By hmimcu 
The 2.1 billion yuan “cross-border” acquisition of a company in A-share involves two communication giants, Nokia and Huawei.
On the morning of April 10th, New Oriental New Materials Co., Ltd. (hereinafter referred to as “New Oriental New Materials”) opened trading below the limit. On the news, the company announced yesterday evening that it planned to raise no more than 2 billion yuan to acquire 51% equity of TD TECH from Nokia’s wholly-owned subsidiary NSN (with a transaction consideration of 2.122 billion yuan).
It is reported that the trading partner is Nokia’s wholly-owned subsidiary NSN, TD TECH, with the remaining 49% equity held by Huawei.
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(Derived from Oriental Materials Announcement)
New Oriental New Materials stated that TD TECH will become its controlling subsidiary in the future, with new wireless products, terminal products, and IoT products added to its main business. At the same time, it will maintain the basic stability of the management of Dingqiao Communication and Chengdu Dingqiao, ensuring that the new business can be quickly integrated.
It is worth noting that Xu Guangbin, the actual controller and chairman of New Oriental New Materials, has a rich background in the communication industry. Currently, he is also the founder, chairman, and president of Huayun Data Holdings Group.
TD TECH, also known as Dingqiao Communication, is a joint venture between Siemens AG and Huawei Technology Co., Ltd. It was officially established in Beijing on March 24, 2005. On April 1, 2007, Nokia and Siemens jointly established Nokia Siemens Communications, and Siemens transferred all of its Dingqiao shares to Nokia Siemens Communications. At present, Nokia Siemens Communications and Huawei respectively hold 51% and 49% of the shares in Dingqiao. The chairman of Dingqiao Communications is Markus Petrodorf Boce, who is the legal representative of Nokia Communication System Technology (Beijing) Co., Ltd. Chaoyang Branch. The directors include Xu Zhijun, Yan Lida, He Haipeng, and others, all of whom are Huawei executives.
Dingqiao Communication has established certain cooperative relationships with Huawei in various business sectors such as wireless products, terminal products, and IoT products in the industry. In terms of technology, some products of Dingqiao are based on Huawei authorization and are developed and optimized based on Huawei’s underlying technology or existing products; In terms of sales, Dingqiao collaborates with Huawei in the sales of some products. The M40, P50, and Mate 50 series phones launched by Dingqiao Communication have become the industry focus due to their high similarity with Huawei phones.
It is noteworthy that TD TECH’s articles of association stipulate the shareholders’ right of first refusal clause. But as of the announcement date, New Oriental New Materials has not yet obtained a commitment document from the minority shareholder Huawei to waive the right of first refusal. Therefore, there is a risk that Huawei may claim the right of first refusal in this transaction, which may result in the transaction being unable to be implemented.
Huawei releases an announcement late at night
It is worth noting that yesterday evening, Huawei urgently responded to the acquisition of TD TECH shares held by Nokia by Oriental Materials. Specifically, there are the following points:
Firstly, Huawei claims that its joint venture with Nokia to operate TD TECH is based on their strategic cooperation, technical strength, and global sales and service capabilities;
Secondly, Huawei agrees that Nokia will sell its equity, but the purchaser must have the same strategic capabilities to have the foundation to continue the existing cooperation. Huawei has no intention or possibility of jointly operating TD TECH with New Oriental New Materials;
Thirdly, Huawei has stated that it is evaluating the relevant situation and has the right to take subsequent measures, including but not limited to exercising the right of first refusal, selling all shares to withdraw, and terminating the relevant technology authorization for TD TECH and its subsidiaries;
Fourthly, Huawei expects strategically valuable shareholders to jointly support TD TECH’s continued development.
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(The statement originates from Huawei’s official website)
For this acquisition case, not only Huawei did not approve it, but the independent director of Oriental Materials also gave a waiver vote and stated that they gave four reasons. One of the issues is the synergy between the business of the target company and the company’s strategy: TD TECH’s main business areas include industry wireless, terminal product customization, and the Internet of Things. However, Dongfang Materials currently mainly produces ink, and agrees with the company’s future technological iteration, professional transformation, and development towards digitization, artificial intelligence, and other directions. There will be many uncertain factors in solving industrial integration, and a systematic solution is needed.
Secondly, this acquisition not only has complex procedures, but also has a large amount of money. The required funds for mergers and acquisitions are as high as 2.1216 billion, including additional issuance of A-share stocks to specific targets and self financing. During the acquisition process, it is necessary to maintain internal control and raise all necessary funds within the agreed timeframe.
Thirdly, the financial statements as of December 31, 2022 show that the acquiring company has two financial risks: firstly, a large amount of short-term current liabilities, and secondly, a large amount of inventory. Clear solutions and methods are needed, otherwise the completion of the acquisition will affect the asset structure of the listed company.
Fourthly, in mergers and acquisitions of listed companies, the counterparty usually needs to anticipate or make corresponding arrangements for the achievement of the target asset’s performance in the next 3-4 years. At present, this part of the plan has not been included.
Li Ruoshan stated that although the M&A team of the listed company has conducted extensive and meticulous due diligence, interviews, and proposed preventive plans for various adverse situations that may arise, the acquisition is relatively complex. He hopes to express clear opinions based on a thorough and detailed understanding of the project situation in the future.