Analysis Of The Path And Economic Effects Of Pharmaceutical Enterprises’ Carve-Outs

With the continuous development of Chinese capital market,carve-out listing is favored by listed companies as a shrinking asset reorganization method.The research on carve-out listing is more and more concerned by theoretical and practical circles.China Securities Regulatory Commission published regulations allowing domestic carve-out and listing of subsidiaries from listed parent companies in December 2019.Since then,the pace of carve-out listing of domestic and foreign enterprises to the A-share market has been further accelerated.In 2020,the boom of pharmaceutical enterprises’ carve-out listing has also been ushered in.A number of enterprises,such as Minimally Invasive Medical,Liaoning Chengda,Weigao,Hualan Biology,etc.,have announced plans to carve out and list their business segments such as medical devices and vaccines on the SSE STAR Market and Chinext,in order to seek clearer business segments and broaden financing channels for the business.In this paper,Weigao’s carve-out listing of Weigao Orthopedic was taken as a case,and the motivation,path and economic effect of the carve-out listing were analyzed.The motivations contain expanding financing channels,reducing information asymmetry,improving the overall valuation of the company,focusing on the main business,coping with the collective mining,Management incentive demand,etc.Based on the analysis of domestic and foreign carve-out listing locations and the consideration of China’s multi-level capital market,Weigao Orthopedic chooses to list on the Science and Innovation Board for the following reasons: firstly,the policy of carve-out listing on the SSE STAR Market is inclusive.Secondly,listed companies have high valuation premium on the SSE STAR Market.On the whole,the carve-out listing event has positive economic impacts on the parent company Weigao and its subsidiary Weigao Orthopedic.In terms of market effect,the first announcement of the carve-out listing plan has got a positive market response,which brings appreciation to the parent company and the group.However,the official listing announcement has no obvious market response.In terms of financial effect,the solvency of the parent-subsidiary company has been significantly improved and the financing level has been improved.The operating capacity of the parent and subsidiary company have been improved,which are mainly reflected in the rise of accounts receivable turnover,while total assets growth rate and inventory turnover have no significant change.However,due to the influence of central purchasing,the profitability of both parent and subsidiary companies fluctuates,but the continuously improved development ability of the parent and subsidiary companies enables the Group to maintain a high market share and a strong competitive advantage.In terms of operation and management,the main business of the group is clearer,and the research and development of the parent and subsidiary company are continuously enhanced to gain comparative advantages in the central purchasing.Meanwhile,the equity incentive plan for the senior executives of the subsidiary company after the carve-out listing has a more significant incentive effect.Based on the analysis of the case,this paper puts forward suggestions for the carve-out listing of pharmaceutical enterprises as follows: First,the parent company should base on the development strategy of the group and split reasonably.Second,companies should carve out high-quality assets.Third,the subsidiary should grasp the correct motive of carve-out listing based on long-term development,evaluate the situation,seize the opportunity and choose right listing place.Regulators should do strict separation and listing supervision,to ensure a good market environment.The innovation point of this paper is to focus on the pharmaceutical industry,and pay attention to the path choice of carve-out listing.Previous studies mainly analyzed the motivation and performance of carve-out listing.This paper focuses on the study of the path selection of carve-out listing,and conducts case analysis focusing on the background of the pharmaceutical industry,which has more reference significance for the carve-out listing of pharmaceutical enterprises.