of Considerations In M&A Transactions

As an emerging market in the development of globalization, China needs tocomplete the transition to market economy through the enterprise M&A, it will helpto promote the industrial development from emerging to mature, and then integratedinto the structure adjustment of global economic. On the macrography, themerger will help to deepen Chinese economic reform and also to achieve arobust growth. In microcosm, M&A has an important role in optimizingenterprises’ business model and palying the co-ordinated role between enterprises. Atpresent, the development trend of the world mergers is upgrading from the horizontalmergers which aims at expanding the market and the vertical development whichpurses the co-ordinated of industry chain to cross industry mergers and cross-borderM&A. But research shows that a considerable proportion of the enterprise mergerand acquisition failure are due to improper design caused by the acquiringcompany of payment. Expanding the M&A payment tools becomes the key factorto promote the development of payment. With the continuous innovation offinancing payment instruments, mixed payment is becoming the mainstream paymentmodel in world enterprise merger. While, at present the payment options in Chinaare somehow a little narrow. To enrich the M&A payment tool, ChinaCSRC released "the Pilot Management Measures of Preferred Shares" and therelated guidance documents, with the hope to actively promote the preferred sharesasas the payment tool in merger and acquisition of enterprises. This paper aims tostudy the preferred shares as a mergers and acquisitions of domestic enterprises topay the legal mode. According to the author’s writing logic, the paper is divided intofour parts, the contents are summarized as follows.First of all, the author introduces the basic content of enterprise mergerand preferred stock payment. From the illustration of the main concept, the maintype, legal nature, the world payment evolution and logical way. And through thecomparison bewtteen the preferred stock and other payment instruments, it is clearthat the preferred shares has a acquisition feasibility as the payment instruments. Secondly, the author analyzes the legal system and practice of preferredshares issued in china. Combined with the main provisions of our preferredstock system and the current practice of preferred stock issue, the author tries toexplain the connotation of preferred shares in China and the legislative authorityand suitable conditions as the mode of payment.The next part is about China’s M&A supervision mode and the paymentmode design of preferred stock. In this part, the author expounds fromthe legal process of China’s Regulation Mode of listing Corporation Merger and thelegal process of preferred stock issue, and combined with a Chinese case electricpower construction to analysis the issuance of preferred stocks as payment method indomestic.Finally, the author provides some legal advice in order to improve the issuing ofpreferred stock payment in China. In this part, the author firstly analyzes that the lawwhich regulates issuance of preferred stocks still gets some insufficient, and then putforward suggestions from two aspects of the legal form and content of preferredstock.This paper adapts several methods of comparative, inductive,and economicsanalysis. In this paper, the author tries to give a in-depth analysisthe about enterprisemerger and the issue of preferred shares as payment,and look forward to makeefforts for the diversified M&A payment tool development in China. Because of therelated theory and practice of preferred stock as the merger is still not mature, therelated legislation to regulate preferred stock is still in the blank in domestic, and thedepartment regulations system design is not perfect, combined with the author’slimited ability, therefore, the views about the preferred shares opinions as a paymentmethod in merger and acquisition of enterprises will inevitably be inadequate. Howthe preferred shares play a better role as the method of payment needs the theory andpractice provide further research, validation, feedback and improvement.