Midea Electric Appliances Co. Ltd (Midea) and Wuxi Little Swan Co., Ltd announced Tuesday that Midea will sell a 69.47 percent stake of its subsidiary that specializes in manufacturing washing machines to Little Swan for 720 million yuan to end internal competition. Midea is a shareholder of Little Swan.
Midea and Little Swan also disclosed that they have signed an agreement framework about this deal on October 18.
As a swap, Little Swan will offer 83.4 million A-shares to Midea at the unit price of 8.63 yuan per share. If this deal is completed, Midea will increase its shareholdings in Little Swan to above 30 percent from of the current 29.64 percent.
A household-appliance industry analyst told Caijing that this deal is actually an asset swap between Midea and Little Swan; Midea sold assets of its washing machine business to Little Swan, and Little Swan sold its shares to Midea.
Until September 30 this year, net asset value listed in the account of the subsidiary was 958 million yuan, and the value of the 69.47 percent stake is 666 million yuan, so the 720 million yuan selling price actually is an 8.1 percent increase in value.
Before the deal, Midea held a 75 percent direct stake in the subsidiary, but it promised not to sell 5.53 percent of its shares in the future. Another 25 percent of shares in the subsidiary are held by a fully-owned subsidiary of Midea named Midea BVI.
After the deal is completed, Little Swan will hold a 69.47 percent stake in the subsidiary, Midea will hold 5.53 percent and Midea BVI will continue to hold 25 percent.
The Midea subidiary will be under Little Swan after the deal, and the problem of internal competition between Midea and Little Swan will be resolved.
Since this subsidiary produces machines for both Royalstar and Midea before, this deal will also result in Little Swan owning three brands, Royalstar, Little Swan, and Midea. This will help Little Swan improve its profitability to consolidate its position in the household-appliance industry. Little Swan’s total value of assets will increase by 34.04 percent and the net assets will increase by 11.01 percent.
The deal is still awaiting approval from the general meeting of Little Swan stockholders, the internal decision-making body of Midea, and the China Securities Regulatory Commission.