Qiu Jianping, Chairman of Juxing Group: The acquisition of Zhongce Rubber's equity synergy is worth looking forward

- Jun 05, 2019-

On June 4, Chairman of the Superstar Holding Group Co., Ltd., Qiu Jianping, said in an exclusive interview with China Securities Journal that the joint acquisition of 46.95% of Zhongce Rubber Group Co., Ltd. ("Zhongce Rubber") in cash will benefit Superstar Technology. In the market channel, it has established in-depth cooperation with Zhongce Rubber to expand the company's product layout in the automotive aftermarket; it is conducive to the joint participation of the Hangcha Group to increase the added value and competitiveness of its industrial vehicle products. We are optimistic about the development prospects of Zhongce Rubber. The synergy will gradually emerge after the completion of the acquisition.

Joint acquisition

On May 28th, Superstar Group, Superstar Technology, Hangcha Group, Hangzhou Haichao and other related parties and Hangzhou Yuanxin Dongchao Equity Investment Partnership (Limited Partnership) (referred to as “Yuanxin Dongchao”) and Mianyang Yuanxin Dongchao Equity Eight Zhongze Rubber Shareholders, including Investment Center (Limited Partnership) and Hangzhou Yuanxin Chaohe Equity Investment Partnership (Limited Partnership), signed the “Intention Agreement on Paying Cash to Purchase Assets”.

The 100% shareholder equity of Zhongce Rubber was 12.35 billion yuan, and the corresponding consideration for the 46.95% equity of Zhongce Rubber was 5.798 billion yuan (excluding transaction-related expenses). Among the sources of funds for acquisition, the total amount of self-owned funds is 4 billion yuan, from the paid-up capital of Superstar Group, Superstar Technology, Hangcha Group, etc., and the rest will be raised through bank loans.

Superstar Technology, Hangcha Group, Juxing Group and Hangzhou Haichao jointly invested in Hangzhou Zhongce Haichao Enterprise Management Co., Ltd. (“Zhongce Haichao”), which is specially used to acquire Zhongce Rubber's equity in cash payment. Superstar Technology and Hangcha Group intend to invest 1.1 billion yuan in Zhongce Haichao, each accounting for 27.5% of the registered capital of Zhongce Haichao. Upon completion of the transaction, Zhongce Haichao will receive a total of 46.95% equity interest in Zhongce Rubber. Among them, Juxing Technology and Hangcha Group will indirectly hold 12.91% of Zhongce Rubber.

Since the Superstar Group, Superstar Technology, Hangcha Group and Hangzhou Haichao among the investors are all controlled by Qiu Jianping, this transaction constitutes a connected transaction. If the transaction is completed, Zhongce Haichao will acquire the controlling stake in Zhongce Rubber.

Regarding the reasons for the acquisition, Qiu Jianping said, “On the one hand, considering the main entities involved in the acquisition, including the two listed companies, the cash flow is relatively abundant, and they hope to use the funds. At the same time, I hope to promote Zhongce Rubber and Superstar Group. The business of each sector develops synergistically, integrating resources and improving efficiency."

While Zhongce Haichao intends to acquire a 46.95% stake in Zhongce Rubber, another listed company, Chengcheng New Materials, intends to increase the capital of Shanghai Yuzhong Enterprise Management Co., Ltd. (“Shanghai Yuzhong”), and Chengxin New Materials intends to hold Shanghai Yuzhong 87.75. % equity. After the completion of the capital increase, Shanghai Yuzhong intends to pay 1.255 billion yuan in cash and purchase 10.16% equity of Zhongce Rubber from Yuanxin Dongchao. Chengcheng New Materials will indirectly hold 8.92% equity of Zhongce Rubber.

The three listed companies also participated in the acquisition of Zhongce Rubber's equity and attracted market attention. In this regard, Qiu Jianping told reporters that Chengcheng New Materials is a multi-year partner of Zhongce Rubber and is optimistic about the development prospects of Zhongce Rubber. This time, it participated in negotiations with the original shareholders of Zhongce Rubber together with the acquisition parties such as Superstar Group, Superstar Technology and Hangcha Group, but it is not in concert with the Superstar Group.

Integration acceleration

Founded in 1958 and headquartered in Hangzhou, Zhongce Rubber is a leading enterprise in the domestic tire industry and a top 10 tire enterprise in the world, with an annual output of 50.5 million sets of more than 1,000 varieties of automobile tires and non-automobile tires. With more than 1,200 dealers in more than 160 countries and regions, Zhongce Rubber owns well-known tire brands such as Chaoyang, Weishi, Good Luck and Quannuo. The product line covers passenger car tires, passenger car tires and motorcycle tires. Industrial engineering tires, rubber tracks, etc. In 2018, Zhongce Rubber achieved sales revenue of 26.9 billion yuan, a year-on-year increase of 5.31%.

Qiu Jianping told China Securities Journal that the acquisition of Zhongce Rubber will be the largest acquisition in the history of Superstar Group. The company's rubber industry has a high status, good business prospects, and the management team is recognized by all parties. After the completion of the acquisition, we are optimistic about the synergy between its business and the various segments of the Superstar Group.

“There is not much advantage in the rubber industry in Hangzhou, but the management team of Zhongce Rubber can make the company the first in the country, and the revenue is more than 10 billion yuan in the industry ranking second, which is not easy.” Qiu Jianping said, "From the perspective of specific business, Zhongce's tire replacement business, based on the national distribution system established over the past decades, has achieved the best in the industry. In the automotive aftermarket, this business will bring huge benefits to Zhongce. In the field of truck tire production with high performance requirements, Zhongce's output ranks first in the world."

Qiu Jianping is optimistic about Zhongce Rubber's tire industry chain, and said that in the next 10 years, China's tire industry will face accelerated industry consolidation, and the industry concentration will increase rapidly. Most of the 400 manufacturers in the domestic tire industry will be integrated.

"In developed economies, there are only a few tire companies that have been integrated and merged in a country, and we have hundreds of them. I believe that the merger and adjustment period of domestic tire companies will soon come." Qiu Jianping said, "Prises Tire brands such as Tonghe and Michelin have achieved nearly 30 billion US dollars in revenue. It is possible for Zhongce Rubber to base itself on the Chinese market and open up overseas markets to achieve revenues of US$10 billion in the future."

In terms of business synergy, Qiu Jianping said that for the company's superstar technology of tool hardware products and Hangcha Group, which is mainly engaged in industrial vehicle products, the cooperation with Zhongce Rubber will be beneficial to the performance improvement.

From the perspective of Superstar Technology, through this transaction, it will establish cooperation with Zhongce Rubber in the market channel, expand the product layout in the automotive aftermarket, and provide customers with cars based on Zhongce Rubber's dense offline outlets and dealer network. The repair and maintenance integration service will enhance the brand influence and comprehensive competitiveness of Superstar Technology in the automotive aftermarket, and help the superstar technology to become a bigger and stronger tool hardware industry.

“The channel resources of Superstar Technology will also bring benefits to Zhongce Rubber.” Qiu Jianping said that Wal-Mart, the important partner of Superstar Technology, sells about US$5 billion of tire products every year, but has no cooperation with Zhongce Rubber. In the future, Superstar Technology will share Wal-Mart's channel resources with Zhongce Rubber and build a cooperation mechanism between the two.

The Hangcha Group, which has tires as the core component of its main products, or directly benefits from this acquisition. Qiu Jianping said that after the completion of the transaction, Zhongce Rubber can leverage its advantages in tire research and development, production, etc., to provide Hangzhou Tong Group with higher technical content and customized tire products, and to increase the add-on of Hangcha Group industrial vehicle products. Value and market competitiveness.