Judging from the current market share of washing machines, Midea is in the fourth and fifth place. If Midea and Little Swan become one, they can compete with Haier in the first sector.
After trading suspension for more than 40 days, the asset restructuring of Midea Group (000333.SZ) and Little Swan (000418.SZ) was finally unveiled.
On the evening of October 23, Midea Group issued an announcement stating that the company intends to acquire Little Swan through the issuance of A shares. The asset transaction price is 14.383 billion yuan.
According to the transaction plan, Midea Group will issue shares to all conversion shareholders of Little Swan except Midea Group and TITONI in exchange for Little Swan A shares and Little Swan B shares held by these shareholders. If the plan is passed, Little Swan will terminate the listing and cancel its legal personality after the completion of the share swap, absorption and merger.
The conjecture of Midea's washing machine business integration has also been confirmed. The announcement stated that Midea Group and Little Swan will integrate their global businesses to provide a more comprehensive and competitive product portfolio on a global scale. At the same time, Midea Group will take advantage of Little Swan's development advantages in the washing machine industry to enhance Midea Group's position in the home appliance industry.
On the evening of October 24, Midea held a conference call regarding the reorganization plan. A source close to the meeting told the 21st Century Business Herald: "The basic logic of restructuring is the logic of industrial integration. Other benefits are actually insignificant to Midea."
"At present, Little Swan and Midea Group have a volume of 7.7 billion related-party transactions. As the company develops, this problem needs to be solved. Including future cooperation with Toshiba, if Little Swan is outside the body, there will be problems of horizontal competition." The source added road.
Improve capital utilization
On October 24, an analyst in the home appliance industry of a brokerage company who has been tracking Midea Group for a long time told a reporter from 21st Century Business Herald, “The reorganization plan is basically in line with expectations. What is a bit surprising is that the reorganization adopts a share swap and absorption method. Not a cash acquisition."
The plan shows that Midea Group’s purchase prices for Little Swan’s A shares and B shares are premiums of 10% and 30%, respectively. At the same time, the cash option of dissenting shareholders is 90% of the current stock price.
According to the analysis of the report issued by Everbright Securities, the value of the two listed platforms and the interests of shareholders need to be comprehensively considered in the exchange of shares. The plan is not to acquire the Little Swan stock held by shareholders at a premium of 10% in cash, but to acquire the same undervalued Midea Group stock. Whether the consideration is appropriate depends on the investor's assessment of the value of the two listed assets.
According to the plan, after the completion of this share swap, Little Swan will terminate its listing and cancel its legal personality. Midea Group or its wholly-owned subsidiary will inherit and undertake all of Little Swan’s assets, liabilities, business, personnel, contracts and everything else. rights and obligation.
"It is rare to withdraw directly from A shares and B shares like this, and it is such a high-quality company. In order to integrate its business, Midea did not hesitate to cut off such a good platform as Little Swan." Another brokerage researching the home appliance industry People are a little sorry.
Since Midea took over, Little Swan's performance has been strong. In 2017, total operating income reached 21.4 billion yuan and net profit was 1.51 billion yuan. Compared to 2008 when it was invested in Midea, Little Swan’s revenue increased by 4 times and its net profit increased by 36 times. It is called "cash cow" in the industry.
The 2018 semi-annual report shows that Little Swan A’s book currency funds are 1.704 billion yuan. The Little Swan Secretary of the Board recently said in an investor survey that 1.7 billion is only a small part of monetary funds. Part of the company’s funds will be invested in structured deposits and part of the bank’s short-term financial products, totaling 13 billion. But the amount of funds used is not large.
"Little Swan is not bad for money. It can only be said that there is no need to go public. The market places high demands on the company. If Midea privatizes Little Swan, it will be more convenient to transfer funds." The above-mentioned brokerage said.
In addition, analysts in the aforementioned home appliance industry believe that from the perspective of capital costs, this is also a good time to start.
"The current market value of Little Swan has fallen from a high of 48 billion in 2018 to 29 billion. Before the suspension of trading on September 7, Little Swan rolled PE17.5 times. Considering that the company has more than 10 billion cash and deposits in hand, the starting point is now A good deal."
Digest their respective advantages
Although the capital utilization rate has increased significantly after the reorganization, in the long run, Midea’s business integration needs are greater than the capital needs.
The aforementioned home appliance industry analyst told the 21st Century Business Herald that "internal collaboration may be a greater motivation."
“After the integration, it will be beneficial to the coordination of different categories of Midea’s washing machine business to form a product echelon. In addition, the water heater and refrigerator business units may also face adjustments. This integration, I think Midea is more from the perspective of internal management. "The analyst said, "For example, matters involving Little Swan in the past have to go through the board of directors over there. After the merger, the procedures will be easier and management costs will be reduced."
On October 24, Hong Shibin, an observer of the home appliance industry, said to the 21st Century Business Herald: “Midea and Little Swan previously had different assessment requirements as two listed entities. After being merged into Midea Group, Little Swan only needs to carry the Midea washing machine sector. It’s more integrated without the pressure of individual subsidiaries’ performance and scale."
On the other hand, Little Swan may not be positive about this reorganization.
The 21st Century Business Herald recently called the company’s securities department twice, and the replies received were: “This restructuring plan is planned by Midea. Please consult Midea for details.â€
An analyst who has been tracking Little Swan for a long time believes that “Little Swan may be relatively passive. It used to operate as an independent listed company and had greater autonomy. Now it is under the control of the group. It is not so comfortable and will face A series of personnel adjustments."
However, what attracts more attention is the direction of Midea's washing machine business in the future.
Within the Midea Group, the washing machine business of Midea's main brand is relatively in a weak position, and at the same time it is also under the impact of the incumbent Haier.
According to data from Zhongyikang, Haier, Little Swan, and Siemens took the top three brands with 34%, 18%, and 12% respectively in the 1-38 week of this year, occupying a total of 64% of the industry's market share. However, in terms of growth rate, only Haier among the top three brands achieved growth against the trend with a year-on-year growth rate of 11%, and the growth rates of Little Swan and Siemens were 0 and -13%, respectively.
Therefore, if Midea wants to gain a strong position in the washing machine market, it must work with Little Swan to fully digest their respective advantages.
"From the current market share of washing machines, Midea is in the fourth and fifth places. If Midea and Little Swan become one, they can compete with Haier in the first sector," said Hong Shibin.
"In the market, Midea is more of popular products, paying more attention to cost-effectiveness and taking the mid-to-low-end route. Little Swan takes the mid-to-high-end route, such as its Beverly brand, which is a relatively high-end brand. After integration, Midea Group may make an adjustment to high-end products." The aforementioned home appliance industry analysts believe.
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