Motivations And Valuation Of The Share-for-Share M&A

Wens Group is the largest producer of pork and chicken in China,which is known for closely controlled “firm + farmer” model and a significant presence of employee stock ownership.Dahuanong is a listed veterinary drug company,which is controlled by Wen’s family.In 2015,Wens Group conducted a share-for-share M&A by acquiring Dahuanong,setting a precedence in the Chinese Growth Enterprise Market.This thesis studies the motivations and valuation behind Wens Group’s share-for-share M&A.The conclusions reached are as follows.An important motivation behind this share-for-share M&A is to eliminate related-party transaction problem.A deep vertical integration between Wens Group and Dahuanong is achieved after eliminating related-party transaction problem,which reduces cost.Other motivations include getting a listed platform to implement employee stock ownership plan and securing external financing opportunities.A policy change makes this share-for-share M&A feasible.In the valuation part,the share exchange ratio applied is verified by the valuation model and value-enhancing effect is found through comparing the valuation results with the post-deal performances.This case study will provide a deeper understanding of Chinese companies’ share-for-share M&A motivations.Besides,the discussion on the valuation can be helpful to provide insights for similar deals in the future.