Bright mergers and acquisitions

After bringing British Victorian to the bag, Bright’s performance is surprisingly beautiful. How does it win awe?

"I am under such financial conditions. Under such legal conditions, what I want is the price. Can you do it? You will quit without doing. This is my game rule." On May 3, 2012 In the three days after the announcement of the acquisition of the Victorian company, Cao Xiaofeng, the CFO of Guangming Foods Co., Ltd., and the director of the company, made strong statements about the over 40 domestic and foreign bank financing officers who heard the call.

Thirteen banks, including the old international banks such as Barclays Bank, Royal Bank of Scotland, and Rabobank, accepted the conditions of Cao Xiaofeng and participated in the financing competition of Guangming Group. They were surprised by the bright style of doing business. In the past, financing was made by each of the parties concerned. The financing parties chose from them and the fund-driven party led them.

However, the leaders in the banking sector had to accept it because the business they faced was the largest overseas acquisition of non-resources by Chinese companies, involving a transaction volume of up to 1.2 billion pounds.

No one expected the Victorian Mai acquired two years later to be proud of its achievements. In 2013, the old British company launched its second spring with an operating income of more than 5.2 billion yuan and a net profit of nearly 400 million yuan. Prior to the acquisition, Victory's operating revenue in 2011 was approximately RMB 4.6 billion and net profit was approximately RMB 140 million. Within less than two years of being acquired by the Bright Group, Vidome’s net profit has nearly tripled.

When Cao Xiaofeng was interviewed in an old wooden house on Huashan Road in Shanghai, the “big dispenser” of Shanghai’s Shangri-la, which controls assets of more than 100 billion yuan of state-owned enterprises, he told reporters when he said that Victoria’s performance in recent years was soaring. “The most immediate result is that Guangming Group reorganized the debt of Vitomer during the merger and acquisition process, significantly reducing the financial costs such as interest expense and financing interest rate.”

In 2012, Victorian accounted for approximately 14.5% of the UK cereal market share. Guangming Group used an international operation at the time of the acquisition, and the subsequent governance also adopted the internationalization route. The first international breakfast cereal that was founded in 1932 was the second spring of the British international breakfast cereal.

A Chinese state-owned enterprise used overseas play to reduce the financial cost of a British company and make it profitable. This story does not sound like a conventional method for a state-owned enterprise to go to the sea. Most of the Chinese M&A projects that go out to the sea are considered only by the partners as "gold masters."

Vitomar's financial experience stemming from its bright internationalization has become even richer. In the past three years, Guangming Group has completed four overseas mergers and acquisitions. In addition to the acquisition of 60% of British Victoria's shares, it also completed the acquisition of a 50% stake in New Zealand's New Wright Dairy, a 75% stake in Australia's Manason Foods, and a 70% stake in France's Diwaporto Wines. Among them, New Wright Dairy was successfully listed in New Zealand in 2013. Guangming Dairy, a subsidiary of Guangming Group, became the first company in China to acquire a high-quality milk source company overseas and successfully promoted its listing.

The leveraged Guangming Group’s valuation of Verdama at the time of the acquisition was 1.2 billion pounds, excluding the liabilities of 300 million pounds, and the Bright Group was required to pay 180 million pounds to acquire 60% of its equity. Of the 900 million pounds of debt, Responsible for debt restructuring and refinancing.

In the debt structure of Victor High's debt, 670 million commercial loans and 230 million shareholder loans together constitute 900 million pounds of debt, and Guangming Group’s internationalized financial means—to reduce its commercial loans to 400 million pounds, and shareholder loans are adjusted to 500 million pounds. Increased shareholder loans, changes in debt structure reduced financing costs from £74 million to £51.4 million, a direct reduction of £22.6 million, and reduced cash flow from £46.9 million to £35.4 million, which greatly improved the financial status of Verdomama .

In the financing method, Cao Xiaofeng also led the Guangming Group's M&A team to formulate its unique rules of light.

Cross-border financing is generally led by a bank. After this, the business conditions are negotiated between the lead bank and the financing party. The financing transaction is packaged as a “general wholesale” to the bank. However, Cao Xiaofeng’s idea is that “overseas financing costs are generally lower than domestic ones, and they can also be negotiated directly by one company. However, for us, especially for me as a group financial controller, we always believe that this has not been fully realized. If we have the ability to do our best, we should be able to do more things."

“More things” include, on the one hand, “club financing” is used for financing, and no lead agency is designated, and China Development Bank, Bank of China, Bank of Communications, foreign-owned Royal Bank of Scotland, Barclays, HSBC, and O.C. The new and Dutch cooperation banks have jointly carried out a package of financing and debt-issuing cooperation. Both big and small banks have equal competition, resulting in a lower interest rate than ordinary financing.

On the other hand, Guangming Group learns an effective international practice and adopts full leveraged financing.

Guangming Group's thinking is very clear: first through a one-year bridge loan to raise funds to complete the delivery, and then find an appropriate time window to send overseas bonds overseas.

As a veteran state-owned company under the Shanghai State-owned Assets Supervision and Administration Commission, Guangming Group’s decision is not easy.

Prior to this, there was almost no precedent for state-owned enterprises to open up international ratings. However, if they want to issue lower-yielding U.S. debt, they must accept market ratings from international rating agencies. Cao’s thinking is that regardless of whether or not he can successfully grade, he wants to give it a try. If he can really complete the issue of U.S. debt, it is a strategic breakthrough for Guangming Group to open overseas bonds market, not only the current transaction. In the future, it is necessary to issue low-cost bonds overseas.

“Isn't your light international? Just look at the extent to which you are bright with an international judgment. Not that I have a good development in the country. State assets are also good. This may be more important.” Cao Xiaofeng Say.

At the end of September 2012, Guangming Group accepted the international credit ratings of Moody's, Fitch, and Standard & Poor's, three international credit rating agencies, and both were rated as "investment grade", paving the way for the success of international bond issuance.

Adopting fully-leveraged financing and “club financing” not only reduces the risk of mergers and acquisitions, but also enables Guangming Group to reduce the financing cost of the original plan within 4% to between 3% and 3.2%. The acquisition of Vito Mai became a transaction of “returning empty sacks and carrying money back”.

Jia Sheng, a senior investment manager of Ping An Innovation Capital, told reporters that most strategic investments are horizontal or vertical mergers and acquisitions of outstanding companies in the industry. The purpose is to obtain markets, production capacity, channels, products, technologies, etc., in addition to using some of their own funds to shake up. In addition to capital operations, the acquisition of Brighter Foods by Bright has also enriched its product lines in the food industry and produced synergies.

However, Guangming Group’s determination to internationalize is not smooth. At the beginning of 2011, when participating in bidding for the world’s second-largest yoghurt manufacturer, UNO, compared with other competitors such as Nestle and General Mills, it was a multinational corporation including Morgan Stanley, Rothschild, and Deutsche Bank. Investment Banking, Guangming Group started as a single player.

After Yuyinyounuo, Guangming Group’s overseas M&A project team painstakingly formed a team of full-scale consultancies such as Dutch Cooperative Banking, Aorui Law Firm, PricewaterhouseCoopers and other accounting firms, and successfully upgraded its overseas M&A strategy.

Wang Lili was recruited into the Guangming Group for the coordination of cross-border mergers and acquisitions. Prior to this, Wang had 8 years of working experience in a French investment bank. After he joined Guangming Group, he served as deputy general manager of Guangming Food International Co., Ltd., Hong Kong Co., Ltd. and Europe Co., Ltd. He was also the main coordinator of the merger and acquisition of the Victorian wheat project. Project management after investment.

In overseas M&A transactions, the pension issue is the most critical issue. Guangming Group had participated in the bid of United Biscuits Co., Ltd., and due to the inconsistency in the employee’s pension agreement, it increased the difficulty of the acquisition and ultimately did not close the deal.

In the UK, pensions are divided into social co-ordination sections and corporate payment sections. The pensions paid by enterprises will be managed by a third party organization. According to the profitability of the management institutions, the actuary will calculate the demand for future pensions and pay them. In accordance with established practice, the acquiree should be responsible for the shortfall of the employee pension of the original enterprise.

However, the problem is that, as the management agencies invest in government bonds and other income-generating products, the most critical issue for the prediction of the future pension gap is the prediction of the interest rate of government bonds. In the acquisition of Victory, the two parties also disputed the issue of floating interest rates or fixed interest rates.

Cao Xiaofeng believes that on the issue of pensions for joint biscuits, they do not understand the system and calculation of pension funds in the United Kingdom and cannot make effective judgments on the issue of interest rates. After returning to China, Cao Xiaofeng decided to thoroughly study the issue of pensions in foreign countries. He specifically consulted and learned from investment bank and British government personnel. In the Victorian stage, the situation of pensions is already clear.

At that time, the two sides also entered into a stalemate in negotiations. Victoria hopes to predict the interest rate of government bonds according to a certain degree of floating to measure the pension gap to be filled by Vito Mai. Guangming Group insists that it should measure according to the standard national bond interest rate. Reasonable. Cao recalled that at the time when the negotiations between the two sides were most critical, the problem was unfavorable. He went to the balcony to smoke and breathe, but unfortunately it was caused by long-term pressure and coldness. Cao Xiaofeng wanted to take a day off and he was just trying to find out whether the other side was emboldened. He told the other party to stop the negotiation. The next day he saw no one and he took a rest in the hotel. And on the second day, the other party was indeed anxious about this. After waiting at the hotel for one day, it finally responded to the Guangming Group in the evening and conceded to accept the Guangming Group’s interest rate agreement and other issues and reached a deal.

For Guangming Group, this is a successful psychological warfare, but it is also the result of lost experience and repeated learning. “Later, we summed up the acquisition of the joint biscuits and felt that the pension at that time was not a problem. However, the overall strategy of the Guangming Group is still stable. If the risk is considered uncontrollable, we would rather give up the tuition fees,” Wang Lili told Global Entrepreneur.

Retaining the management of the original management team and not taking over the original business in daily operations is one of the governance practices of the Guangming Group. Zhu Ning, deputy dean of the Shanghai Advanced Finance Institute of Shanghai Jiaotong University, analyzed that the stability of the local enterprise team in overseas mergers and acquisitions is particularly important, and the equity or option incentives reserved for the local management team are common methods for managing mergers and acquisitions of subsidiaries. In the acquisition of Victoria, Guangming Group acquired 60% of its shares, and the remaining 40% of the shares are still held by Lion Capital and the company's management.

Bright Group’s UK investment bank representatives once made a joke when Guangming Group took part in the acquisition of Uno. He said that in the morning when he went out to tell his wife to negotiate on behalf of Chinese food companies to negotiate the acquisition of British companies, his wife shouted: "They do not want to bring melamine to us." This matter also left an impression on Cao Xiaofeng. After the acquisition of Victoria, Victoria maintained its independent operations and increased other cooperation with Guangming Group.

After Victoria's acquisition of an executive for the first time in China, Wang Lili arranged for Victorian President Giles to visit the headquarters of Guangming Group's Nanpu Foods in Songjiang, Shanghai. After hearing about Nanpu Food's operation and channel introduction, Giles immediately expressed the hope that the agent of Victorian in China could be handed over to Nanpu Foods, the Victorian breakfast cereals and biscuits, and Opel cereal bar products entered by Victory Group The agricultural and commercial supermarkets, convenience stores, and hypermarkets are expected to reach 5,000 stores in China by the end of 2014.

In order to enhance the efficiency of cooperation, Guangming has also been institutionally innovative. Guangming Group is a multi-tiered company system, and the processing efficiency of M&A companies may be limited. For this reason, Guangming Group has set up a joint conference system. The chairman of the joint conference is the Chairman of Guangming Group, the vice president is the president of the group and the chief financial officer, and the chief of the office is also the chief financial officer. Once Wei Damai has a major decision requiring approval, it can The fastest speed responds directly.

This is a good signal for bright international management.