Sanchuan Wisdom (300066.SZ) has been experiencing constant good news recently.
On June 30, the 2021 Jiangxi Provincial Science and Technology Award was announced. The "Full-chain IoT Equipment and System Research and Development and Application Promotion for Smart Water Affairs" project participated by Sanchuan Wisdom won the 2021 Jiangxi Provincial Science and Technology Progress Award Prizes.
Earlier on June 29, Sanchuan Wisdom also announced that it planned to use its own funds to purchase the rare earth resource recycling company Ganzhou Tianhe Permanent Magnetic Materials Co., Ltd. (hereinafter referred to as "Tianhe") held by Chen Jiuchang, Zhou Ganghua and Shu Jincheng. "Permanent Magnet") 67.00% equity. After the acquisition is completed, Tianhe Permanent Magnet will become a holding subsidiary of Sanchuan Wisdom and be included in the consolidated scope of listed companies.
It is foreseeable that after the completion of the transaction, Sanchuan Wisdom's layout in the field of rare earth recycling will be further deepened, and the industrial layout of the listed company will also be further optimized. At the same time, the addition of Tianhe Permanent Magnet will also effectively enhance the performance of listed companies. It is worth mentioning that the announcement shows that in mergers and acquisitions, Sanchuan Wisdom has also protected the shareholders of listed companies, especially small and medium-sized shareholders, to the greatest extent by setting performance commitments, installment payments, stock sales restrictions, target company equity repurchases, etc. rights and interests.
Simultaneous operational and financial synergies to deepen the layout of the rare earth recycling industry
Generally speaking, in mergers and acquisitions, investors are most concerned about whether the parent and subsidiary companies can form synergies. This is also an important criterion for the public to measure the success of mergers and acquisitions. one. Fortunately, for Sanchuan Wisdom, the answer is yes.
From the perspective of Sanchuan Wisdom, as early as February 2019, the listed company completed a 20% acquisition of Zhongxi Tianma New Materials Technology Co., Ltd. (hereinafter referred to as "Zhongxi Tianma"), a company engaged in the recycling and utilization of rare earth resources. The acquisition of equity has successfully entered the rare earth recycling industry.
As of the end of 2021, although the company's equity holdings have been diluted due to capital increases from other investors, the company still holds 16.57% of the equity of Zhongxi Tianma, and enjoys its substantial participation in decision-making rights through the dispatch of directors, and even has control over relevant important matters. With one veto power over and , Zhongxi Tianma is still an important associate of the company. In 2021, Zhongxi Tianma achieved a total net profit of 70.4854 million yuan. Under the equity method accounting, Sanchuan Wisdom recognized a total investment income of 11.782 million yuan.
From the perspective of Tianhe Permanent Magnet, like Zhongrare Tianma, Tianhe Permanent Magnet belongs to the rare earth resource recycling industry and is also mainly engaged in the comprehensive recycling of neodymium iron boron waste.
The announcement shows that Tianhe Permanent Magnet is mainly engaged in the recycling and processing of NdFeB scraps and entrusted processing. It mainly uses the sludge, scraps, and defective products produced during the production and processing of magnet materials as raw materials to extract NdFeB scraps. of rare earth elements. The company's main products include rare earth oxides such as praseodymium and neodymium oxide, dysprosium , praseodymium oxide, holmium oxide, gadolinium and terbium oxide. Currently, it has built an annual processing capacity of 3,000 tons of neodymium iron boron waste recycling and comprehensive utilization.
At the same time, in terms of finance, the announcement showed that in 2021 and the first quarter of this year, Tianhe Permanent Magnet achieved revenue of 270 million yuan and 122 million yuan respectively, and net profits of 12.0737 million yuan and 7.0149 million yuan. As of the end of the first quarter of this year, the company's total net assets were 70.7754 million yuan.
It is worth mentioning that according to the " Equity Transfer Agreement ", the counterparty also promised that Tianhe Permanent Magnet will achieve audited actual net profits of no less than 36 million yuan, 41 million yuan and 46 million yuan respectively from 2022 to 2024. Ten thousand yuan, and the cumulative actual net profit in three years is not less than 123 million yuan. According to the relevant provisions of Enterprise Accounting Standards , after the completion of the transaction, Sanchuan Wisdom will control Tianhe Permanent Magnet, and Tianhe Permanent Magnet will also be included in the scope of Sanchuan Wisdom's consolidation.
Not only that, as a non-renewable and important strategic resource, rare earths are an indispensable key element in transforming traditional industries, developing emerging industries and the national defense technology industry. In a market situation where the total amount of rare earth resource mining is under protective control, while market application demand continues to grow steadily, rare earth recycling also has both economic and social benefits, and the development prospects are very broad. In this way, Tianhe Permanent Magnet and other companies in the industry will naturally continue to benefit.
"This acquisition of Tianhe Permanent Magnet by controlling stake will further lay out the rare earth resource recycling industry with good development potential, thereby further optimizing the industrial layout of the listed company, improving the operating conditions of the listed company, and enhancing the sustainable profitability and profitability of the listed company. development potential, improve the asset quality and profitability of listed companies, and thereby maximize the interests of shareholders of listed companies," Sanchuan Wisdom said.
Each link is controlled at all levels to skillfully avoid the sequelae of mergers and acquisitions.
In addition to achieving synergy effects, we found that in this merger and acquisition, Sanchuan Wisdom also minimized related risks as much as possible and protected the listed company to the greatest extent. and the vital interests of shareholders, especially small and medium shareholders.
First of all, in terms of payment of transaction funds, Sanchuan Wisdom adopts an installment payment method, that is, first pays 20% within seven working days after the agreement takes effect, and then completes the industrial and commercial change registration with Tianhe Permanent Magnet and registers as a listed company After controlling the subsidiary, the remaining 80% of the price will be paid to the other party.
Secondly, in terms of the arrangement of rights and obligations during the transition period, the risks borne by Sanchuan Wisdom are obviously smaller. The
announcement shows that the gains realized by Tianhe Yongmei during the transition period will be enjoyed by all shareholders after the transaction settlement date according to their respective shareholding ratios after the settlement. If a loss occurs, 67% of the loss will be shared by Chen Jiuchang, Zhou Ganghua and Shu Jincheng according to their respective shareholding ratios for Tianhe Yongmei. Magnetic's shareholding ratio will be borne separately, and the full amount will be made up to Sanchuan Wisdom in cash.
Then, regarding the setting of performance commitments and performance compensation, the announcement showed that the two parties agreed that Tianhe Permanent Magnet’s actual audited net profit from 2022 to 2024 should be no less than 36 million yuan, 41 million yuan and 46 million yuan respectively. Ten thousand yuan, and the cumulative actual net profit in three years is not less than 123 million yuan. Among them, the actual net profit refers to the sum of the net profit after deducting the non-recurring net profit and the government subsidies in non-recurring gains and losses approved in writing by Sanchuan Wisdom and related to Tianhe Permanent Magnet’s daily operations, but the amount of the latter shall not exceed the actual promised amount in the current year. 25% of net profit and actual realized net profit (whichever is lower).
If during this period, Tianhe Permanent Magnet triggers any compensation condition in any year, Chen Jiuchang and others need to bear the annual compensation obligations to Sanchuan Wisdom and bear joint and several liability for each other. The current compensation amount = (the accumulated committed net profit as of the end of the current period - Cumulative realized net profit as of the end of the current period) ÷ Cumulative committed net profit in each year during the performance compensation period × underlying asset transaction price - Cumulative compensation amount.
The relevant conditions are as follows:
At the same time, Sanchuan Wisdom also stated that if performance compensation is triggered, Sanchuan Wisdom will also conduct an impairment test on Tianhe Permanent Magnet after the expiration of the performance commitment period. If the amount of impairment at the end of the period exceeds the total amount compensated during the compensation period, Chen Jiuchang and others need to make one-time compensation for the difference between the amount of impairment at the end of the period and the total amount compensated during the compensation period within 10 working days from the date of signing the confirmation letter. , the difference compensation shall not exceed 10% of the transaction price.
Not only that, the two parties also agreed that after Zhou Ganghua used the funds from this equity transfer and his own funds to purchase 5% of the equity of Sanchuan Wisdom, in order to ensure the performance of the performance commitment, the relevant stocks must be locked and pledged to Sanchuan from the date of acquisition. For the group, the pledge period is determined based on the stock lock-up situation. The relevant arrangements are as follows:
It is worth mentioning that if Tianhe Permanent Magnet is ordered to stop production, is subject to administrative penalties and constitutes a major violation of laws and regulations due to illegal activities that have occurred or occurred during the performance commitment period, or fails to meet its commitments in any year 70% of the performance, or the three-year cumulative performance does not reach 70% of the promised performance, and the market price of rare earth oxides does not drop significantly during the assessment year, Sanchuan Wisdom can require Chen Jiuchang and others to repurchase and trade all the equity of within 30 days. , the repurchase price is determined based on the equity transfer price + 8% annualized interest rate capital cost from the date of payment of the transfer payment to the date of actual payment of the repurchase payment.
Finally, regarding the integration of both parties after the merger, the announcement showed that from the signing of the agreement to the performance commitment period, Tianhe Permanent Magnet will maintain the stability of the existing management team, and Sanchuan Wisdom will appoint or nominate three directors (the board of directors has a total of five director) and is responsible for financial supervision.Without affecting its normal production and operation, the company also has the right to audit all economic activities and business operations of Tianhe Permanent Magnet. In this way, it not only ensures the company's absolute controlling rights, avoids the disadvantages caused by poor management and control of subsidiaries, but also does not adversely affect the normal production and operation of the target company. (CIS)
