How does the acquisition of Weir shares encounter resistance and strengthen the competitiveness of integrated circuits?

On the evening of March 31 this year, Beijing Junzheng announced the termination of its major asset restructuring involving 100% equity of Beijing Haowei Technology Co., Ltd. (referred to as “Beijing Haowei”). Despite Beijing Junzheng's unsuccessful attempt to acquire Beijing Haowei, there remain several potential buyers expressing interest. June 5 saw Shanghai Weir Semiconductor Co., Ltd. (referred to as “Weir Shares”) announce updates on its significant asset restructuring. The company's stock has been suspended since June 5, 2017, with expectations that the suspension will last no longer than a month. There were rumors circulating at the time suggesting that the target of Weir Shares' restructuring might be Beijing Haowei. According to Weir Shares’ announcement, the company plans to strengthen its position in the global integrated circuit industry and enhance its core competitiveness in the IC design field. To achieve this, Weir Shares intends to carry out this major restructuring, aiming for synergistic mergers and acquisitions. The target of these acquisitions is Beijing Haowei. The Weir Shares announcement mentioned that the company had organized relevant parties to conduct due diligence, audits, evaluations, and other necessary steps regarding the restructuring of the underlying assets. The final restructuring plan and transaction amount are still under negotiation with all parties involved. The specific transaction method may change based on the progress of the deal, potentially including issuing shares, paying cash, or raising matching funds. However, just hours after Weir Shares announced the acquisition of Beijing Haowei on the evening of August 4th, some shareholders of Beijing Haowei expressed their lack of understanding and disagreement with the acquisition. They even stated their intention to exercise their preemptive rights to acquire Beijing Haowei. There is uncertainty surrounding the acquisition. Some shareholders of Beijing Haowei have voiced concerns about the restructuring plan, stating they were unaware of the details and did not agree with the acquisition. This raises questions about whether the reorganization can proceed as planned. Weir Shares was listed on May 4, 2017. On June 5, the company announced the suspension of its major asset restructuring plans. Without clear consent from key shareholders of Beijing Haowei, the announcement of the acquisition seems premature and faces challenges. Beijing Haowei is a Beijing-based limited liability company with a Sino-foreign joint venture structure. Its primary operations are conducted through its subsidiary, OmniVision Technologies, Inc. (referred to as “Howe”), which was previously listed on NASDAQ. Howe was privatized in early 2016 and became a wholly-owned subsidiary of Beijing Haowei. Howe specializes in designing, manufacturing, and selling high-performance, cost-effective semiconductor image sensor devices, including Camera Chips and Amera Cube Chips. These products are used in various applications like smartphones, notebooks, tablets, security systems, and medical imaging equipment. Financial issues within Weir Shares have raised concerns. While the company's operating income and net profits grew between 2014 and 2016, the cash flow generated from business activities was significantly lower than expected. From 2014 to 2016, the net cash flow from business activities was RMB 1991.66 million, RMB -46.916 million, and RMB 70.116 million, respectively. This discrepancy suggests that while the company reported strong earnings, the actual cash generated was limited. The company's financial strain led to efforts to raise funds. By the end of 2016, Weir Shares had short-term loans totaling 554 million yuan, with financial expenses reaching 33.9 million yuan in 2016 alone. The prospectus revealed that, with all real estate already mortgaged, the company’s directors, supervisors, and senior management, including Yan Renrong, Ma Jianqiu, Zhang Manyang, Han Jie, Ji Gang, and Jia Yuan, along with their relatives, provided mortgage guarantees using their personal properties for the company’s bank loans. The company paid guarantee fees at an annual rate of 3.5%, totaling 540,500 yuan and 785,600 yuan in 2015 and 2016, respectively. In addition to their properties, shareholders and executives used their equity holdings to secure financing. Ren Renrong, the actual controller, holds 27,943,500 shares, representing 74.64% of the total shares, of which 65 million shares were pledged. Other shareholders, such as Jia Yuan, Zhou Wei, and Fang Rongbo, also pledged their shares to financial institutions like banks to obtain short-term loans. LeTV stands out as a major debtor. The company, established in May 2007, is headquartered in the Zhangjiang Hi-Tech Park. Since its inception, Weir Shares has focused on the design, sales, and distribution of semiconductor products. However, the company's identity leans more toward being a distributor rather than a manufacturer. The prospectus shows that semiconductor design revenues were 333 million yuan, 614 million yuan, and 711 million yuan in 2014-2016, while semiconductor distribution revenues were 1.073 billion yuan, 1.358 billion yuan, and 1.441 billion yuan, respectively. This indicates that semiconductor design contributes minimally to the overall revenue. Being a supplier to well-known mobile phone manufacturers, Weir Shares faces significant pressure from clients. The company’s total accounts receivable are substantial, comprising a large portion of current assets. As of December 31, 2016, the company's net receivables amounted to 664 million yuan, representing 40% of total assets. High receivables carry the risk of bad debts. Between June 2015 and June 2016, LeTV Mobile purchased semiconductor components from Weir Shares. By September 2016, LeTV Mobile’s payments were overdue, with a total reconciliation value of US$9,765,800. Weir Shares ceased sales to LeTV Mobile in September 2016 and filed a lawsuit. Conflicts of interest arise from related-party transactions. In 2014 and 2015, Weir Shares purchased goods worth 10.0951 million yuan and 12.7774 million yuan from Shanghai Sisu, respectively, and sold goods worth 3.784 million yuan and 28.625 million yuan to Shanghai Sisu. The Shanghai Sishen public transfer manual shows that the company accounted for 40% and 20% of current sales in 2014 and 2015, respectively, making it the largest and third-largest customer. The sudden surge in transactions raises questions about authenticity and necessity. Shanghai Sishang’s capitalization process appears seamless. In August 2014, Xiao Xiaorong transferred his stake in Shanghai Sishen. By December 2015, Shanghai Si Cun introduced two new shareholders, Jiaxing Bai Nian and Ce Zheng Investment, with a valuation of 100 million yuan. These investors added 10 million yuan, representing 10% of the shares. The rapid increase in capitalization, only eight months after the initial capital increase, raises questions about the legitimacy of the relationships involved. The acquisition of Beijing Haowei by Weir Shares has sparked skepticism. Just before the restructuring announcement, the majority shareholder pledged 12.02% of his shares to Jiaqiangquan Investment Management (Shenzhen) Co., Ltd. An online inquiry revealed that Jiaqiang (Shanghai) Consulting Co., Ltd., a shareholder of Jiaqiangquan Investment Management (Shenzhen) Co., Ltd., is a wholly-owned subsidiary of CITIC Capital Holdings Co., Ltd. CITIC Capital is a major shareholder of Beijing Haowei. Whether the pledge of Weir Shares' major shareholder's shares is connected to this restructuring remains to be seen.

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