The final draft of the merger and reorganization of China United and Minsheng Group has been released for review, with the possibility of rising in the rankings by 20 places, focusing on three major expectations.

The merger and restructuring process of Guolian+Minsheng has taken an important step forward. On the evening of December 9th, Guolian disclosed the "Guolian Co., Ltd. Issuance of Shares to Purchase Assets and Raise Matching Funds and Related Party Transactions Report (Draft for Review)" (Draft for Review), showing that the merger and restructuring of Guolian and Minsheng Securities has entered the substantive stage with the submission of the Draft for Review. The next steps in the process include: obtaining approval from the China Securities Regulatory Commission for changes in shareholders; passing the review of the Shanghai Stock Exchange and obtaining registration approval from the China Securities Regulatory Commission, with the Shanghai Stock Exchange reviewing the contents of the Draft for Review; and meeting any other necessary approval, registration, or licensing conditions required by relevant laws and regulations or regulatory authorities. What are the positive expectations for the merger? Both parties claim that this transaction will create a leading large-scale securities firm with strong capital strength and significant market influence, fully utilizing the industrial advantages of Wuxi and the shareholder empowerment, as well as the financial resources and talent concentration advantages of Shanghai, through the integration of the two companies' business geographical regions, sharing of customers and channel resources, complementary and synergistic business advantages, continuously optimizing the structure and regional layout of the listed company's business, and thus seizing opportunities for substantial development in the increasingly fierce market competition. Many believe that Guolian has obtained a "ticket" to join the top securities firms through rapid expansion achieved through acquisitions. Highlights: Adopting a "stock swap + private placement of funds" scheme Between the filing and the Draft for Review, the draft underwent a revision, involving a minor adjustment. On December 4th, Guolian announced a modification to the acquisition plan of Minsheng Securities, mainly due to the reduction of the targeted assets for the employee shareholding platform participating in this restructuring as a result of the previous repurchase and unconditional withdrawal of Minsheng Securities shares, leading to the withdrawal of the original trading party China Oceanwide Holdings Group Limited from this transaction. Guolian adjusted the scope of target assets and trading parties accordingly. The adjustment mainly focused on changes in equity ratios. According to the Draft for Review, after the adjustment, Guolian's shareholding in Minsheng Securities through the issuance of shares decreased from the originally planned 100% to 99.26%, with the corresponding number of shares reduced from 11.384 billion to 11.289 billion, and matching funds raised. The total consideration for this transaction is 29.492 billion yuan, with the trading parties including Wuxi Guolian Development (Group) Co., Ltd. and 45 other shareholders. Xu Yizhou, Chief Analyst of Industrial Non-bank Industry, believes that the pricing of the issuance of shares to purchase assets is friendly. The issuance price is based on the average price of the 120 trading days before the pricing base date, adjusted to 11.17 yuan per share after profit distribution. Referring to the PB valuation multiple of 2.01 times corresponding to the 30.3% equity stake of Minsheng Securities acquired by Guolian for 9.105 billion yuan in 2023, the market expects 2.01 times to be the central price for this transaction, which is more friendly based on the results. Furthermore, Guolian intends to issue A-shares to no more than 35 specific investors, with a total of up to 250 million shares (including this number) to be raised not exceeding 2 billion yuan. The pricing for the private placement has not been determined, but the purpose is clear, all funds raised will be used to increase the capital of Minsheng Securities, with the funds allocated for the development of its wealth management business (not exceeding 1 billion yuan) and information technology (not exceeding 1 billion yuan). According to sources, Minsheng Securities plans to invest around 1.2-1.5 billion yuan in its wealth management business and around 1.1-1.3 billion yuan in information technology development, including the construction of new and expanded green data centers, strengthening disaster recovery capabilities, and improving emergency management capabilities. Following the finalization of the shareholding structure, overall, the total number of shares held by the National Union Group and six other concerted actors increased from 1,376,336,123 shares to 2,188,061,354 shares. However, due to the increase in total share capital, their combined shareholding percentage decreased from 48.60% to 39.99%. The National Union Group and its concerted actors still maintain significant influence. Before and after this transaction, the controlling shareholder of the listed company is National Union Group, and the actual controller is the Wuxi State-owned Assets Supervision and Administration Commission. This transaction will not result in a change in the controlling interest of the listed company. Specifically, the National Union Group's shareholding increased from 543,901,329 shares to 1,355,626,560 shares, and its ownership percentage increased from 19.21% to 24.77%. The shareholdings of National Union Trust and National Union Power remained unchanged at 390,137,552 shares and 266,899,445 shares, respectively, but their respective ownership percentages decreased from 13.78% and 9.43% to 7.13% and 4.88% due to the increase in total share capital. The shareholdings of Wuxi Minsheng Investment, Yimian Textile, and Wuxi Huaguang Environment & Energy Group remained unchanged, and their ownership percentages decreased from 2.60%, 2.57%, and 1.03% to 1.34%, 1.33%, and 0.53%. Highlights: Based on Q1 calculations, operating income has increased sixfold The market is most concerned about whether the integration can achieve the effect of "1+1>2." So, how have financial indicators been affected? In the Draft for Review, based on the financial reports of the listed company and the "Preparation and Review Report" issued by Ernst & Young, the main financial data of the listed company before and after this transaction are based on the financial data of Q1 2024. The company's asset size and net profit attributable to shareholders have increased to a certain extent. There have been significant changes in seven key indicators, especially a sixfold increase in operating income. 1. Assets increased by 77.29%. 2. Equity increased by 162.02%. 3. Equity attributable to the parent company's shareholders increased by 164.44%. 4. Operating income increased by 613.14%. 5. Net profit attributable to parent company shareholders increased by 144.08%. 6. Basic earnings per share increased by 122.80%. 7. The asset-liability ratio decreased by 14.98%.Yu Shan, chief analyst of equity finance, said that the company's net asset size will rank 16th in the industry. It is expected to further enhance its overall strength based on the integration of both parties. Firstly, it will synergize with Minsheng Securities' investment banking advantages and regional layout to improve business competitiveness. Secondly, after the merger, it will significantly increase its net capital and overall strength, laying a solid foundation for long-term development.According to the draft of the meeting, in the future, through the effective integration of business by the two securities firms, further strengthening the complementary integration of their business structures and regional advantages, and leveraging the strategic synergy of all parties' advantageous resources, will significantly enhance the market competitiveness of the listed company's platform. Guolian and Minsheng Securities have similar capital strengths, but there are still certain limitations in areas such as financial institution business access, business qualification application, and industry classification evaluation, making it difficult to fully leverage their respective resource advantages. Specifically, Guolian and Minsheng Securities have strong complementary advantages in terms of business structure and region. In terms of business advantages, Minsheng Securities has outstanding strength in investment banking business. In recent years, Minsheng Securities has adopted a business model of "investment + investment banking + investment research", with investment banking business as a feature, research business as a support, and vigorously developing fixed income investment business and equity investment business, achieving mutual promotion of investment banking business, institutional research business, and equity investment business, and forming a certain advantage; while Guolian has distinct characteristics and advantages in wealth management, fund management, asset securitization, and derivative business. In terms of regional advantages, Minsheng Securities' branch network mainly covers the Henan region, with strong market influence in that area; Guolian has strong market influence and market share in the Wuxi and southern Jiangsu regions. Chief non-banking analyst Gao Chao of Kaiyuan Securities calculated that after the acquisition, the ranking in the listed securities companies improved from 35th to 15th, a leap of 20 places, with a scale close to that of Fangzheng Securities (46.2 billion RMB); the equity multiplier (excluding customer margin) decreased by 35% from 4.61 times to 2.99 times, and BPS increased by 37% from 6.3 yuan/share to 8.7 yuan/share. Key point three: How to integrate? Stability is the keyword Lu Zuanhui, chief analyst of non-bank securities at Shenwan Hongyuan Group, stated that there have been 8 cases of mergers and acquisitions in the securities industry this year, and local state-owned assets have become an important force in mergers and reorganizations. Securities firms under the same controlling shareholder have clearer equity relationships, better integration of corporate culture, and relatively smoother merger and reorganization processes. The controlling shareholder can integrate internal brokerage resources to form a group operation and better serve national strategic goals. In the latest disclosure of "Reply Report on the Application of Guolian Co., Ltd.'s Issuance of Shares to Purchase Assets and Raise Matching Funds and Relevant Transaction and Related Party Transactions Inquiry Letter," the integration plan and arrangements were also disclosed. Guolian and Minsheng Securities have submitted administrative qualification approval application documents to the CSRC, including specific integration time plans or phased work arrangements for investment banking, wealth management, proprietary trading, asset management, public fund management, futures, private equity investment funds, alternative investment, and back-office operations after the completion of this transaction. With the guidance of regulatory agencies, the companies will prudently promote the integration of assets, businesses, institutions, and personnel of Guolian and Minsheng Securities according to the submitted time plan, taking into account the characteristics of different businesses and the difficulty of integration. Guolian and Minsheng Securities will advance practical and implementable integration plans for various business lines and back-office departments, information system connection switch programs, institutional settings, etc., ensuring that all businesses play a full synergistic role in the integration, and various assets switch or transfer securely, organizational structures and systemized systems are merged or unified, and the professional capabilities and cohesion of personnel continue to strengthen. The two securities firms plan to take the following measures: first, in terms of mechanisms, while ensuring the stability of labor relations, Guolian and Minsheng Securities will carefully listen to employee opinions or demands in various ways, strengthen communication and training of business and personnel of both sides, and accelerate the integration of employees of both parties; second, in terms of assessment and incentive mechanisms, Guolian and Minsheng Securities will quickly unify and improve the assessment and incentive mechanisms of various business lines and subsidiaries after integration; third, in terms of culture, they will formulate company development strategies, jointly build corporate culture, enhance the confidence of cadres and employees in the future development of the company, and stabilize the workforce. During the transitional period of business integration, Guolian and Minsheng Securities will strictly follow the company's governance procedures to fulfill relevant procedures, ensure a smooth transition in various aspects such as business lines, information systems, compliance management, risk management, and capital operations, guarantee the smooth operation and healthy development of the integration of Guolian and Minsheng Securities during the transitional period, fully leverage their own resources and management advantages, strive to enhance the market competitiveness of Guolian and Minsheng Securities after integration, better serve the development of the Chinese capital market, create more value for customers, employees, shareholders, and society, and minimize the risks of customer loss and labor disputes brought about by integration.