On the evening of March 31 this year, Beijing Junzheng made an announcement stating the termination of its attempt to acquire 100% of the equity of Beijing Haowei Technology Co., Ltd. (referred to as "Beijing Haowei"). Despite Beijing Junzheng's failure to successfully acquire Beijing Haowei, there remain other potential buyers interested in the company.
On June 5, Shanghai Weir Semiconductor Co., Ltd. (referred to as "Weir Shares") released an update regarding its major asset restructuring efforts. Since June 5, 2017, the company's stock has been suspended, with expectations for the suspension to last no longer than a month. Rumors circulated suggesting that the target of Weir Shares' asset restructuring was Beijing Haowei.
According to Weir Shares' announcement, the company aims to strengthen its position in the global integrated circuit industry and enhance its competitive edge in the IC design sector. To achieve this, Weir Shares plans to carry out significant asset restructurings and pursue mergers and acquisitions with complementary synergies. The intended target of these efforts is Beijing Haowei.
The Weir Shares announcement noted that the company had organized relevant parties to conduct due diligence, audits, and evaluations of the underlying assets for the reorganization. The final reorganization plan and transaction amount are still under negotiation and require further demonstration with the involved parties. The specific transaction method could be adjusted based on progress and might involve issuing shares or paying cash to buy the target company's equity, along with raising matching funds.
However, shortly after Weir Shares announced its intent to acquire Beijing Haowei on August 4th, certain shareholders of Beijing Haowei expressed their lack of awareness and disagreement with the acquisition proposal. These shareholders stated they would exercise their preemptive rights to acquire Beijing Haowei.
Notably, some shareholders of Beijing Haowei remain uninformed or unconvinced about the acquisition. On August 6th, amidst industry shock over Weir Shares' acquisition announcement, several Beijing Haowei shareholders claimed they had not received details of the proposed restructuring plan. Their lack of clarity has led to further dissent regarding the acquisition. Some shareholders mentioned that if the Beijing Haowei board decides to sell the company, they would invoke their preemptive rights as per prior agreements. This adds significant uncertainty to 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 plan. Without explicit consent from key Beijing Haowei shareholders, the announcement appears both awkward and hopeful.
Beijing Haowei is a Sino-foreign joint venture registered in Beijing. Its primary operations are conducted through its U.S.-based subsidiary, OmniVision Technologies, Inc. ("United States Howe"), which was formerly a Nasdaq-listed company before being privatized in early 2016. Howe specializes in designing, manufacturing, and selling high-performance, cost-effective semiconductor image sensors for various applications, including smartphones, laptops, tablets, webcams, security systems, entertainment devices, cameras, and medical imaging equipment.
Despite positive revenue growth between 2014 and 2016, Weir Shares faces challenges with cash flow. Net cash flows from operating activities were ¥1.99 billion, -¥46.9 million, and ¥70.1 million in those respective years, significantly lower than the reported profits. Tight liquidity has prompted the company to seek alternative funding sources. By the end of 2016, Weir Shares had short-term loans totaling ¥554 million, with financial expenses reaching ¥33.9 million in 2016 alone.
In the prospectus, Weir Shares disclosed that due to all real estate being mortgaged, the company resorted to pledging personal property owned by directors, supervisors, senior management, and their relatives in 2015 and 2016 to secure bank loans. Guarantee fees were paid at an annual rate of 3.5%, amounting to ¥540,500 and ¥785,600 in those years. Additionally, shareholders and executives used their equity holdings as collateral to obtain short-term loans from financial institutions.
Another concern arises from a large accounts receivable from LeTV. As of December 31, 2016, the company's net receivables stood at ¥664 million, representing 40% of total assets. High receivables pose the risk of bad debts, exemplified by LeTV Mobile's overdue payments totaling $9.76 million as of September 2016. Weir Shares ceased supplying LeTV Mobile in September 2016 and pursued legal action.
There are questions regarding related-party transactions involving Shanghai Sisu. In 2014 and 2015, Weir Shares purchased goods worth ¥10.0951 million and ¥12.7774 million from Shanghai Sisu, while Shanghai Sisu sold ¥3.784 million and ¥28.625 million to Weir Shares. Data from Shanghai Sisu's public transfer manual indicates that the company accounted for 40% and 20% of Weir Shares' sales in 2014 and 2015, making it the largest and third-largest customer, respectively. The rapid increase in sales raises concerns about the authenticity of these transactions.
Moreover, the capital flow within Shanghai Sisu appears suspicious. Xiao Xiaorong sold his stake in Shanghai Sisu in August 2014, and by December 2015, two new investors joined with a valuation of ¥100 million. Just eight months later, Shanghai Sisu was listed on the New Third Board. The exact contribution of Weir Shares to Shanghai Sisu's performance and the identity of Li Fei remain unclear.
In the recent acquisition announcement, Weir Shares' major shareholder pledged 12.02% of shares to Jiaqiangquan Investment Management (Shenzhen) Co., Ltd., a company whose shareholder, Jiaqiang (Shanghai) Consulting Co., Ltd., is a subsidiary of CITIC Capital Holdings Co., Ltd. Given CITIC Capital's previous role as a major shareholder in Beijing Haowei during Beijing Junzheng's asset restructuring, the connection between the pledged shares and the current restructuring warrants further investigation.
This series of events raises questions about the transparency and motivations behind Weir Shares' actions, leaving many uncertainties surrounding the proposed acquisition of Beijing Haowei.
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