The Escalation Of Father Son Game: Five Questions Of Wanzhou International'S Official Response

? ? ? ? The 76th floor, World Trade Plaza, No.1 Austin Road West, Kowloon, Hong Kong, is the office location of Wanlong, chairman of the board of directors of Wanzhou International. Wanlong has been working here for nearly two years due to the impact of the new crown pneumonia epidemic. It is also here that Wanlong, who is over 80 years old, and WAN Hongjian, the eldest son, are torn apart from each other.

On August 23, after two months of silence, Wanzhou International issued an announcement, officially answering Wan Hongjian's five questions.

In 67 days, the market value of Wanzhou International evaporated by HK $13.852 billion, and that of Shuanghui development by RMB 27.821 billion. Now, the management of Wanzhou International has undergone a round of adjustment. The second son, Wan Hongwei, has been appointed as the director and vice chairman of the company. The CEO has changed from Wanlong himself to professional manager Guo Lijun.

However, in the face of such a response, how will Wan Hongjian respond?

The legend of "smashing three railways" and "two cents"

Wan Hongjian is not shy about his father's legendary experience.

Wanlong, who created a 100 billion pork food Empire and is known as the godfather of China's meat industry, has been solving various difficult business problems since it entered the business community in the early 1960s.

In April 1940, Wanlong was born in Luohe, Henan Province. At the age of 20, he joined the army and became a railway soldier for six years. He entered Luohe meat joint factory in 1966. At that time, Luohe meat joint factory had been established for more than 10 years, but it had never made profits since its establishment. The assets of the factory were only 4.68 million, but the loss was 5.8 million. It often relied on bank loans to pay wages.

In the spring of 1985, Wanlong was elected the factory director. Under the background that the state abolished the policy of unified purchase and marketing of live pigs, Wanlong burned three fires after taking office -- breaking the iron wage, breaking the iron rice bowl and breaking the iron seat, which is one of the legends mentioned by Wan Hongjian in his article - "smashing the three irons". The anti "common sense" action, which aroused thousands of waves, made the meat factory realize 100000 yuan profit in that year.

The handover of Wanzhou International Co., Ltd. continues to attract people's attention. Visual China

In the process of enterprise development, it is inevitable to touch the interests of other subjects, and the meat factory has faced multiple obstacles in purchasing pigs. After making a reasonable judgment on the price elasticity of pig supply, Wanlong decided to raise the purchase price of each kilogram of pig by 2 cents. The pig farmers responded positively. The meat factory made a profit of 20000 yuan in the same month and 200000 yuan at the end of the year. This is another legend mentioned by Wan Hongjian in his article - "two cents".

With the deregulation of domestic slaughtering industry in 1986, the supply of pork increased and the price continued to fall. Therefore, the meat factory needs to find a new market. Wanlong chose to export its products to the Soviet Union, which was quite similar to Qiao Zhiyong, a Shanxi Merchant, in the late Qing Dynasty, judging the situation and facing the collapse of the tea business, he turned the attack into defense and directly entered the Russian trade. But what is dramatic is that the business center of Shanxi Merchants in the later period did turn to the financial industry, and Wanlong was also accused of "capital operation" by Wan Hongjian.

In 1987, after several twists and turns, Bandung got a bank loan and set up a segmentation workshop. The meat factory exported 50000 tons of pork to the Soviet Union, and gradually accumulated capital in the following five years.

That is, in the capital accumulation stage of Wanzhou International, wanhongjian, the eldest son, entered Luohe meat joint factory to work. In 1990, Wan Hongjian graduated from Henan Radio and Television University in business enterprise management. From 1993 to 2010, Wan Hongjian served as deputy director of the foreign trade department of Shuanghui development. From 2012 to 2015, he successively served as deputy general manager and director of international trade department, the controlling shareholder of Shuanghui development. In 2016, Wan Hongjian was promoted to vice president of Wanzhou International, responsible for international trade business. Wan Hongjian formally stepped into the board of directors of the company three years ago. In March 2018, he became the executive director of Wanzhou International and was appointed as the vice chairman of the board of directors on August 14 of that year.

Before this father son game, people inside and outside Wanzhou International thought that Wan Hongjian would become the future successor of the pork Empire created by Wanlong. The second son, Wan Hongwei, never set foot on the board of directors, but as an assistant to the chairman of the board of directors, assisted Wanlong in handling various matters of the group.

However, Wanlong's personal capital accumulation process is problematic in wanhongjian's opinion. In an interview with other media, he said that in 2007, Shuanghui group completed the restructuring of state-owned enterprises“ At the end of the Shuanghui reform, CDH once gave Wanlong a huge sum of US $200 million, which was deposited by Wanlong in DBS Bank of Hong Kong, which has not been declared or taxed up to now. " Wan Hongjian said that Wanlong obtained 5% equity of Shuanghui development free of charge from CDH investment. Wanlong did not accept the US dollar, but was sold by CDH investment for us $200 million, and the fund was given to Wanlong.

In response to this accusation, Wanlong and CDH investment both denied in writing. According to the explanation of Wanzhou International, the equity of the largest public shareholder of Shuanghui development was 0.95% to 3.66% at the end of 2007 and 2020. At the end of 2008, the maximum shareholding was held by the central clearing and settlement system, with a shareholding ratio of 3.66%. That is to say, during this period, among the largest public shareholders of Wanzhou International, there were no new public shareholders with a shareholding ratio of 5%.

The 21st century economic reporter inquired the wind database for the details of the top ten shareholders of Shuanghui development from 2007 to 2020. It is also shown that by the end of 2018, Hong Kong Central Clearing Co., Ltd. held 3.66%, which was the peak value of the largest public shareholder's shareholding; At the end of 2012, the national social security fund 102 portfolio held 0.95%, which was the valley value of the largest public shareholders.

Smithfield in the focus

In September 2013, Shuanghui international acquired Smithfield food with a large sum of US $7.1 billion, which is the No.1 pork producer in the United States. This is the largest acquisition of the United States by a Chinese enterprise. So far, Shuanghui group has also risen to be the world's largest pork products enterprise.

But it is also one of the focuses of the father son conflict.

Shuanghui's main business is meat products and slaughtering. Smithfield is the largest pig breeding enterprise in the United States. Many people are optimistic about the acquisition. They think that the two enterprises are complementary in business and belong to the combination of strong and powerful enterprises, but wan Hongjian is not optimistic“ The meat resources of China and the United States can complement each other and produce synergistic effects, which is an important official reason for Shuanghui international to acquire American Smithfield. " Wan Hongjian believes that meat food has strong national and regional characteristics, and does not have the universal identity of the global market. At the same time, although the pig price of the United States is low and the agricultural product resource advantage is prominent, the meat processing industry is a labor-intensive industry, and the labor resources of the United States are at a relative disadvantage. In fact, the comprehensive resource advantages of the meat industry in the United States are not comparable to those of South American countries.

But wan Hongjian also said that although the acquisition of Smith Company in the United States, although the investment is huge, the return is not high, but the operation is still basically profitable. From 2015 to 2020, the meat import volume of Shuanghui development increased from 160000 tons to 720000 tons, 80% of which came from Smith Company of the United States, and Shuanghui development also gained some short-term benefits.

"After the acquisition of Smithfield, Shuanghui no longer advocates cold meat." In recent years, the domestic pig price has risen, the pig price has reached a high point, and the slaughtering industry is under great pressure. Shuanghui began to import a large number of frozen meat from the United States, and a large number of frozen meat has replaced the cold and fresh meat. Shuanghui's slaughtering factories and cold and fresh meat sales network in China have been hit hard. Between 2015 and 2020, Shuanghui's domestic slaughter volume dropped from 12.3 million to 7.1 million, Wan said. However, Smithfield's capital expenditure has reached US $3 billion from 2014 to now through plant renovation, construction of cold storage and expansion of pork export to China.

"Shuanghui has successively remitted as much as 3.5 billion US dollars abroad," Wan Hongjian believes that this regional difference strategy of valuing the United States and belittling China directly weakens the development momentum of China Shuanghui. In his view, the surplus funds of the development of Shuanghui can not continue to be consumed and distributed. In the future, most of the funds should be left in China to support the long-term development of Shuanghui.

However, in the first half of 2021, the performance of "Shuanghui system" is not ideal, and there are obvious differences between Wanzhou International and Shuanghui.

During the reporting period, Wanzhou International's revenue was US $13.331 billion, a year-on-year increase of 6.8%, gross profit of US $2.24 billion, a year-on-year decrease of 1.4%, and net profit attributable to the parent company was US $650 million, up 105.7% year-on-year. The overall performance of Shuanghui development, a subsidiary, declined by 4.14% to 34.842 billion yuan in the first half of the year. The net profit attributable to the parent company was 2.537 billion yuan, down 16.57% year on year.

Specifically, the operating profit of Wanzhou International Meat products business grew better, reaching US $820 million, a year-on-year increase of 17.6%, and the operating profit margin was 12.6%. However, the Chinese market fell by 2.2%, and the company said that the increase in other raw material costs, employee compensation and marketing expenses led to a year-on-year decline in operating profit. The U.S. market rose significantly, up 47.3% year-on-year, which was offset by increased sales of raw materials.

As of June 30, the net cash flow from operating activities of Wanzhou International was $272 million, down 77.69% from the same period last year.

But Industrial Securities analyst Zhang Bo said Wanzhou International had sufficient cash and stable operation. In the first half of the year, the company's cash was 1.7 billion US dollars, with a current ratio of 1.7 times, better than that of the same period last year. The overall operation is relatively stable, the account period of accounts receivable is basically within 30 days, and the account period is short.

At present, Smithfield is mainly responsible for Wanzhou International's business in the United States. In the first half of this year, Wanzhou International's China business accounted for 40.9% and 57.0% of the group's revenue and operating profit, respectively, 41.8% and 59.5% in the same period. The U.S. business accounted for 49.6% and 34.5% of the group's revenue and operating profit, respectively, 49.0% and 29.8% in the same period. The rest of its revenue and operating profit came from European business.

This kind of operation is regarded by Wan Hongjian as the "financial technology" of Wanzhou International. Wan Hongjian said that at the end of February 2021, the average market price of pork hexad imported by Shuanghui development from the United States was only 21500 yuan. However, Wanzhou International raised the settlement price of American products from 21000 yuan / ton to 25800 yuan / ton, and the import volume was close to 100000 tons. As a result, Shuanghui lost more than 800 million US dollars.

Wanzhou International, on the other hand, said that the transaction between Shuanghui development and Smithfield was a related party transaction within Wanzhou International. Shuanghui development imported pork from the United States at the price of 25800 yuan per ton, which was delivered according to the transaction at that time. When making decisions, Shuanghui development purchased pork at the average price of the same quality products at that time, It shall be determined according to the market practice with reference to the seller's price sold by the related party to the non related party. However, as of June 30, 2021, the price of pigs in mainland China has declined, and Shuanghui development has made a provision of 126 million yuan for inventory impairment. As the unrealized gains or losses of import transactions have been written off in the consolidated accounts of Wanzhou International, there is no need to make an impairment loss on the relevant inventory during the deadline. The financial information is reviewed by Ernst & young.

An accountant explained that from the above words, Shuanghui development had prepared 126 million yuan of capital in this related party transaction to make provision for the risks that may be brought about by the fluctuation of pig price in the future. However, in the book of the parent company Wanzhou International, the accounts between the two enterprises are hedged, so there is no need for the parent company to make an impairment loss on the relevant inventory.

Acquisition completion referred to as "self reward"

The contradiction is still spreading around Smithfield. In Wan Hongjian's view, Wanlong and Yang Zhijun, then the company's deputy executive director and vice president, used the successful acquisition of Smithfield as an excuse to "self reward more than HK $5 billion". In 2017, Wanlong and Yang Zhijun owned 350 million shares of Wanzhou award shares that were originally promised to the management team.

In response to this situation, Wanzhou International said that in recognition of the contributions made by Wanlong and Yang Zhijun in the acquisition of Smithfield, Wanzhou International issued 573 million shares and 246 million shares respectively to Wanlong and Yang Zhijun's wholly-owned companies, Shuntong Holding Co., Ltd. and Yuji company, respectively, with the value of about 418 million US dollars and 179 million US dollars at that time. And this is a board resolution. Wanzhou International said that 351 million shares were granted to Wanlong in 2017 under the share award scheme adopted by the board of directors in 2013. The issue and award of the relevant shares are properly managed in accordance with the relevant rules and regulations.

The estimated fair value of the share awards at the grant date was approximately $597 million. The board of directors of the company adopted the 2013 share award plan on October 23, 2013. According to the 2013 share award plan, directors Wanlong and Jiao shuge (CDH investment) have the right to jointly choose the recipients of the share awards. According to the rules of the 2013 share award scheme, on April 28, 2017, Bandung was granted 351 million shares. In accordance with the terms and conditions of the relevant grant notice and the rules of the 2013 share award scheme, the vesting of the 2013 granted shares was completed through the transfer of all interests to highzenithlimited on June 28, 2019. Highzenith has undertaken to exercise the voting rights of the shares granted in 2013 in accordance with the company's instructions from time to time.

The focus of the father son game is also launched on the IPO of Wanzhou International.

In 2014, Shuanghui international IPO in Hong Kong, and renamed Wanzhou International. This listing, so that Wanlong once again by the eldest son "verbal criticism.". Wan Hongjian disclosed that when Wanzhou International went to Hong Kong for IPO, more than 300 backbones of the former Shuanghui group held the equity of Shuanghui Wanzhou listed company system through Xingtai group, that is, the employee stock holding platform before its listing. After Wanzhou International was listed in Hong Kong in 2014, Wan Hongjian accused Wanlong, as a major shareholder of Xingtai, to purchase Xingtai shares at a reduced price, and changed the articles of association of Xingtai company. The purchase price was converted from 8% of market value to calculated by net assets, which reduced the value of employee stock ownership by half. Moreover, during more than 10 years, the company has never paid dividends, and restricted the shares of Xingtai members to internal circulation and not to be publicly traded. According to Wan Hongjian's understanding, Wanlong acquired more than HK $10 billion worth of stock assets from employees with HK $5 billion.

However, Wanzhou International has not made a public reply to this issue. People familiar with the situation said that before listing, the capital of Xingtai group when it was established was invested by Wanlong himself. At that time, the coverage of equity incentive was so wide that it was rare in the industry. Wanlong's original intention was to enable more employees who followed the company's growth to benefit from the listing of the company.

"Financial technology" of Wanzhou International?

From Wan Hongjian's point of view, Wanzhou International has no actual production and operation. In fact, it is a combination of Shuanghui and Smithfield. Its function is to transfer domestic Shuanghui's money out of the country without any trace through various dazzling financial means and complicated structure, and has never been reversed back

The simple understanding of this structure is that Wanzhou International holds Shuanghui development of A-share listed enterprise through its indirect wholly-owned subsidiary ROTEX Co., Ltd., and completes the "flight" of Chinese capital through ROTEX.

Wanzhou International explained that Wanzhou International is an investment holding company and mainly conducts pork business in selected markets in China, the United States and Europe, including the production and sale of pork and meat products. Shuanghui development and its subsidiaries have been operating in accordance with the relevant rules, regulations and procedures of China on capital and foreign exchange control. Except for general business and investment needs, such as dividend distribution, settlement of trade payable and sale of equity in subsidiaries of Shuanghui development, the group has not transferred funds from Shuanghui development to overseas markets.

In terms of specific capital flow, Wanzhou International said that the controlling shareholder of Shuanghui development is ROTEX Co., Ltd., which is also an indirect wholly-owned subsidiary of Wanzhou International. Therefore, the dividends declared by Shuanghui development in the past years have been distributed to the Hong Kong account of ROTEX in accordance with relevant procedures, laws and regulations.

In addition, due to the trade payable of Wanzhou International Trade Co., Ltd., an indirect wholly-owned subsidiary of ROTEX and Wanzhou International, Shuanghui development subsidiary has entered into a number of supply agreements with ROTEX and Wanzhou International Trade respectively. Accordingly, ROTEX and Wanzhou International Trade will provide frozen meat products and other raw material products to Shuanghui development and its subsidiaries. To this end, funds are transferred from the onshore accounts of the relevant subsidiaries of Shuanghui development to the relevant Hong Kong accounts of ROTEX and Wanzhou International Trade from time to time in order to settle the trade payable in connection with the above transactions.

As part of the internal restructuring to simplify the structure of the group, ROTEX has sold its minority interests in several subsidiaries of Shuanghui development to Shuanghui development in the past. To this end, funds are transferred from the onshore account of Shuanghui development or its subsidiaries to the Hong Kong account of ROTEX in order to settle the cost of the sale.

From Shuanghui to Wanzhou International, from China's top 500 to the world's top 500, Wanlong in Fu's year knows best what should be done well is the handover of companies with a market value of 100 billion yuan.

As early as 2015, in the Millennium Plaza of Zhengzhou Zhengdong New District CBD, Wanlong, according to the daily exercise plan of 10000 steps, walked and communicated with the 21st century economic reporter. In his plan, the eldest son was in charge of the enterprise, and the second son was the assistant.

However, Wan Hongjian objected to Guo Lijun, the new CEO of Wanzhou International in August this year. "Although he is proficient in finance, Comrade Guo Lijun doesn't understand the production, supply, marketing and research of Shuanghui. He even hedges Wanzhou's foreign exchange under his own leadership. The accumulated loss of Wanzhou in the past two years has exceeded ten million US dollars." However, in Wanzhou International's reply, Guo Lijun is the most suitable candidate. The company said that the loss Guo Lijun may bring is not significant.

The issue of CEO selection, which has triggered the conflict between father and son for many years, presents a war of words between different people. However, Wan Hongjian, once regarded as the successor, does he agree with the announcement of Wanzhou International? Is there any new information? In addition, can the father and son, who used to join forces in the battle of father and son, still be reconciled as before? Will wanhongjian still have a chance to return to Wanzhou International? Or is wan Hongjian ready not to go back?

Wan Hongjian has been contacted by reporters of the 21st century economic report in many ways, but no reply has been received up to the time of publication.

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