Management Buy-Outs: The Tool To Develop The Company Or To Transfer The Wealth?

As a special leverage buyouts, MBO shows its characteristic value in strengthening corporate governance and improving business performance in western developed countries. In 1995, Chinese government which was in economic transformation began to introduce this method to reforming our corporation’s property structure and withdrawing the state-owned assets. However, MBO revealed gradually that the practical operation of this method was not normative, the information was opaque, the wealth was transferred and the state-owned property was lost because of the lag of the legislation of MBO and the imperfection of the information disclosure in our country. Therefore, the government prohibited the MBO of the large state-owned enterprise and state-controlled companies directly in 2005. However, in recent years, various kinds of the curved or recessive MBO arise at the historic moment. They avoided the policy restrictions artfully. Lingrui’s MBO is one of both typical and representative example.The curved MBO focuses on the substantive control and it has strong Chinese characteristics. There is no doubt that it is an innovation in the reform of the state-owned enterprise. However, it is also a speculation motive that makes use of the loophole of the policy and the supervise at the same time. It requires us to study seriously and respond actively to the new problems and challenges of the curved MBO. In addition, the curved MBO has become the main form of the Chinese MBO at present, it is vital to analyse it’s economics consequences. By the way, domestic scholars pay little attention to these and most of them just focus on the concepts and policy. They rarely analyze the latest documentation’s financial data comprehensively. Consequently, the paper has enriched this part and has theoretical and practical significance.This paper has fully introduced four related theoretical, studies the related works seriously and analyzed the operating model, the range of application, the working condition and the difficulty in practice. Then the paper focuses on the case. It also analyzes the process of MBO, the operating performance around the rights issue and the market’s reaction. According to the result, the case still has the typical characteristics of the MBO, but the advantages far outweigh its disadvantages on the whole. The MBO has promoted the company’s operation actively and the capital market’s respond to this positively. In a word, we shouldn’t abandon the MBO absolutely. We need to consider and improve the system and lead the evolution of the MBO correctly. At last, the paper has offered some proposals for the Chinese MBO.