Aurora's 76 million yuan leverages the 10 billion yuan acquisition of NXP's RF business, leaving suspense

Yangtze Business Daily (Reporter Wei Du) With 76.3755 million yuan in cash on the books, the funds required for the M&A transaction exceed 10 billion yuan. Oride is promoting a roundabout shell transaction with a leverage of 142 times.

According to the transaction plan, Oride will increase the issuance of shares and payment of cash to acquire the target assets and enter the semiconductor field. The total equity and supporting fundraising will reach 10.935 billion yuan.

A reporter from the Yangtze Business Daily found that there is uncertainty in this transaction.

During the suspension last year, Zuo Hongbo, the actual controller of Oride, suddenly acquired shares in the target company through an agreement to transfer equity. Now, this 2.189 billion yuan of funds, which can be said to kill two birds with one stone, has not yet been paid, and the equity transfer has not been completed.

Two years ago, through asset replacement, Oride successfully went public through a backdoor listing. As of the end of September last year, there was still a gap of 459 million yuan in the promised cumulative net profit of 1.216 billion yuan excluding non-recurring items. Once the performance is compensated by equity, the controlling shareholder's shareholding ratio will decrease.

The actual operating entity of the target of concern to all parties is the Ampleon Group, headquartered in the Netherlands. Although it has the second largest market share in the world, the company's profitability is not strong and its gross profit margin fluctuates greatly.

What is even more curious to the market is that Oride is short of funds. As of the end of September last year, its book funds were only 76.3755 million yuan, and the company's own profitability began to decline.

There is no room for maneuver in the equity pledge, which is the tool that Zuo Hongbo and his wife rely on to raise funds. As of now, more than 90% of Zuo Hongbo and his wife’s equity is pledged.

In response to the above questions, a reporter from Yangtze Business Daily called the Secretary's Office of Oride. After recording the interview content and contact number, the relevant staff said that they would forward it to Secretary Liu Di for a reply. However, as of press time, no specific reply was received.

Two years after backdoor listing, the company sold its backdoor listing for 10 billion yuan

Only two years after the completion of the backdoor listing, Oride began to push for a roundabout shell sale and restructuring in a transaction worth tens of billions of yuan.

Unlike many major asset restructurings, the suspension restructuring case that began in June last year was terminated five months later, and the company even announced at an investor briefing that it would no longer plan major asset restructuring within two months. However, just four days later, a miraculous reversal occurred, and the company suddenly announced that it would continue the restructuring and put forward a transaction plan.

According to the plan, the company intends to purchase 100% of the equity of Hefei Ruicheng from Hangzhou Ruiyue, Hefei Xinzhi, Beijing Jiaguang, Beijing Ruihong and Beijing Jiakun by issuing shares, with a transaction price of 7.185 billion yuan. The latter holds 77.41% of the equity of Hong Kong Ruikong, and Hong Kong Ruikong holds 100% of the equity of Ampleon Group, the actual operating entity of the reorganization target. With this, Oride will take over the RF power chip sector of NXP, a world-renowned semiconductor company. In addition, the company also paid 1.45 billion yuan in cash to China Wealth to purchase 16% of the equity of Hong Kong Ruikong, and at the same time, raised 3.75 billion yuan in supporting funds to support this reorganization.

According to the data, the actual operating entity of the target assets is the Netherlands-based Ampleon Group, which was spun off from the well-known semiconductor company NXP in 2015. It has more than 50 years of operating experience in the RF power equipment industry and is a global leader in technology. In 2016, Ampleon Group's RF power semiconductor market share was 19.6%, ranking second in the world. Ampleon Group's main products are used in mobile communication base stations, including 4G networks and 5G systems, and are widely used in aerospace, military, medical, lighting, energy transmission and other fields. It has well-known customers such as Huawei, Nokia, Ericsson, ZTE, LG, Siemens, etc.

Aurora said that after the reorganization is completed, as a subsidiary of the listed company, Ampleon Group can fill the gap in domestic high-end integrated circuit technology, and is also expected to promote the overall improvement of my country's integrated circuit industry, especially the RF power chip industry chain. Under the background of 5G, the layout of the integrated circuit industry and the focus on RF power devices will help further expand the development space of listed companies and enhance the company's profitability.

Oride went public through a backdoor listing two years ago. In 2015, Oride acquired Southwest Pharmaceutical through asset swap at a transaction price of 4.12 billion yuan, and the actual controller of the company was changed from Taiji Group to Zuo Hongbo and his wife.

Today, the market interprets this 10 billion yuan transaction as a shell sale. For this reason, the exchange sent a letter to inquire whether it constitutes a restructuring listing.

It is worth noting that in this restructuring, Zuo Hongbo killed two birds with one stone. In July and October last year, during the suspension of the restructuring, Zuo Hongbo acquired 32.9% of the equity of Hefei Ruicheng at a price of 2.189 billion yuan through Hangzhou Ruiyue, which he controlled, thus turning this transaction into a related transaction, thus avoiding a backdoor transaction.

Zuo Hongbo explained that Hangzhou Ruiyue’s early investment was on the one hand to meet the exit demands of some shareholders and on the other hand to increase transaction certainty.

The target company suffered consecutive losses and its gross profit margin fluctuated greatly

The Ampleon Group, which Oride raised funds to bet on, is a company that has been making losses continuously.

Data shows that the acquisition target has a complex structure. In June 2015, Beijing Jianguang Asset Management Co., Ltd. bought Ampleon Group from NXP Semiconductors for US$1.8 billion, and later operated it under the name of Hefei Ruicheng. The sale to Oride may be for cash.

Although Ampleon Group ranks second in the world in market share, its profitability this year is weak.

According to the announcement, from 2015 to August last year, the net profit of the target Hefei Ruicheng was negative, namely -40.8515 million yuan, -62.5117 million yuan and -3.5894 million yuan respectively, and the performance of its main subsidiaries was also unsatisfactory. Except for Ampleon Holdings and Ampleon Netherlands, which made profits of US$339,300 and US$23.5268 million in the first eight months of last year, Hong Kong Ruikong and Ampleon (Philippines) lost 4.7024 million yuan and US$6.2892 million respectively in the same period.

In addition, Ampleon Group's gross profit margin on sales fluctuated greatly and was lower in 2015.

At a recent briefing on major asset restructuring, the target company's shareholders said that in 2016, the company's operating income increased significantly, and the losses were mainly due to the one-time expenses generated by the previous spin-off, amortization of intangible assets, and financial expenses generated by the interest on acquisition loans. The low gross profit margin from November 13, 2015 to the end of the year was because after the spin-off of Ampleon, the inventory was revalued at market fair value, resulting in a discrepancy between the gross profit margin in 2015 and the normal operating gross profit margin level. The financial statements for 2016 and 2017 reflect the normal gross profit margin level, and the gross profit margin level of about 50% reflects the company's profitability. Zuo Hongbo, chairman of Oride, said that considering the target company's gross profit margin level of about 50%, although the 2016 financial statements showed a loss, it is expected to achieve profitability in 2017.

For the acquisition of Hefei Ruicheng, which is still in a loss-making state, Oride also plans to raise no more than 2.3 billion yuan in supporting funds to be used for the target GaN process technology and back-end assembly projects and SiC substrate materials and power device industrialization projects.

In addition, surprisingly, the target shareholders of this restructuring did not make any performance commitments.

In response, Oride said that Hefei Ruicheng’s profit forecast and performance compensation arrangements have not yet been clarified, and it is not clear whether the income from the supporting fundraising and investment projects will be included in the promised performance.

It is worth noting that for this major asset reorganization, Oride established a price adjustment mechanism, that is, if the relevant index falls by more than 10% within a certain period of time, and Oride’s stock price falls by more than 10% from the suspension point, the issue price will be adjusted accordingly.

Four major factors may cause uncertainty in the reorganization

There are variables in Oride's major asset restructuring of acquiring the same target.

According to the announcement, Ampleon Holdings is under pressure to repay loans. It had signed a $600 million M&A loan agreement with three banks including the Luxembourg branch of the Bank of China. As of August 31 last year, there was still $320 million of loans outstanding.

In addition, in 2015, after the Ampleon Group was separated from NXP, it signed the Intellectual Property Transfer and License Agreement on asset transfer related matters. So far, the relevant procedures for the transfer of some trademarks to Ampleon in the Netherlands are in the process of being processed.

As a buyer, Oride's own profitability is also insufficient. In 2015, it took over Southwest Pharmaceutical and promised a cumulative net profit of no less than 1.216 billion yuan. As of the end of the third quarter of last year, its realized net profits (excluding non-recurring items) were 288 million yuan, 429 million yuan, and 39.7681 million yuan, respectively. This means that in the fourth quarter of last year, it had to achieve a net profit of 459 million yuan to meet the target, which is obviously not an easy task for Oride. If it is not completed, Zuo Hongbo and his wife will have to make performance compensation, which may reduce the shareholding ratio of Zuo Hongbo and his wife. If this transaction touches on the change of the actual controller of Oride, it will trigger a backdoor transaction.

Of course, the biggest variable is funding.

A reporter from the Yangtze Business Daily found that as of the end of September last year, Oride had only 76.3755 million yuan in cash on its books. According to the transaction plan, in addition to the share payment of 7.185 billion yuan, there was also a cash payment of 1.45 billion yuan. The gap between the two is not small.

Previously, Zuo Hongbo made a surprise investment with 1 billion yuan. As of now, not only is there still 1.189 billion yuan of equity transfer payment that has not been paid, but the transfer of equity has not been completed.

As the actual controller of Oride, Zuo Hongbo is also short of funds. The 1 billion yuan equity transfer payment previously paid all came from the pledge loan of equity pledged to Bohai Trust, and the remaining 1.189 billion yuan in arrears has no whereabouts and is still under negotiation with investment institutions.

Equity pledge financing has always been the most commonly used means by Zuo Hongbo and his wife. Now, there is basically no room for operation.

A reporter from Yangtze Business Daily found that, as of now, Zuo Hongbo holds 233 million shares of Oride, accounting for 19.00% of the share capital, and has pledged a total of 228 million shares, accounting for 18.64% of the total share capital and 98.10% of his shares. The pledge rate of the listed company shares held by his wife Chu Shuxia is as high as 95.98%.

It is worth noting that in response to Oride’s restructuring, the Shanghai Stock Exchange issued two inquiry letters, involving many aspects such as the backdoor listing of both parties and Ampleon’s profitability.

Source: China Securities Journal

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