Research On The Motivation And Effect Of Directional Convertible Bonds Applied In M&A Payment

Mergers and acquisitions has always been one of the main ways for Chinese enterprises to expand production and carry out industrial upgrading.Therefore,the development of the mergers and acquisitions market has always been the focus of attention of all parties in our country.However,with the decline of my country’s national economic growth in recent years,the development of my country’s stock market has been greatly impacted,and the development speed has slowed down,which has reduced the enthusiasm of Chinese enterprises for mergers and acquisitions,and the development of my country’s mergers and acquisitions market has encountered difficulties.In western developed countries,the financial market appeared relatively early.After long-term development,its financial market has been relatively perfect,and there are also relatively rich payment methods in the M&A market.Various payment methods have their own advantages and disadvantages.During mergers and acquisitions,both parties can flexibly design payment plans according to their actual needs.In my country,due to the late formation of the capital market and the short development time,my country’s financial market is not perfect at present,and the payment methods in the M&A market are relatively simple,which cannot well meet the needs of both parties.And with the promulgation and implementation of my country’s new financing regulations,the private placement has encountered obstacles,and the share-based payment method during mergers and acquisitions has been greatly restricted.my country’s M&A market urgently needs new payment tools to balance the needs of both parties.In this context,in 2018,the China Securities Regulatory Commission released a pilot program for M&A payment with directional convertible bonds,providing a new option for my country’s M&A payment methods.The payment method of directional convertible bonds has been favored by the M&A market as soon as it was launched.Many companies in my country have used directional convertible bonds as their main payment tools during mergers and acquisitions.This paper mainly adopts literature research method,case analysis method and event research method to analyze the case of Reco Defense’s use of directional convertible bonds for mergers and acquisitions,and focuses on the motivation and effect of Reco Defense’s use of directional convertible bonds for mergers and acquisitions.First of all,this paper uses the literature research method to sort out and summarize a large number of domestic and foreign literatures on convertible bonds,summarizes the relevant concepts of directional convertible bonds,and details the advantages and disadvantages of directional convertible bonds and traditional payment methods.The comparative analysis lays a solid foundation for the later study of the motivation and effect of the directional convertible bond payment.Secondly,this paper makes a detailed introduction to the case of Reco Defense’s acquisition of Hengda Microwave.Through the analysis of the actual situation of Reco Defense,it is concluded that Reco Defense uses directional convertible bonds as the main payment method.The main motivation.Thirdly,based on the analysis of the market reaction and financial data after the use of directional convertible bonds by Reco Defense,this paper evaluates the effect of Reco Defense after the use of directional convertible bonds.Through analysis,it is known that the use of directional convertible bonds in mergers and acquisitions has brought positive short-term market effects to Reco Defense.In addition,the use of directional convertible bond payment in mergers and acquisitions can also play a role in reducing financing costs,optimizing capital structure,and also preventing integration risks after mergers and acquisitions.Finally,according to the analysis of the article,the corresponding conclusions and enlightenments are drawn.Through the research of this paper,the following conclusions are drawn: First,the use of directional convertible bond mergers and acquisitions by Reco Defense has brought a positive short-term market response to the company;financial effect.At the same time,some inspirations have been obtained: first,both parties to the merger and acquisition should choose the most suitable payment method according to their own actual conditions;second,when using directional convertible bonds for mergers and acquisitions,the terms of convertible bonds should be used flexibly to prevent merger risks;Third,government departments should improve relevant laws and regulations on targeted convertible bond mergers and acquisitions as soon as possible,and strengthen government supervision.This paper hopes to fill in the application example of directional convertible bond M&A payment through the research on the case of Reco Defense’s use of directional convertible bond mergers and acquisitions,and can provide some reference for other listed companies to use directional convertible bonds for merger and acquisition payment.