Research On Design Of Terms And Risk Prevention Of VAM In Merger And Reorganization

In recent years,China’s capital market continues to develop and improve,the number of all kinds of transactions has increased dramatically,and the types of transactions have become increasingly rich.Among them,the number and amount of mergers and acquisitions and reorganization transactions are constantly setting new records.On the one hand,this is due to the rapid development of the capital market in recent years and the continuous expansion of market share;on the other hand,more and more enterprises begin to expand their industrial chain vertically or horizontally.In 2019,a total of 15,495 mergers and acquisitions took place in China’s capital market."High valuation,high premium and high performance commitment" are the distinctive features of listed companies’ mergers and acquisitions.Meanwhile,high risks also accompany them.Therefore,in merger and reorganization transactions,risk prevention is an unavoidable problem,and the use of Valuation Adjustment Mechanism(VAM)is now a choice for many enterprises to reduce the risk.Although the application of VAM in China started relatively late,it has been widely used in the mergers and acquisitions market in recent years.Both parties involved in M&A choose VAM to adjust the valuation of the underlying assets.But many of the deals used by firms to reduce the risk of a merger premium end up with performance commitments not met.Therefore,it is necessary to study and summarize the terms design and risk prevention of the anti-gambling agreement in the merger and reorganization.This paper is divided into seven chapters.The first chapter introduces the researching background,importance and purpose of this paper,and also points out the research ideas and significance of this paper in the research analysis.The second chapter is the literature review and the theoretical basis,defining the relevant concepts,and summarizing the research on the value creation of merger and reorganization,the design of VAM and the risk prevention of VAM.The theoretical basis of this paper includes information asymmetry theory,option theory,principal-agent theory and game theory.The third chapter is the analysis of the institutional background and the current situation of the anti-gambling agreement in the merger and acquisition market.This part summarizes and elaborates the legal background and policy background of the anti-gambling agreement,and analyzes the application scale and application effect of the anti-gambling agreement in China combined with the data.The fourth chapter is the risk analysis in the anti-gambling agreement,which analyzes the value evaluation risk,the behavior risk of management and major shareholders,the control risk and the solvency risk in the anti-gambling agreement from different stages,different stakeholders and different perspectives,and lays a foundation for the subsequent case analysis.The fifth chapter is the case analysis of J&R Optimum Energy Corp’s VAM,first of all first introduced from the case background and general situation of the company,and then analyzes the two companies mergers and acquisitions and Valuation adjustment mechanism,analysis the impetuses for the mergers and acquisitions are solid red fire transformation,expect to achieve synergies,as well as its very bullish on a couple of reasons for the acquired company’s future development;The main motivation to sign the Valuation adjustment mechanism is to reduce the valuation deviation and restrain and encourage the management.In addition,it also analyzes the design of the agreement from two aspects: the measurement index and the payment clause.Chapter 6 is the analysis of the risk prevention effect of the VAM,this chapter is relatively important,combined with J&R Optimum Energy Corp’s announcement data to bet on completion of the agreement and risk prevention design and implementation are analyzed,the bet is not successfully completed,also exist deficiencies in risk prevention,after combining the data for the bet against the cause of the failure are analyzed,and main summary of premium valuation is too high to target enterprise,Wotema overextended and industry policies and requirements change a couple of reasons.The seventh chapter is the summary chapter of this paper,which summarizes the merger and VAM case of J&R Optimum Energy Corp and obtains corresponding enlightenment.Meanwhile,it puts forward relevant policy Suggestions on terms design and risk prevention of Valuation adjustment mechanism based on case enlightenment and institutional background.