Research On The Application Of Targeted Convertible Bonds In Mergers And Acquisitions

In November 2018,China Securities Regulatory Commission(CSRC)issued the "CSRC pilot Targeted Convertible Bond M&A to support the development of listed companies",encouraging the introduction of targeted convertible bond as a payment tool in M & A and restructuring.Targeted convertible bonds mean privately issued convertible bonds.Their flexible terms are conducive to the M&A between the two trading sides.However,since it was first mentioned in 2013,there are few cases of uses in M&A.Until November 2018,Secote announced that it would issue targeted convertible bonds and acquire 100% shares of Lingou technology.Based on this case,this paper studies the first application of targeted convertible bonds in M&A,enriches the research on the practical application of targeted convertible bonds,and provides a theoretical basis for enterprises to use targeted convertible bonds in M&A in the future.This paper first analyzes the advantages,disadvantages and application of different payment methods in M & A,and analyzes the advantages of targeted convertible bonds and the development status of convertible bond market.Then it introduces the influencing factors of enterprises’ choice of various payment methods in M&A,and lays the theoretical foundation for studying the motivation of issuing targeted convertible bonds of Secote.In the third chapter,this paper introduces the general situation of both sides of the transaction,analyzes the feasibility of issuing targeted convertible bonds from the aspects of external policies,financial situation and issuing conditions of convertible bonds,and then analyzes the motivation of enterprises to choose issuing targeted convertible bonds based on the purpose of M&A,financing cost and internal cash flow of enterprises according to the theory of influencing factors and comparative analysis method.In the fourth chapter,this paper first introduces the general situation of the payment scheme of the targeted convertible bonds,then analyzes the rationality of the design of the terms of the targeted convertible bonds,and believes that the equity nature of Secote’s fixed conversion is more prominent.The company prefers the bondholders to convert shares as soon as possible,and takes the targeted convertible bonds as an alternative to share based payment in the merger and acquisition,and delays the dilution of equity.The difference rate between the theoretical value of Secote Targeted Convertible Bonds fixed transfer calculated by Black-Scholes pricing model and the actual issue price is 1.90%.Secote Targeted Convertible Bonds fixed transfer is slightly underestimated,but the pricing is reasonable.This paper analyzes the issuance risk and principal and interest payment risk of Secote through its issuance timing,coupon rate,term design and share transfer premium rate.Next,this paper analyzes the impact of convertible bonds on the ownership structure of the company and the control of the original major shareholders,and then studies the impact of convertible bonds announcement on shareholders’ wealth.Finally,based on the above research results,the conclusion of this case study and the enlightenment for enterprises are drawn,and relevant policy suggestions are put forward from the perspective of regulatory authorities,aiming to improve the development of the targeted convertible bond market.