Researsh On Gambling Risk Of State Ownedenterprises Merging Private Enterprises

In the Third Plenary Session of the 18 th Central Committee of the Communist Party,it’s clearly proposed “actively developing a mixed ownership economy”.In recent years,the state-owned enterprises reform and the diversification of equity have gradually become the main direction and breakthrough point of the reform.There has been an upsurge of state-owned enterprise’ acquisition of private enterprises as well as private enterprises’ share-holding of state-owned enterprises.Particularly in fully competitive fields,state-owned enterprises can merge and acquire private enterprises with significant advantages in the target industry chain with government support,capital strength and policy advantages.Through their capital operation means,the state-owned enterprises can achieve rapid entry into strategic industries or emerging fields,and then occupy the market.This has greatly stimulated the development momentum and vitality of the state-owned economy,realized the optimization of the industrial layout of state-owned capital,and promoted the rapid transformation and upgrading of state-owned enterprises,which had a huge positive effect.Valuation Adjustment Mechanism(VAM)is commonly known as a "gambling agreement" in China.It is an agreement between the parties in the transaction regarding the uncertain future conditions when signing an investment agreement.It is significantly speculative,and its essence is a form of option.In the practice of Chinese state-owned enterprises’ acquisition of private enterprises,the cases of VAM have gradually occurred.Due to differences in management,finance,culture and other aspects,as well as information asymmetry and uncertainties in the implementation of mergers and acquisitions,state-owned enterprises will bear huge risks in merging private enterprises.This article takes the VAM case of a state-owned C company’s acquisition of a private S company as the research object.Starting with the basic situation of both parties in the transaction and the industry situation,it analyze the overall merger and gambling situation on the merger motivation,gambling motivation,transaction plan and gambling agreement design,VAM achievement.From the perspective of C company,it identifies the risky factors of merger and gambling in the case which may lead to the loss of state-owned assets,including the risks of merger decision-making before signing the gambling agreement,due diligence,and failure to pass administrative approval,high corporate valuation and high performance targets during the signing of the gambling agreement,risks of financial fraud,management integration,impairment of goodwill performance,execution of the gambling agreement,and equity repurchase of minority shareholders after the signing of the gambling agreement.It summarizes the successful experience of C company in VAM,and proposes improvement measures and suggestions for the insufficient risk clauses in the agreement design and risk control,including performance commitment index revision,design diversification standards,management integration agreement,design repeated game measures and equity payment model,increasing the review period after the gambling period,and formulating a gambling risk plan.Finally,it forms a comprehensive empirical model for VAM between state-owned enterprises and private enterprises,which will help prevent the loss of state-owned assets and promote the rapid development of the mixed-ownership economy.