Performance commitments and compensation arrangements are also a major focus of the design of mergers and acquisitions and restructuring plans of listed companies. According to Article 35 of the Measures for the Administration of Material Asset Restructuring of Listed Companies, if the present value of earnings method, hypothetical development method and other methods based on future earnings expectations are adopted to evaluate or value the assets to be purchased and used as a reference basis for pricing, the listed company shall separately disclose the difference between the actual profit and the profit forecast of the relevant assets in the annual report within three years after the completion of the restructuring, and the accounting firm shall issue a special opinion on this; The counterparty shall enter into a clear and feasible compensation agreement with the listed company for the event that the actual profit of the relevant assets is less than the profit forecast.

In other words, if the asset valuation and transaction are carried out using the method of future earnings expectation, the listed company will be required to separately disclose the actual profit of the acquired assets in the annual report three years after the restructuring and compare it with the profit forecast. If the actual profit is less than the profit forecast, the two parties can negotiate and sign a compensation agreement.

In addition, the provisions of the first two paragraphs of this article may not apply if a listed company purchases assets from a specific object other than the controlling shareholder, actual controller or controlled related person without resulting in a change of control. In accordance with the principle of marketization, the listed company and the counterparty can independently negotiate whether to adopt performance compensation and earnings per share compensation measures and related specific arrangements.

It can be seen that the performance commitment and compensation plan have clear implementation conditions and implementation methods, which can be flexibly handled in the actual transaction process, and the two parties can independently negotiate whether compensation is needed and how to compensate. However, a plan with a compensation clause designed is easier to pass the review and can also protect the interests of minority shareholders of the listed company. In addition, there are some special circumstances that must be compensated, and more attention needs to be paid in the process of designing the transaction plan. Let's judge whether performance compensation is needed from four aspects.

◆ Restructuring behavior

Restructuring can be divided into two types: the purchase of the underlying assets and the sale of the underlying assets, and performance compensation will only be involved when purchasing assets, and performance compensation will generally not be required when selling assets. For example, Guangzhou Dairy, when it was the seller of assets, received the equity of Hualian shares and remote consulting paid by the listed company, and Guangzhou Dairy did not ask for performance compensation; As the purchaser of the assets, Guangzhou Dairy set up a level of compensation.

◆ Evaluation Method

Whether the transaction plan needs to design compensation clauses is also determined by the valuation method used in the underlying assets. As mentioned above, the Measures for the Administration of Material Asset Restructuring of Listed Companies stipulate that performance compensation is only required if the future earnings expectation methods such as the income method and the hypothetical development method are used to evaluate or value the assets to be purchased as a pricing reference basis. Taking the major asset restructuring carried out by China Dynamics in 2016 as an example, there are 18 underlying assets involved in this asset restructuring, some of which use the asset-based method as the evaluation method, and some use the income method.

◆ Counterparty

According to the Questions and Answers on Performance Compensation for M&A and Restructuring issued by the China Securities Regulatory Commission, the controlling shareholder, actual controller or related persons controlled by the listed company should rely on the shares and cash obtained to compensate for the performance of the underlying assets, and whether the transaction is based on temporary arrangements such as bridging. In the case where the asset-based valuation is used for transaction pricing, if the future income method is used for the valuation of one or more assets in the asset-based method, the controlling shareholder, actual controller or related person controlled by the listed company shall compensate for this part of the performance.

In other words, there is no need to consider who holds the control of the underlying assets, nor whether the transaction is based on a temporary arrangement such as a bridge, and performance compensation should be made as long as the conditions of the performance compensation agreement are met. In addition, while performance compensation is not required in the case of the asset-based approach as a valuation method, it should be compensated for performance as long as one or more of the items are based on the future income approach.

◆ Acquisition of shares

Restructuring transactions with performance commitments and performance compensation are more likely to pass the CSRC's review, and the CSRC will pay more attention to the transaction of acquiring the entire equity of the target company during the review, so such transactions will often set performance commitments and performance compensation. On the other hand, if it is a transaction to acquire a minority shareholder's interest, especially a transaction to acquire a minority shareholder's interest in a holding subsidiary, most of the transactions will no longer make performance commitments and performance compensation.