Merger And Reorganization Performance Commitment Case Study Of BaiHuaCun

In recent years,with the development of China's economy,the M&A transactions are increasing.In order to enhance the market competitiveness,many enterprises are not satisfied with maintaining the status quo,accordingly they focus on M&A.However,M&A is prone to over-valuation,high premium and many other problems which are restricting the actual effect of M&A.In order to change this situation,people focus on the gambling agreement as valuation adjustment mechanism,and creatively separating the core terms of the agreement and putting forward the concept of performance commitment.From then on,the performance commitment got promoted on M&A and legislative confirmation in China.Enterprises can reduce the risk of M&A by signing performance commitment agreements,therefore,to avoid the failure of M&A.At present,the application of performance commitment is still immature,and there are many problems in this aspect.First,performance commitment is helpful monitoring short-term performance but weak in long-term.Financing sides will adopt financial fraud in order to fulfill the performance commitment,which leads to a significant decline in business after the end of the performance commitment period.Secondly,based on the design mechanism of performance commitment,it usually work in post-regulation.The constraints to M&A are still limited.Thirdly,in law,only the financing sides are required to provide performance commitment but there is no requirement for investors yet.Many investors put forward unrealized performance commitments to raise the stock price,but such behavior will result in high premium,large amount of goodwill,and subsequent business risk.In this case,it is absolutely essential to study and analyze the performance of performance commitment in actual M & A cases,thus performance commitment can play its proper role.This paper selects the case of Xinjiang Baihuacun Co.,Ltd.'s acquisition of Nanjing Huawei Medicine Technology Development Co.,Ltd.,and studies on the motivation for formulation,compensation method,implementation and related impacts of its performance commitment.On the basis of the theories of performance commitment,at the very first,this paper introduces the transaction scheme and performance commitment scheme.Secondly,this paper analyzes the motivation for formulation of the performance commitment todiscusses its necessity.At last,this paper analyzes from the performance commitment setup phase and implementation phase,appraise the rationality of performance commitment scheme,and discuss the reasons and effect of implementation phase of performance commitment.From the perspective of putting performance commitment into practical use,the conclusion is as follows:the failure of performance commitment is relevant to M&A target with low business relevance,performance basement with high value and policy changes in the industry.This paper offers valuable experiences and inspirations to regulators and the listed companies in accordance with the result of this case.