A "Three High" Mergers And Acquisitions Trigger Financial Fraud? The Strategic Derailment Of Changyuan Group'S "Century Old Shop"

With the recent announcement of the "advance notice" of the administrative penalty to the Changyuan group (600525.SH), the financial fraud details of the Changyuan group were finally revealed.

The notification book details the details of 11 single garden and hawk's alleged financial fraud. According to the investigation, Changyuan and Eagle are suspected of falsely increasing their business performance by imaginary overseas sales, early recognition of revenue, repeated recognition of revenue, signing of "yin yang contract", and accounting of accounting methods that do not conform to the accounting standards for enterprises.

This led to the increase in operating income of Yuen yuan Group in 2016, which amounted to about 150 million yuan, a profit of about 120 million yuan, and an estimated profit of 210 million yuan in 2017, with a profit of about 180 million yuan.

That is to say, the inflated business revenue accounts for about 1/3 of the total operating income of the long Park and hawk.

Changyuan group, founded in 1986, was one of the first high tech enterprises of the Chinese Academy of Sciences and one of the leading white horse stocks in the Shenzhen science and Technology Industrial Park. The vision of becoming a technology centred and respected centenary store has been depicted many times by senior management of Changyuan group.

However, the "three high" mergers and acquisitions in the year of "30 years" have dragged the Changyuan group into the whirlpool of financial fraud.

This is only part of the story. A further investigation by economic news reporters in twenty-first Century found that behind this might still be the phantom of the struggle for control.

Why is it determined to become a "century old shop" on the way to financial fraud? The case of Changyuan group is of great enlightenment to the parties in the capital market.

"Century old shop" denounced huge cash "three high" mergers and acquisitions

Changyuan group has been a leading industry leader in the standard sense.

In 1986, the Changchun Institute of Applied Chemistry of the Chinese Academy of Sciences and the Shenzhen science and Technology Industrial Park Corporation jointly injected capital into the Shenzhen science and Technology Industrial Park to set up Shenzhen Changyuan Applied Chemistry Co., Ltd.

In 2002, Changyuan group was listed on the Shanghai Stock Exchange, and for a long time since its listing, the controlling shareholder has been the long and investment controlled by Li Jiacheng, the richest Chinese. In the meantime, annual growth of more than 20% is the white horse in the standard sense.

As a high-tech enterprise with the origin of the Chinese Academy of Sciences, it has become a vision of "one hundred years of technology respected and respected", and has been depicted many times by Changyuan group.

However, while emphasizing the respect of "technology", Changyuan group has not stopped the acquisition and acquisition of capital in the capital market. By the end of 6 in 2018, there were nearly 70 subsidiaries in Changyuan group, more than half of which were purchased.

In the 2015-2016 years when the cross market mergers and acquisitions in the stock market prevailed, Chang Yuan group was not absent.

The main attraction is the acquisition of Long Yuan and eagle. In from July 7 to 9, 2016, Changyuan group held a grand meeting of thousands of people to join Eagle Technology (renamed the long garden and Eagle) after the merger. The theme of the conference was named "the rebirth of the Eagle - flying higher and going farther", meaning that after the Eagle Technology joined the Changyuan group, it was ready to go.

In June 7th of that year, Changyuan group announced that it would buy 80% stake in Shanghai and Eagle Technology at a price of 1 billion 880 million yuan in cash, with a premium of 6.5 times.

That time coincided with the plan of the Eagle Technology Intelligent future factory and Changyuan group's intelligent plant equipment plan, which eventually led to the "hand in hand".

However, combined with multi cues, the story is not so simple.

In the eyes of a senior investment bank, this is obviously a "three high" cross-border mergers and acquisitions.

"At that time, Chang Yuan and Eagle belong to the clothing production equipment manufacturer, Changyuan group's main business is electric vehicle related materials and other functional materials and other businesses, the two do not exist in business synergy or industrial chain complementarity. Changyuan group deviated from its main business and followed blindly in pursuit of market hot spots, and crossed cross-border mergers and acquisitions of "high valuation, high premium and high commitment". Especially after mergers and acquisitions, Chang Yuan and Eagle are still completely controlled by the original main shareholders. Changyuan group failed to implement effective management and control because of its lack of integrated management, resulting in the failure of the integration strategy of the merger and acquisition, and the occurrence of suspected financial fraud. He said.

6.5 times premium, cash payment, deviating from main business, why does Changyuan group carry out such a "three high" M & A?

The phantom of control competition

The logic of industrial end is hard to be self consistent, and a series of clues collage a "sword and shadow" around capital competition.

In the second half of 2013, the original controlling shareholder and investment of Changyuan group were gradually reduced. By the beginning of 2014, long and investment had no longer owned the control of Changyuan group after more than ten consecutive reductions. At the same time, there are also Huarun's deep investment in Changyuan group.

At the same time, the same industry listed company walnut nuclear material on the Changyuan group, a 4 years of control struggle for war broke out. Walnut nuclear material first entered the Changyuan group through trust funds, and then frequently raised placards, becoming the largest shareholder of Changyuan group. The management of Changyuan group also refused to "seize the catch", first look for war, and then sign a concerted action agreement with the more than 20 shareholders.

It was not until January 2018 that both sides shook hands. In the mediation work group organized by the Shenzhen securities and Futures Dispute Mediation Center, Changyuan group agreed to transfer the subsidiary company to the walnut nuclear material company, the 75% of the Long Yuan Electronics of its fortune. The long struggle for control finally came to an end.

However, then, in 2018, Changyuan group staged a "performance change". After deducting the losses, it lost nearly 1 billion 200 million yuan, down 286.77% from the same period last year. The company also significantly reduced the performance of the previous two years, with net profit shrunk from 640 million yuan to 106 million yuan in 2016, and net profit in 2017 changed from 1 billion 136 million yuan to -7432 million yuan.

The performance of Changyuan and eagle of subsidiaries is one of the important reasons for dragging down the performance of Changyuan group.

It is worth noting that Chang Yuan and Eagle were purchased by the Changyuan group at a 6.5 times premium rate in 2016. At that time, the battle for control was in full swing.

Reporters noted that in 2016, Changyuan group and long yuan and Eagle completed a high premium cash acquisition, in 2017, Changyuan and Eagle side on the Changyuan group management shareholding platform to increase capital and form a concerted action.

On the evening of May 23, 2017, a notice by the Changyuan group about the signing of a concerted action agreement by shareholders indicated that the 29 shareholders of the management shareholding platform, such as Tibetan gold one, signed a concerted action agreement in May 24, 2017. Sun Lanhua, the wife of Changyuan and eagle's former chairman, was the same. After the signing of the agreement, the management side of the Tibetan gold one and its concerted action totaled 22.31% shares. The largest shareholder of the company is still the Limited by Share Ltd of walnut nuclear material and its concerted action in Shenzhen, with a total shareholding of 24.21%. The company still has no controlling shareholders and actual controllers.

In view of this, the "real gold and silver" paid by Changyuan group to acquire long Park and Eagle company level may become the "ammunition" for management to fight for control. A "three high" takeover from the main industry has been explained.

This is also the story of an industry leader being involved in capital battlefield. However, in any case, a strange merger that brings financial fraud should not be a solution.

False clues emerge

The consequences of counterfeiting have been buried in the wake of the merger.

At the same time, the two sides agreed that Chang Yuan and Eagle should make a commitment to the acquisition for 2 consecutive years. The original shareholders of Changyuan and Eagle promise that the non net profit of the combined annual report of 2016 and 2017 is not less than 150 million and 200 million respectively.

The struggle for control in 2017 is still in progress. Chang Yuan and Eagle actually completed 176 million of their performance and failed to meet their performance commitments, but their performance basically met expectations. The company made a 65 million 830 thousand loss of assets in respect of 1 billion 600 million goodwill. At the same time, there have been some anomalies in accounts receivable, operating cash flow and so on.

Performance pledge period just passed, long garden and Eagle quickly "performance change face". According to the 2018 China Daily, Changyuan and Eagle ranked second in the main holdings of Changyuan group, with a profit of only 16 million 990 thousand.

This quickly attracted the attention of regulators.

After the two inquiry of the Shanghai Stock Exchange, the long garden group finally admitted in the evening of December 24, 2018 that "there are reasons for initially judging the suspicion of falsification of the performance of the head of the Changyuan and Eagle".

In May 2019, the SFC decided to file a formal investigation into the company.

In June 12th, as the SFC sent "beforehand notification of administrative penalty" to Changyuan group, the "long life" group's financial fraud "Luo Sheng men" finally came to light.

Combing 11 single fake behavior, the long yuan and Eagle suspected of financial fraud involves many domestic customers, but also involves Vietnam, Kampuchea, Thailand and other foreign agents or customers. In fact, the financial fraudulent means of its implementation include repeated recognition of revenue, and recognition of income through false sales, early recognition of income, and income from intelligent factory operations that do not meet the requirements of income recognition. Both have "yin yang contract" and "supplementary agreement".

For example, in December 2015, Chang Yuan and Eagle exported 2048 stations to Thailand M.T. SEWING MACHINE CENTER C0. and LTD. (hereinafter referred to as M.T. SEWING). In March 2016, Chang Yuan and Eagle confirmed that the sales revenue for M.T. SEWING was 8 million 704 thousand and 100 yuan. According to the investigation, without signing a written contract, the two sides only promise M.T. SEWING to pay again after the goods are sold, without payment. The goods were exported after customs declaration in December 2015, and they were stored in the warehouse of Thailand bonded area of Changyuan and Eagle leasing. They were not sold overseas. Until August 1, 2018, the customers of the 2048 stations were transported back to China due to the fact that M.T.SEWING had not yet found customers. Chang Yuan and Eagle falsely increased the accounts receivable at the end of 2016 and 2017 in the end of 2017.

And so on, since its acquisition in 2016 to the supervisory department, it has implemented more than 2 years of financial fraud for the completion of the M & a performance. The total operating income has increased by about 360 million yuan, accounting for about 1/3 of the total operating income of Changyuan and eagle. Long yuan and eagle's former chairman and chief executive officer of the chief financial officer are directly involved in the implementation of fraud.

"There are even customer fraud investigations, which are fraudulent." A person close to regulators told reporters.

"There must be traces of counterfeiting, and cross border and covert fraudulent practices have long been unworkable." The foregoing source added.

Prior to this, there were also typical cases of cross border fraud such as Al baitt.

According to the securities law of 2005, the Shenzhen Securities Regulatory Commission (CSRC) will give a warning to the Changyuan group and impose a fine on it. It is proposed to take 5 to 10 years' prohibition measures for the 3 responsible persons who play a major role in the major violations of the law, act badly and have serious circumstances.

In twenty-first Century, the economic news reporter noted that there have been many cases of financial fraud which occurred in recent years with the runaway control of mergers and acquisitions, such as the recent penalty of Connie mechatronics, which had previously been punished by Paul Li, Zhong An Xiao, and Lian Jian photoelectric. With the constant emphasis on strict financial fraud, more cases have been released in the preliminary exchange inquiry and the late Commission's investigation.

"Since 2019, the securities and Futures Commission has investigated and filed all 22 listed companies' financial fraudulent practices, and has imposed administrative penalties on 18 typical cases and transferred 6 cases of suspected financial crimes to public security organs." At the annual meeting of China Association of Listed Companies in June 11th, Yan Qingmin, vice chairman of the securities and Futures Commission, emphasized that financial fraud seriously challenged the seriousness of the information disclosure system, seriously undermining the credibility foundation of the market, seriously undermining market confidence and seriously damaging the interests of investors. It is a "malignant tumor" in the securities market and must be resolutely and severely punished.

Financial fraud cases have been checked at the same time. In the past few years, the "three high" cross-border mergers and acquisitions have also been gradually reduced under the changing market environment.

?