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As the acquisition target has failed to achieve performance commitments in recent years, Wanfang Development (000638) plans to "return" the acquisition target to the original owner.

Looking back, in February 2021, Wanfang Development signed the Equity Acquisition and Capital Increase Agreement with Harbin Zhuding Gongda New Materials Technology Co., Ltd. (hereinafter referred to as "Zhuding Gongda"), natural persons Xing Dawei, Wang Ting, Shen Yaping, and Wang Biyi, and signed the Profit Compensation Agreement of the Equity Acquisition and Capital Increase Agreement with natural persons Xing Dawei, Wang Ting, and Shen Yaping (hereinafter referred to as "profit compensation subject"), acquiring a total of 36.47% of the equity of Zhuding Gongda (before capital increase) for 62 million yuan. After the transaction is completed, it holds a total of 40% of the equity of Zhuding Gongda, becoming the largest shareholder of Zhuding Gongda. At the same time, Xing Dawei will entrust the listed company with no less than 22% of the voting rights of Zhuding Gongda.

In the transaction, Wanfang Development considered the net assets, past performance and future performance commitments of Zhuding University of Technology and negotiated a pre-investment valuation of 170 million yuan. According to the Equity Acquisition and Capital Increase Agreement, the listed company should pay a total of 72 million yuan for the equity transfer, of which the company increased its capital in Zhuding University of Technology by 10 million yuan.

Since then, Zhuding University of Technology introduced new investors in September 2021 and June 2023 respectively. The listed company's shareholding ratio in Zhuding University of Technology dropped from 40% to 37.64%. It is still the largest shareholder of Zhuding University of Technology and enjoys control over it.

However, more than three years after acquiring the controlling rights of Zhuding University of Technology, Wanfang Development announced on the evening of July 31 that the company signed an "Equity Repurchase Agreement" with Zhuding University of Technology and its original shareholders Xing Dawei, Wang Ting, Shen Yaping, Wang Biyi and Jin Xiaoman. After the equity transfer is completed, the company will no longer hold the equity of Zhuding University of Technology, and the financial statements of Zhuding University of Technology will no longer be included in the company's consolidated statements.

Wanfang Development’s “return” of Zhuding University of Technology may be mainly due to the latter’s unsatisfactory operating performance in recent years.

According to the agreement at the beginning of the acquisition by Wanfang Development, the profit compensation entity promised that the net profit of Zhuding University of Technology in 2021, 2022 and 2023 will not be less than RMB 23 million, RMB 30 million and RMB 40 million respectively.

From 2021 to 2023, Zhuding University of Technology achieved non-net profits of 21.739 million yuan, 6.7688 million yuan and 930,900 yuan, completing 94.52%, 22.56% and 2.33% of its performance commitments, respectively.

However, Wanfang Development did not pay the purchase price as agreed.

According to the disclosure, after Zhuding University of Technology completed its 2021 performance commitment, Wanfang Development owed a total of 20 million yuan for the second equity transfer, of which 9.5 million yuan was paid on schedule and another 10.5 million yuan was not paid on schedule. The company actually paid 29.5 million yuan in total. Since then, because Zhuding University of Technology did not complete its 2022 and 2023 performance commitments, the company did not pay the third equity transfer payment of 16 million yuan and the fourth equity transfer payment of 16 million yuan.

Therefore, in total, Wanfang Development paid RMB 29.5 million to acquire 37.64% of the equity of Zhuding University of Technology, and the penalty for delayed payment of part of the equity transfer payment was RMB 3.0855 million.

Regarding the compensation that should be made for Zhuding University of Technology's failure to fulfill its performance commitments, Wanfang Development announced on the evening of the 31st that Zhuding University of Technology achieved a net profit of 21.739 million yuan excluding non-recurring items in 2021, completing more than 75% of its performance commitments for the year. According to the agreement, the valuation adjustment will not be initiated and no compensation is required.

In 2022, Zhuding University of Technology achieved a net profit of RMB 6.7688 million after deducting non-recurring items. The actual cumulative net profit for 2021 and 2022 was RMB 28.5078 million (the total performance to be completed was RMB 53 million, and the actual completion rate was 53.79%), which was lower than 75% of the cumulative promised net profit. According to the provisions of the "Profit Compensation Agreement of the Equity Acquisition and Capital Increase Agreement", the profit compensation entity should pay the company a compensation of RMB 3.6869 million.

As of now, the actual compensation amount of RMB 3.6869 million that the above-mentioned profit compensation entity of Zhuding Gongda should have paid after netting in 2022 has not been paid.

In 2023, Zhuding Gongda achieved a net profit of 930,900 yuan after deducting non-recurring items, and the actual net profit for the three years of 2021, 2022 and 2023 was 29.4387 million yuan (the total performance to be completed was 93 million yuan, and the actual completion rate was 31.65%), which was lower than 75% of the net profit promised for the year and 80% of the net profit promised for the three years. According to the agreement, after deducting the amount already compensated in 2021-2022 and the fourth equity transfer payment of 16 million yuan that the company should pay, the actual amount to be compensated by the profit compensation entity in 2023 after the difference is -63,700 yuan, that is, the listed company needs to pay 63,700 yuan to the profit entity of Zhuding Gongda. Since the repurchase has been carried out in accordance with the "Equity Acquisition and Capital Increase Agreement", the company does not need to pay funds to the profit compensation entity.

According to the "Equity Repurchase Agreement" that has been signed, the 37.64% shares of Zhuding University of Technology held by Wanfang Development will be transferred in two parts: one part is the 15.42% equity of Zhuding University of Technology held by the listed company (the equity corresponding to the equity transfer payment actually paid by the company), which will be transferred to Jin Xiaoman, and the corresponding equity repurchase price is 36.1324 million yuan; the other part is the 22.22% equity of Zhuding University of Technology held by the company (the corresponding equity was not paid because the commitment entity failed to complete the performance commitment), which will be returned to Xing Dawei with 13.73% equity, Wang Ting with 6.85% equity, and Wang Biyi with 1.64% equity, and the corresponding equity transfer price is 0 yuan.

As of December 31, 2023, the book value of the company's 37.64% equity interest in Zhuding Gongda was RMB 27.5921 million, and the repurchase consideration for this repurchase was RMB 36.1324 million, which was a price negotiated by all parties.

Wanfang Development said that Zhuding Gongda confirmed operating income of 2.8964 million yuan in the first quarter of 2024, and non-net profit of 161,500 yuan, which had little impact on the company's revenue and profits and would not have a significant impact on the company's finances. Through this transaction, the company can recover 36.1324 million yuan in working capital, which is conducive to expanding the scale of existing business.

Editor: Peng Bo

Proofreading: Li Lingfeng