Chery JAC's reorganization problem

Chery’s attempts to use the power of multinational auto companies to achieve expansion are not going smoothly. Will Jianghuai Automobile Co., Ltd. in Anhui Province be more in tune with it?

The new round of mergers and reorganizations of the Chinese auto industry has opened the curtain, and local governments have planned to gather scattered automotive manufacturing forces. Anhui Province, which owns several automotive companies, is one of them. However, its biggest trouble lies in how to combine the two strong state-owned car companies - Chery and JAC.

Chery Automobile is a subsidiary of the Wuhu City SASAC in Anhui Province. It is a leader in the manufacturing of China's own-brand passenger cars. Jianghuai Automobile is listed on the A-shares and the actual controller is the SASAC of Anhui Province. It is the top-five commercial company in China. Car manufacturer.

In the automotive industry planning in Anhui Province, the Anhui provincial government required the joint reorganization of auto companies in the province. The auto companies involved include Chery, JAC, Valin, Changhe, and Yangzi.

At present, the largest domestic auto sales enterprise in Anhui Province is Chery, which sold 356,000 vehicles last year. Chery has been actively expanding in recent years. It has conducted cooperative negotiations with Chrysler, Quantum, and Fiat Italy, but the progress has not been smooth. Jianghuai Automobile sold 208,000 vehicles last year, and its production and sales volume ranked second in Anhui Province.

It is reported that the reorganization plan for the automobile industry in Anhui Province was formulated by the Anhui Economic and Information Technology Commission. The specific plan was formulated by the Anhui State-owned Assets Supervision and Administration Commission and will be implemented starting from December this year.

However, for the restructuring request from the provincial government, Chery and Jianghuai's top officials showed different intentions.

Yin Tongyue, Chairman of Chery Automobile, told the media that JAC is very good in terms of utility vehicles, light trucks, and chassis of cars, and is very complementary to Chery. It can cooperate from technology to assembly. “When it comes to a certain degree of cooperation, naturally it will naturally Become a family."

Zuo Yanan, chairman of Jianghuai Automobile Co., Ltd., said that reorganization needs to follow the laws of the market. In an interview with the media, he hinted that the two parties can cooperate but not recapitalize at the capital level. The two companies can collaborate on products and manufacturing projects and borrow resources from each other. There are no major or minor issues.

From the perspective of the business structure of Chery and JAC, both parties seem to have a good foundation for cooperation and reorganization. Chery’s strength is the car business, and JAC is the top five commercial vehicle manufacturer in China. If both sides can restructure, they may form complementary advantages and play a greater role in their respective areas of expertise.

It is reported that the State-owned Assets Supervision and Administration Commission of Anhui Province had the idea of ​​promoting equity cooperation between the two parties as early as 2006. At the time, Chery was seeking to go public, and the car project Jianghuai Automobile had just entered failed to obtain a permit. It was alleged that at that time, Anhui Province had designed a plan for Jianghuai to transfer some of its equity to Chery and use Chery’s sedan catalog; Chery also transferred some of its equity to Jianghuai, making Jianghuai one of its listing promoters.

An important reason for the failure to implement the plan was that at that time, Jianghuai Automobile and Chery Automobile were in the business transformation stage. One was extended from the commercial vehicle to the passenger vehicle business, and the other from the passenger car to the commercial vehicle was of little interest in cooperation. .

Chery Automobile acquired Wuhu FAW Yangzi Automobile Manufacturing Co., Ltd. (later renamed as Chery Commercial Vehicle Anhui Co., Ltd.) in September 2006, and obtained the capacity to produce 30,000 chassis and 2,000 passenger cars per year. This has taken the lead in the commercial vehicle sector. first step. JAC's sedan project was approved in January 2007 and officially entered the passenger car market.

From Jianghuai and Chery, investing resources in the business areas that the other party excels at, and continuing to move toward comprehensive automobile groups, we can see that the willingness of both parties to restructure has been greatly reduced.

Most of the mergers and acquisitions and restructuring of the automotive industry will occur when a company faces a survival crisis, or it may occur between companies with disparate strengths. The domestic example is the acquisition of Nanjing Auto by SAIC. The latter has been in poor condition and has to accept the merger of SAIC Motor Corp. due to the foreign acquisition of MG.

Chery and Jianghuai have a fair share of sales revenue. The sales revenue of the two companies last year was 18.7 billion yuan and 18.3 billion yuan respectively. Although Chery’s popularity at home and abroad is higher than Jianghuai Automobile, Jianghuai Automobile has already listed on the A-shares and has a stronger influence in the capital market than Chery.

From this perspective, the possibility of restructuring between Chery and JAC based on market factors is very small.

However, under the impetus of “the hands of the government”, Chery and JAC will eventually restructure, because Anhui Province hopes to form a car enterprise group with a capacity of more than one million cars and enter the national key support sequence.

In the revitalization automobile industry plan issued by the National Development and Reform Commission, it is proposed that two to three large-scale automobile enterprise groups with production and sales scale of more than 2 million vehicles will be formed through mergers and reorganizations, and 4 to 5 automobile enterprise groups with production and sales scale of more than 1 million vehicles; The number of automotive enterprise groups with a market share of more than 90% has been reduced from the current 14 to less than 10.

In this context, local governments have promoted mergers and acquisitions among auto companies. GAC Group’s merger with Hunan Changfeng Motor Co., Ltd. became the first reorganization case for the revitalization plan. GAC Group acquired a 29% stake in Changfeng Motor for RMB 1.05 billion and became a major shareholder of Changfeng Motor.

The reason for the successful cooperation between the two parties is because GAC Group's influence in the country is not weak (ranking the 6th in the country in the first 4 months of this year). Changfeng Motor, once a military enterprise, is in poor condition and needs a strong cooperation. Partners; On the other hand, GAC Group is able to show its talents in the SUV manufacturing sector and has also obtained an A-share financing platform (GAC Group has been seeking for listing in recent years, but it has not yet achieved results).

Chery and JAC are very hard to "submit" each other. The opponent that Jianghuai selected at the beginning of the sedan project was Chery (also Geely, BYD, etc.) who also produced economical cars. Similarly, Chery entered the commercial vehicle sector and also considered Jianghuai as one of its competitors.

It is reported that the idea of ​​the Anhui provincial government is to let Chery and Jianghuai hold cross-shareholdings and establish an automobile industry group based on this. In this way, it avoids the problem of sensitive mergers with others, and can reduce the resistance of both parties after the integration begins.

However, how to measure the value of the assets of these two auto companies and how to hold the shares in each other is also a problem. Because of the high value of their assets, they will be able to exchange more shares for each other with fewer shares, and the proportion of holdings will affect the right to speak in the future.

In the forthcoming capital competition, Chery Automobile has taken a slight disadvantage. Because Chery's over-expansion of scale and speed has led to a low profitability of the company, the capital chain has been tight, and the asset-liability ratio is relatively high. Listing is a quick way to increase the company's market value. Last year, Chery filed an initial public offering application with the China Securities Regulatory Commission. However, due to the poor stock market conditions at that time, all new IPO listing applications were suspended by the China Securities Regulatory Commission.

At present, Chery has restarted the listing and set the deadline for listing on September 30, 2010. In June of this year, Chery Automobile also introduced outside investors and sold less than 20% of its equity to five financing institutions such as Huarong Asset Management Co., Ltd. and Bohai Industry Investment Fund Management Co., Ltd., and raised 2.9 billion yuan.

In response to Chery’s big moves in the capital market, Jianghuai Automobile also frequently contacted the securities companies and invited brokerage representatives to conduct joint investigations and research with the company in hopes of conveying good news to the capital market.

In the first half of this year, Jianghuai Automobile sold 152,000 units, an increase of 15% from the same period last year. JAC has increased its annual sales target from 210,000 units to 300,000 units (180,000 commercial vehicles and 120,000 passenger vehicles). It will also improve the six passenger car platforms and four major engine platforms within this year.

In the first half of the year, Chery’s sales volume was 212,124 units, an increase of 1.54% year-on-year. In the second half of the year, Chery will also have a number of new cars on the market, including high-end cars, SUVs and commercial vehicles.

It is even more difficult for the parties to reorganize to obtain sufficient reasons. Different from Chery’s car, Jianghuai Automobile repeatedly expressed its refusal attitude on “whether the two sides will reorganize”. Following the release of the clarification announcement on June 2nd, Jianghuai Automobile again issued an announcement on July 29 denying the news that it would reorganize with Chery, claiming that “in the next 3 months, there will be no assets reorganization, share transfer, stock issue, etc. between the two parties. Equity-sensitive matters."

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