China Business Watch Release M&A Report

Last time, we at China Business Watch release our Merger and Acquisition Study.
What are the motivations for enterprise’s M&A? At play are such factors as internal governance and external inducement and oppression, pursuit of scale economy, the normal expansion and preemptive acquisition of resources, and governmental wills. But the ultimate purpose is the maximization of profits or values.
China Business Watch has the academic background of economics, management, and has practiced law for years. Based on such theories as transaction cost, efficiency and the limited rationality of human, judicial economics proposes that not only justices but also efficiency should be granted judicial value, thus providing a brand-new perspective on researching on the judicial problems in the M&A of enterprises. To realize Pareto Optimum, all judicial systems and activities should be carried out with judicial means for best resource allocation. The practioner of law is a part of the existing judicial system, and in the solution of judicial problems, “perspective of efficiency is beneficial to their work and is conducive to new and innovative solutions”. So the paper discuses the following problems: the role of Charter in M&A, information disclosure and cost of violation, zero presupposition, open M&A for “terminating IPO”; information disclosure and cost of M&A; employee disposal; ownership transaction; debt reorganization; anti-monopoly and “punitive fine’; the feasibility of the utility maximization in M&A of NPA. From the perspective of transaction cost and efficiency; these judicial problems are analyzed, and the conclusions and corresponding suggestions are given.
Judicial systems are the compulsory formal institutional arrangements of a country. In M&A, the existing judicial systems should be obeyed, and the judicial risks should be avoided. Meanwhile, the judicial systems should be understood and used creatively, contract on will under the principle of “non-forbidding means agreement”.
Judicial system should guarantee that the social resources flow to the best performers and that efficiency and fairness, as the core values of law, be embodied in all the rules. When there is transaction cost, only those laws that can minimize the transaction cost and improve economic efficiency are the most appropriate laws.
Legislative institutions have the power to make and supply law. When the market economy with Chinese characteristics and the M&A Law begin to take form, the making of a Enterprise M&A Law, Anti-Monopoly Law and NPA M&A Law also enjoy economic, judicial and political foundations. Only in this way can the objectives of enterprise’s M&A be achieved with institutional assurance. Otherwise, low-efficiency M&A, null-efficiency M&A and even predatory M&A will be rampant.
On one hand, monopoly can increase social cost and hamper economic efficiency, yet on the other hand it’s conducive to scale economy, scope economy and technological innovation. So when economic efficiency is employed as the criterion to gauge the value of anti-monopoly policies, both the positive roles of monopoly and anti-monopoly should be given due attention, considering the market economy with Chinese Characteristics, so as to bring about a perfect Chinese Anti-Monopoly Law.
NPA are special commodities and it is natural for investors to strive for maximum returns with minimum investments. Due to the lack of rules of NPA disposal, innovation is needed to maximize the utility of NPA, thus increasing the value and use value of assets.
The report by China Business Watch analyzes the M&As from the perspective of economics, and discusses the judicial matters in the processes of M&A, as so to find some rules within. It is our hope that it can be some value of reference to both Chinese and foreign investors.