Analysis Of The Application Of Exchangeable Bonds In M&A Payment And M&A Financing

Exchangeable Bond,mainly refers to bond that gives the holder the option to exchange the bond for the stock of a company other than the issuer at some future date and under prescribed conditions.The scale of China's exchangeable bond market in 2016 has increased by 297%as compared with 2015 and reached more than 60 billion RMB.This rapid growth drew the market attention on this innovative financial instruments.Meanwhile,China Securities Regulatory Commission announced"Measures for Administration of Material Assets Reorganization of Listed Companies" in 2016,and this announcement forced more listed companies to make all-cash offer when comes to M&A to avoid regulation and shorten the deal time.At the same time,when look at" Home Inns to be acquired by BTG Hotels " and”Lexmark to be acquired by Apex Technology " cases,exchangeable bonds could be found in those two cross-border M&A cases,which allows the market to see the exchangeable bonds as a merger payment tool and an innovative financing tool.At present,there are few researches on exchangeable bonds in China,and those already have been done mainly focus on relative laws and regulations.Moreover,also because of the relatively poor applications of M&A payment tools and financing instruments,the number of researches on exchange of bonds in the field of mergers and acquisitions is extremely scarce.This paper chooses the M&A payment tools and financing instruments,which are the two most important aspects of M&A,as the starting point of analysis,uses the combination of theory and case study,and analyses"Home Inns to be acquired by BTG Hotels " and " Lexmark to be acquired by Apex Technology " cases from the deal motivation,relative terms,economic consequences and risk aspects,to study the application of exchangeable bonds as M&A payment tool and financing instrument.This paper comes to the conclusion that exchangeable bonds have the advantages of low financing cost,short lock period and additional profit opportunities,and can help unlisted controlling shareholders reduce the uncertainty of supervision.This paper also believes that exchangeable bonds are more suitable for shareholders who hold a high proportion of stocks and have excellent credit record.At last,this paper puts forward some suggestions on how to protect the rights of investors,keep the market flexibility and how to set up product terms.