Case Study On The Failure Of Performance Compensation Commitment In M&A

How to promote the synergies of corporate mergers and acquisitions,avoid the risks of mergers and acquisitions,maintain the company's stock price,and protect the interests of small and medium shareholders is a persistent topic in the capital market.There are serious information asymmetries in the mergers and acquisitions of listed companies.On the one hand,listed companies have relatively limited information on the target companies,and on the other hand,small and medium shareholders have insufficient information channels to obtain listed companies' M & A activities.In order to alleviate information asymmetry in trading activities and reduce transaction costs in activities,performance compensation commitments have emerged.Under the background of the booming M & A market and the increasingly perfect market economy system,performance compensation commitments are also frequently used in M & A activities.Although the original design of performance compensation commitments is to promote mergers and acquisitions synergy,reduce the risk of mergers and acquisitions,and protect the interests of small and medium shareholders,the implementation of performance compensation commitments has also led to high valuations,high premiums,and high performance commitments.Listed companies have successively suffered high-value goodwill impairment,performance diving,and stock price crashes.The frequent failure of performance compensation commitments has severely adversely affected enterprises.Based on the above background,this article takes the case of J&R Optimum Energy with Waltmal as an example,combines the theoretical knowledge of information asymmetry theory,signal transmission theory,real options theory,principal-agent theory,etc.,and analyzes through a case study.The motivation and impact of implementing performance compensation commitments,and a framework for performance compensation commitment analysis is proposed to further study the reasons for the failure of performance compensation commitments.The research in this article adds relevant evidence to the academic community to correctly and objectively evaluate performance compensation commitments,and serves as a warning for companies and investors to treat performance compensation commitments rationally and cautiously,which helps the capital market mature and improve.The specific research contents of this paper are as follows: First,this paper sorts out and reviews the relevant literature and theoretical basis of performance compensation commitments.Second,this article summarizes the concept,composition and design principles of performance compensation commitments,and collates and analyzes the application of performance compensation commitments.The status quo;again,this article briefly describes the transaction overview of J&R Optimum Energy acquisition of Waltmal,analyzes the motivations for the application of performance compensation commitments by both parties,and presents the results and impact of the application of performance compensation commitments through financial analysis and event research Finally,this paper proposes a framework for performance compensation commitment failure analysis,combining information asymmetry theory and signal transmission theory to qualitatively analyze the reasons for performance compensation commitment avoiding integration risk failures,and using option theory to quantitatively analyze performance compensation commitments to suppress high valuation failures s reason.The research in this paper finds that the reasons for the failure of performance compensation commitments are mainly the following three points: First,there is a risk of performance compensation commitments pushing up the valuation of the target company.When the risks caused by high valuations exceed the benefits brought by performance compensation,Performance compensation commitments have completely lapsed;second,management is easy to manage earnings under flexible accounting policies,and performance compensation commitments are significantly less restrictive,and performance compensation commitments have failed to protect the rights and interests of small and medium shareholders;third,performance compensation There are loopholes in the terms of the promise,and it cannot be guaranteed that the acquirer will receive cash flow when the commitment period expires,and its role in alleviating the pressure on debt repayment is also invalid.Based on the above conclusions,this article believes that parties involved in performance compensation commitments should work together to ensure the reasonableness of the valuation of the underlying assets;the supervisory authority should improve the management mechanism to guide small and medium shareholders to make rational investments;M & A companies should pay attention to guarantees when setting performance compensation commitment terms The promised party earnestly fulfills its obligations.