The Choice of Backdoor-liked Listing on the New Third Board Company

Abstract

Since the establishment of the new three board, China's multi-level market is increasingly perfect. Contemporarily, some companies in the Board prefer to be acquired by listed companies, so as to access the A-share market, which has better capital liquidity. Even at the expense of losing ownership of a major shareholder. The listing method is known as the ‘backdoor-liked listing’. In this text, through the case of Monarch Sanitary Ware's acquisition of Oceano, insight into the motivation of ‘backdoor-liked listing’, the difference between ‘back door listing’ and ‘backdoor-liked listing’, as well as the changes in enterprise value, acquisitions and related economic insights after merger. Based on the analysis, the main reason for enterprises to choose ‘back door listing’ is attributed to the stringent listing conditions, long time-consuming and high cost of IPO, and recognition of ‘back door listing’ as equivalent to IPO. Based on the two-stage corporate growth model of FCFF, the value of enterprises after M&A has a greater increase. In addition, after M&A, the scale of enterprise financing is expanded, and the synergistic effect is increased. However, ‘back door listing’ lowers the entry threshold for listing by bypassing the conditions for determining ‘backdoor-liked listing’ and increases the risk of poor-quality assets entering the listed company. Hence, market regulation should strengthen the audit of ‘backdoor-liked listing’ transfers by focusing on the substance of the transaction.