Fei Le audio completed the acquisition of Xi Wannian for two years. What is the integration effect?
The lighting company Feile Audio has finally completed a multinational acquisition that lasted nearly two years. Recently, Feile Audio announced that it intends to acquire a 20% stake in Feilo Malta Limited (hereinafter referred to as “FMLâ€) held by related party Havells Holdings Limited (hereinafter referred to as “HHLâ€) for a price of 34.5 million euros.
This means that after acquiring the 80% stake in the international lighting giant Xiwannian Group in December 2015, Feile Audio will achieve 100% control of Xiwannian Group.
However, although the integration of Xiwannian Group in 2016 caused the foreign market revenue of Feile Audio to increase by 445.63%, the total revenue increased by 41.53% year-on-year, but the integration effect did not appear, and the net profit attributable to shareholders of listed companies was not deducted. It fell 15.38% year-on-year; in the first quarter of 2017, Feile Audio also experienced a decline in revenue and a loss of 58.11 million yuan.
The reporter conducted an exclusive interview with Zhuang Shenan, the general manager of Feile Audio, on the acquisition. He said that the decline in the previous profit was mainly due to the expenses incurred in the restructuring. As the first share of Shanghai state-owned enterprises, Feile Audio does face some challenges in the process of cross-border acquisition and integration, and cannot be as flexible as a real private enterprise. In addition, there are differences in culture, law, and behavioral concepts in the East and West, and multi-party games are also faced in the integration process.
Two years of acquisition
This is a multinational acquisition that lasted nearly two years and cost more than 1 billion yuan. On December 10, 2015, Feile Audio acquired 80% of the shares of the Xiwannian brand held by Havells Group in cash of 138 million euros (equivalent to approximately RMB 970 million); and cash of 10.4 million euros (equivalent to approximately RMB 73 million) ) Acquisition of an 80% stake in Exim, the purchasing entity of Hong Kong.
According to the agreement of the two parties, Feile Audio needs to acquire the remaining 20% ​​of FML in the next two to three years. At the same time, when the previously divested SPV2 company (ie, Xiwannian Brazil, Thai company) achieved profitability and the net assets were positive, the company needed to acquire SPV2 at a price of no more than 8 million euros.
On May 17, Feile Audio announced that it intends to acquire a 20% stake in FML held by related party HHL at a price of 34.5 million euros through Inesa UK Limited, a wholly-owned subsidiary of Shanghai Feile Investment Co., Ltd., a wholly-owned subsidiary. Acquired 100% of the shares of Havells Sylvania (Thailand) Limited (hereinafter referred to as “Thailandâ€) of SPV2 at a price of 1.6 million euros, while Xiwannian Brazil is suspected of continuing profitability and has large legal and tax risks. The scope of the acquisition shall be terminated by the Indian side itself.
Xiwannian Group is a global manufacturer of light source and lighting products with a history of more than 100 years. In the early years, Osram bought core parts such as North America. In 2007, the Havells Group of India acquired Xiwannian and obtained the global Brands outside North America and Australia, the Xiwannian brand is also split into two parts.
The acquisition of FML by Feile Audio means that Feile Audio will become the sole shareholder of Xiwannian Group in the future, but in North America and Australia, the brand still belongs to Osram.
This acquisition is also seen as an important step in the internationalization strategy of Feile Audio. "China's enterprises and brands want to take the road of internationalization very difficult. They want to open up the situation in Europe and the Americas, and they have to pay a huge price and a long time." Zhuang Shenan said that Feile Audio acquired and merged with Xiwannian through capital means. Well-known brands to achieve sales in most countries around the world, in this channel cooperation, gradually establish their own overseas factories and research and development bases, thus achieving a global layout.
In the industry's view, the acquisition of Xiwannian by Feile Audio may be "the second best." Wang Fei, research director of LEDinside Research Center of LED State, pointed out that the regionalization of lighting brands is more serious. Many countries have their own local brands. In the true sense, international brands are only big brands such as Philips and Osram. "The problem is that these big brands have high acquisition costs and cannot be easily bought. Xiwannian is known as 'Little Osram' in the industry. It has no such influence as Osram as a whole, but it is still influential in some regional markets. At the beginning, Feile should also want to bid for a lighting company like Osram, but there may be too many competitors, so it will be second to none.†Wang Fei said that Xiwannian has certain brand value in the international market and channels. Some advantages. And Feile Audio has Yaming Lighting brand in China, and its production capacity does not have problems. The acquisition of the Xiwannian brand is basically the usual way for domestic lighting manufacturers to enter the international market.
The acquisition did not bring more profits to the listed company
After completing the completion of the acquisition of the 80% equity of the Xiwannian Group on January 15, 2016, since January 2016, Xiwannian Group has been included in the scope of the Feile Audio consolidated statement. However, for more than a year, the integration effect is still to be seen.
In the first year of the acquisition, Feile Audio achieved a revenue of 7.178 billion yuan, a year-on-year increase of 41.53%. However, the net profit attributable to shareholders of listed companies was only 308 million yuan, down 15.38% year-on-year.
It can be seen that the biggest growth in 2016 comes from the foreign market, which increased from 570 million yuan in 2015 to 3.1 billion yuan in 2016, an increase of 445.63%.
In contrast to the increase in volume, the acquisition did not bring more profits to listed companies. Although the 2016 Xiwannian Group achieved a non-net profit of 12.32 million euros for continuing operations, FML lost a total of 130 million yuan in 2016. In this regard, Zhuang Shenan explained that the actual loss is the restructuring charge.
In fact, in the eyes of the industry, traditional lighting has been transformed into LED lighting in recent years, and Chinese manufacturers have more advantages in LED lighting. The low-end products of Chinese enterprises are flooding the international market, and the price impact on the whole market is relatively large. However, some international brands have no obvious advantages in cost control, which may lead to poor profits.
Wang Fei also pointed out that there is a running-in period between the two parties after the merger, and some expenses incurred in the process of merger and acquisition will affect the profit to some extent. But if the integration is good in the future, and the synergy effect of the two companies will come out, the future will definitely turn losses. But if it is not integrated, the risk will increase. "In the two years of European companies, some trade unions are relatively strong. Laborers have a higher status in the company. If they want to abolish costs, the cost of resettlement will be higher, but this will be better after the past." Wang Fei said.
Zhuang Shenan admits that there are huge differences in culture, law, behavioral concepts and habits between Eastern and Western companies. “In the process of integration, we follow the principle of respecting local laws and cultures first, and using the principles of localized management to manage overseas companies with local teams. So 2017 and 2018 will highlight good effects. Zhuang Shenan said that in addition to this, the foreign trade unions are also very strong, and they face a game in the negotiation process and need to reach a consensus.
However, in the first quarter of 2017 report of Feile Audio, the performance trend continued. The company's operating income was 1.144 billion yuan, down 27% year-on-year, and net profit plummeted 382%, with a loss of 58.11 million yuan.
In this regard, Zhuang Shenan explained that the company's revenue for 2017 is optimistic. The first quarter performance dip is mainly due to the increasingly stricter financial requirements of the audit firm after the reorganization, and the project confirmation is becoming more and more strict. In order to reduce unnecessary cumbersome procedures, the company delayed some projects that have not yet been completed to the next quarterly acceptance. In addition, the engineering industry characteristics also led to a reduction in business volume in the first quarter.
State-owned enterprises mixed experiment
As the first share of Shanghai state-owned enterprises, the transformation of Feile Audio has been quite a lot.
In the early years, Feile Audio was engaged in audio business, and gradually developed into IC card industry, system integration and software development, and digital electronic application products. In 2002, Feile Audio acquired 100% equity of Shanghai Yaming Bulb Factory and entered the green lighting industry.
In 2009, Feile Audio divested almost all of its business except Shanghai Yaming Bulb Factory, focusing on the development of green lighting industry. In 2014, Feile Audio acquired 100% equity of Beijing Shenan Group, an engineering lighting company, which was regarded by the industry as a representative of the mixed operation system of state-owned enterprises and private enterprises. Zhuang Shenan, the former chairman of Shenan Group, was officially nominated as the general manager of the company in 2015.
At present, the largest shareholder of Feile Audio is the state-owned legal person Shanghai Yidian (Group) Co., Ltd., with a shareholding ratio of 21.7%; the second largest shareholder is Beijing Shenan United Co., Ltd., a non-state-owned legal person in China, with a shareholding ratio of 16.98%.
Zhuang Shenan said frankly that Shanghai's reform efforts are relatively large, and the pilot system will be tested first. However, "not only in the process of internationalization, but also in some domestic business development, there are some restrictions imposed by the state. It is impossible to make decisions as a real private enterprise board."
It is worth mentioning that on the same day as the announcement of the acquisition, Feile Audio announced that the board of directors received the written resignation of Mr. Cai Xiaoqing, the chairman of the company. After resigning, Mr. Cai Xiaoqing will no longer hold any position in the company. At present, Cai Xiaoqing is the president and deputy secretary of the Party Committee of Shanghai Yidian (Group) Co., Ltd.
Some insiders believe that Cai Xiaoqing's resignation may be an internal agreement, or the current general manager Zhuang Shenan will take over the chairman. However, Zhuang Shenan clearly stated in an interview: "I can honestly say that I have this qualification to pick up, but this time it is definitely not me. Because it is still the majority shareholder to be the chairman."
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