Can TCL And Omar Electric "Acquisition Attack And Defense War" Procrastination And "Porcupine Clause" Work?

TCL electric appliances (hereinafter referred to as "Huizhou TCL Electrical Appliances Group Co., Ltd.", the same below) encountered the "second counterattack" of Omar electric appliances.

On the evening of March 2, in the face of TCL appliance's request to hold a general meeting of shareholders to seek a seat on the board of directors, Omar electric appliance's board of supervisors announced that it would not consider it. The reason was that TCL electric appliances bypassed the board of directors and proposed to the board of supervisors to hold an interim general meeting of shareholders, "not in accordance with the procedures prescribed by relevant laws and regulations".

In the past two months, TCL appliances has continuously increased its shareholding in Omar through call auction, block trading and judicial auction. It has twice proposed to hold a shareholders' meeting as a shareholder, trying to send personnel to Omar's board of directors. The intention of "acquisition" is obvious.

In the face of TCL's sudden attack, Omar electric was not willing to be outdone. It refused to consider the relevant letters of TCL's temporary shareholders' meeting due to the reasons of "less than 10% shareholding ratio", "inconsistent procedures" and "inconsistent issuing subjects of letters", and even resisted TCL appliances through the "porcupine clause" that "the change of control right or the inability to continue the consolidation of Omar refrigerator".

Recently, the 21st century economic reporter learned that in the face of Omar's "resistance", Li Dongsheng, the helmsman of TCL, who is determined to break through the white power market, does not seem to interrupt his "retreat". The contest between "acquisition" and "anti acquisition" may continue in the short term.

On the same day, the reporter also called Omar electric securities department as an investor, and the wiring staff pointed out that all contents were disclosed in the announcement.

The first confrontation: "unilateral seal" has a bad start

The story begins with the auction results of Omar's equity on January 15.

Tibet RONGTONG Zhongjin Investment Co., Ltd. (hereinafter referred to as "RONGTONG Zhongjin"), the controlling shareholder of Omar electric appliances, defaulted on the pledge, and its shares in the listed company were publicly auctioned. TCL appliance was one of the bidders. The latter took a total of 40474400 shares of Omar electric appliances at the price of 186 million yuan, accounting for 3.73% of the total share capital of the listed company.

Before that, TCL appliances had been separated from the TCL listed company system for more than a year, and the goal of strengthening the white power industry giant was strong. As the largest refrigerator export enterprise in China, Omar's white power business may become a big help to the expansion of TCL's home appliance layout.

As a result, many market participants speculate that TCL appliances have "coveted" Omar electric appliances, and then a series of actions of TCL appliances confirmed the market speculation.

According to the announcement of Omar electric appliances, TCL Electric Appliances Co operated with Chongqing Zhongxin Rongze Investment Center (limited partnership) (hereinafter referred to as "Sino Singapore Rongze") as early as January 8.

According to the statistics of the 21st century economic report, from January 8 to 28, TCL appliances and China Singapore Rongze won 5% of the shares of Omar electric appliances through centralized bidding, with a total cost of 251 million yuan; from January 29 to February 4, TCL appliances once again took 5% of the shares of Omar through centralized bidding and block trading, at a cost of 288 million yuan.

At that time, after the completion of the increase, TCL appliances and Sino Singapore Rongze respectively held 7.87% and 2.13% of the shares in the listed companies, with a total shareholding ratio of 10%.

Subsequently, TCL electric appliances quickly launched the first round of "offensive" to Omar's board of directors: on February 5, it issued a letter to Omar Electric's board of directors on calling for the convening of the second extraordinary general meeting of shareholders in 2021 (hereinafter referred to as the letter to the board of directors), nominating Xu and Hu Dianqian as two candidates for non independent directors.

According to public information, Xu joined TCL Group in September 2012 and is now the assistant president of TCL Technology Group Co., Ltd.

It is worth mentioning that, different from the market expectation, TCL household appliances did not adopt the most direct "tender offer", causing market disputes.

The above-mentioned Omar electrical wiring personnel also repeatedly denied that TCL appliances tried to "acquire" the listed company.

In this regard, Ruan Chao, founder of Wenyi Fuxin, a boutique investment bank, explained: "TCL has chosen to increase its holdings in the secondary market. It may be that TCL hopes to obtain enough shares as soon as possible and start the negotiation with Omar with its dominant position (the tender offer takes 30 days and may be suspended by Omar for various reasons)."

But perhaps it is too eager to seek Omar, TCL's first attack did not achieve good results.

The letter to the board of directors was not stamped with the official seal of xinrongze, who acted in concert. At that time, the equity of Omar electric appliances from TCL appliance auction had not been transferred, resulting in its unilateral shareholding ratio less than 10% and unable to meet the main qualification of holding an interim general meeting of shareholders, which gave Omar's management an opportunity to "fight back".

On February 18, Omar electric held a meeting of the board of directors, pointing out that "the exercise of shareholders' rights between TCL appliances and the persons acting in concert mentioned in the application letter sealed and submitted by TCL appliance is inconsistent with the mode of exercise of shareholders' rights specified in the agreement on concerted action between TCL and China Singapore Rongze.

In the view of Omar's board of directors, TCL appliance group and Sino Singapore Rongze have taken concerted action in the following ways: China, Singapore and Rongze consult with TCL appliance group or reach a consensus with TCL appliance group before exercising the shareholder's rights of the company, and make a joint decision with TCL appliance group or keep consistent with TCL appliance group when making specific intention; however, it can not be directly concluded that TCL appliance group takes the initiative to exercise shares In the case of East power, China Singapore Rongze does not need to make any behavior and automatically acquiesce in the conclusion of the same intention and behavior.

"The agreement on concerted action alone and the letter to the board of directors issued by TCL appliance group with unilateral seal can not directly confirm that Sino Singapore Rongze has agreed, entrusted or authorized TCL appliance group to issue the letter to the board of directors. When TCL appliance group submitted the letter to the board of directors, its shareholding ratio was less than 10%." Omar said.

This counterattack reason has also been affirmed by the legal profession.

Li Yao, a lawyer of jintiancheng law firm, told reporters of the 21st century economic report that "concerted action is an internal agreement between China and Singapore Rongze and TCL, and China Singapore Rongze should make a positive expression of its intention to foreign countries. According to the second paragraph of Article 140 of the civil code, silence can be regarded as an expression of will only when there are legal provisions, the agreement of the parties or the transaction habits between the parties are met. In terms of maintaining transaction security and business customs, it is generally believed that both China and Singapore Rongze need to be sealed with the official seal. "

Second "surprise attack": another defeat of "out of order"

After encountering the board of directors "striving for justice", TCL electric appliances launched a second round of offensive.

On the one hand, from February 18 to 19, TCL electric appliances increased its holdings again, buying 1991.71 million shares (accounting for 1.84% of the total share capital) at a price of 119 million yuan. On the other hand, after receiving the enforcement ruling of Fuzhou intermediate people's Court of Fujian Province, TCL electric appliances sent a letter to Omar electric appliance's board of supervisors to re apply for the convening of an interim general meeting of shareholders (hereinafter referred to as the "application letter to the board of supervisors").

According to its announcement, after the judicial auction ruling took effect, as of February 24, TCL appliances and Zhongxin Rongze held 168.8025 million shares of Omar electric appliances, accounting for 15.57% of the total share capital, becoming their largest shareholder. However, Zhao Guodong, the actual controller of Omar, and Tibet RONGTONG, the person acting in concert, held a total shareholding ratio of 12.31% from 24.75%.

However, TCL, which had thought that the request had been "sure" this time, ran into a wall again.

This time, Omar electric gave the reason that TCL electric appliances bypassed the board of directors and directly submitted a request to the board of supervisors to hold an interim general meeting of shareholders, which was "not in accordance with the relevant procedures".

The board of supervisors of Omar Electric Co., Ltd. holds that, according to relevant regulations, the shareholders holding more than 10% of the company's shares individually or jointly shall first propose to the board of directors of the company to hold an interim general meeting of shareholders, and when the board of directors of the company disagrees with its request for holding an interim general meeting of shareholders or fails to give feedback within 10 days after receiving the request, such qualified shareholders have the right to submit a proposal to the supervisor of the company The board of directors has no right to bypass the procedures of the board of directors of the company and directly make a request to the board of supervisors for holding an interim general meeting of shareholders.

At the same time, the board of supervisors also reiterated the relevant requirements of TCL appliances for the first time to the board of directors for holding a shareholders' meeting. The board of directors refused to consider the relevant proposals due to the lack of seal of Sino Singapore Rongze.

"According to the rules of Article 6 of the rules of the general meeting of shareholders of listed companies, the shareholders who hold 10% of the shares individually or jointly shall apply to the board of directors first. If the board of directors does not reply or disagree, it can apply to the board of supervisors." Li Yao said, "in fact, the board of supervisors used such a pre-processing procedure as applying to the board of directors. Zhongxin Rongze did not seal the application letter of the board of directors. In fact, there was something wrong with this step of procedure, so the board of supervisors did not approve it."

In the second "anti takeover war", Omar management once again "defensive" success. However, TCL does not seem to have any intention to "retreat".

On March 1, Li Dongsheng, the founder and chairman of TCL, said in an interview with the media, "in order to vigorously develop the refrigerator business, the possibility of increasing the equity of Omar electric appliances within a reasonable range can not be ruled out in the next 12 months."

A person familiar with the matter also told the 21st century economic reporter, "boss Li's will is quite strong."

It is worth mentioning that although Omar twice defended "properly", it is still in a weak position in the industry.

"Omar is a drag word formula. As soon as the equity of the judicial auction is transferred, the shareholding requirements of TCL appliances will be met." A senior investment bank in South China said.

In fact, in the situation of Zhao Guodong, the current actual controller of Omar, it is not easy to resist the "crazy increase" of TCL appliances.

According to public information, Zhao Guodong has passively reduced his holdings of Omar electric appliances four times from November 2019 to July 2020 due to his inability to repay the loan, with the shareholding ratio reduced from 15.85% to 12.31%. Zhao Guodong's 100% shares of Omar electric appliances are in the state of pledge and freezing, and there are risks of compulsory closing position and judicial auction.

In fact, before TCL entered the Bureau, Zhao Guodong already had the intention of "selling shells". On October 24, 2020, Omar Electric Co., Ltd. issued a plan for non-public issuance of A-shares, which issued 325233427 shares to Beihai Qingyun Information Technology Co., Ltd. (hereinafter referred to as "Beihai Qingyun"), accounting for 23.08% of the company's share capital, with the issue price of RMB 3.86 per share and the raised capital of RMB 1.255 billion. The funds raised are used to build cross-border e-commerce intelligent marketing cloud platform, repay bank loans and supplement working capital.

If the non-public offering of shares is successful, Beihai Qingyun will hold 23.08% of Omar electric appliances, and Beihai Qingyun will become the controlling shareholder of Omar, and the actual controller of Omar will be changed to Zhang Zhu, the controller of Beihai Qingyun. At present, Omar's non-public offering of shares has not been approved.

However, with the introduction of TCL home appliances, Zhao Guodong's "shell selling" action variables increased sharply.

Show the card: can the porcupine clause produce deterrence?

As the capital strength of TCL is too big, in the view of many investors, Omar's current management may be difficult to resist the strong "barbarians".

However, in the public's query, Omar electric showed another secret weapon: "porcupine clause" exists in the articles of association of subsidiary Omar refrigerator, which may lead to the failure of Omar refrigerator to merge.

The so-called "porcupine clause" refers to the design of defense clauses in the company's articles of incorporation or internal rules, so that the acquisition attempt without the consent of the target company's board of directors is impossible or infeasible.

Omar Electric said that the company's holding subsidiary Omar refrigerator's articles of association stipulate that in case of any change in the company's actual control right, the election and replacement of directors and supervisors who are not held by employee representatives of Omar refrigerator shall be adopted by special resolution. If the company's actual control right changes, there is a risk that Omar refrigerator cannot be included in the company's consolidated statements.

As soon as the news came out, it immediately triggered the panic in the market.

As the most core asset of Omar electric appliance, the operating income and net profit of Omar refrigerator in the consolidated statements in 2019 are 7.181 billion yuan and 562 million yuan respectively, accounting for 97.13% and 1060.37% of the total revenue and net profit of the listed company respectively (other business sectors of Omar are in loss state).

Although the revenue and sales volume of Omar refrigerator have declined in recent years, it still has considerable competitive strength in the industry. Over the years, Omar's overall sales of refrigerators have remained at the fourth place in the national industry. From 2009 to 2019, Omar has been the champion of China's refrigerator export for 11 consecutive years and ranked the first in Europe for 12 consecutive years.

The core reason why TCL appliances, which is stronger than the black power business, is to increase its white power business with the help of Omar refrigerator.

Last year, Omar was affected by mutual fund business. In order to ease the pressure of capital, it transferred 49% of the equity of Omar refrigerator to Zhongshan private listed company development special fund Co., Ltd. (hereinafter referred to as "Zhongshan special fund") and 8 natural persons of the core management team of Omar refrigerator at a price of 1.127 billion yuan.

"If the control right of Omar electric appliance is changed, the re-election of directors and supervisors of Omar refrigerator, the core subsidiary, needs to be passed by special resolution, that is, more than 2 / 3 agree. Omar electric currently only holds 51% equity of Omar refrigerator, and the other 49% equity is held by the management of Omar ice box and Zhongshan rescue fund." Ruan Chao said.

"If TCL fails to reach an agreement with the management of Omar refrigerator and the Zhongshan rescue fund, it will not be able to obtain more than 2 / 3 of the voting rights of Omar refrigerator's shareholders, and it will not be able to re elect the board of directors and the board of supervisors." Ruan Chao added.

On March 2, 21st century economic reporter expressed his intention to TCL Group on the acquisition of Omar refrigerator, but the other side replied that "the content of the announcement shall prevail".

However, in the view of industry insiders, TCL group is not "difficult to break the game" in the face of Omar's "1000 enemies and 800 self losses".

In Ruan Chao's view, this anti takeover measure will directly make the listed companies lose control of Omar refrigerator, and may go too far, which in turn will make this method ineffective. Because Omar refrigerator is too important to Omar electric appliances, the total assets, net assets, revenue and other indicators far exceed 50% of the corresponding indicators of the listed company, which means that if Omar refrigerator is "listed" it will constitute a "major asset sale", and the major asset sale needs to be voted by the shareholders' meeting.

"It is very important when this clause was added in Omar's articles of association. If it was not added at the time of its establishment, the increase of this clause may lead to" significant asset sale "at the level of listed companies. Theoretically, it needs to be approved by the shareholders' meeting of the listed company. However, if this procedure is not implemented in practice, the effectiveness is questionable. What's more, according to the agreement made by Omar when selling 49% equity of Omar refrigerator in 2019, the listed company has the right to buy back. If TCL successfully controls the board of directors of Omar, it is highly likely that TCL will get back the control right of Omar refrigerator. However, the length of the process and the price to be paid will not be certain. " Ruan Chao said.

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