Management Buyout (MBO) refers to the process where a company's management team uses leveraged financing to acquire the target enterprise, thereby changing the structure of ownership, control, or assets of the company in order to restructure and achieve expected returns. In fact, this type of corporate institutional reform through MBO is highly suitable for China's current situation. State-owned enterprises (SOEs) have long suffered from issues such as unclear separation between government and enterprise, and ambiguous property rights structures—historical legacies that make MBO reforms particularly significant for SOEs. Generally speaking, MBO reforms can address the problem of "absent owners" in SOEs, promote property rights system reforms, provide equal incentives and constraints for management, reduce agency costs, improve profitability, and achieve the "preservation and appreciation" of assets. Under the backdrop of state-owned asset layouts involving both entry and exit, MBOs in SOEs can also help state capital gradually withdraw from non-competitive industries, optimizing the layout of state-owned assets.
The MBO of Yutong Bus happened a long time ago. Back then, the MBO of Yutong Bus was quite controversial and faced various criticisms. However, ultimately, the MBO of Yutong Bus was successfully completed. In reality, the MBO process of Yutong Bus wasn't overly complex. This pioneering MBO began on June 15, 2001, when Shanghai Yutong signed the "Equity Transfer Agreement" and "Equity Entrustment Management Agreement" with Zhengzhou’s State-owned Assets Bureau (whose functions were later transferred to the Municipal Finance Bureau). It was agreed that Shanghai Yutong would take over 89.8% of the equity held by Zhengzhou’s Finance Bureau in Yutong Group and submit it for approval by the Ministry of Finance. During the approval period, Shanghai Yutong would manage this part of the equity (including 23.5 million shares of national shares in Yutong Bus).
On August 6 and 8, 2001, Zhengzhou’s Finance Bureau received the full payment for the equity transfer from Shanghai Yutong as stipulated in the contract. However, the Ministry of Finance did not approve the MBO of Yutong Bus, and Shanghai Yutong continued to manage the equity until 2003. Given that Zhengzhou’s Finance Bureau neither legally transferred the agreed-upon equity to Shanghai Yutong nor returned the already received equity transfer payment, on December 3, 2003, Shanghai Yutong filed a lawsuit with the Erqi District Court of Zhengzhou using the method of an application for a payment order, demanding that Zhengzhou’s Finance Bureau return the equity transfer payment and compensate for costs. On December 20, 2003, the Erqi District Court of Zhengzhou ruled to freeze 100% of the equity held by Zhengzhou’s Finance Bureau in Yutong Group and entrusted Zhengzhou Auction General Office to conduct a public auction. On December 21, 2003, Zhengzhou Auction General Office published an auction announcement in the Zhengzhou Daily. On December 29, 2003, Zhengzhou Auction General Office conducted a public auction for 100% of the equity held by Zhengzhou’s Finance Bureau in Yutong Group. The auction reserve price for this equity was set at RMB 1.597642 billion as determined by Beijing Zhongqi Hua Asset Appraisal Co., Ltd. Through competitive bidding, Shanghai Yutong acquired 90% of Yutong Group's equity for RMB 1.485 billion, while Yutong Development acquired 10% of Yutong Group's equity for RMB 165 million. This marked the completion of the MBO process for Yutong Bus.
For a long time, Yutong Bus has been referred to in the industry as the "first publicly implemented MBO targeting listed state-owned shares." However, this isn't entirely accurate; the first domestic MBO was Meidi (Yue MeiDi), and Yutong Bus' MBO wasn't a complete MBO in its true sense.
"We are not an MBO; we are just employee shareholding," stated Qi Jianguang, General Manager of Shanghai Yutong, firmly denying the claim. "Behind the 21 natural person shareholders of Shanghai Yutong are the 838 employees of Yutong Bus." According to insiders at Yutong: in a document titled "Explanation of the Source of Registered Capital for Shanghai Yutong," the registered capital of Shanghai Yutong is RMB 1.20538 billion. Behind the 20 shareholders are 838 employees of Yutong Bus who contributed RMB 805.38 million, while Tang Yuxiang (Chairman of Yutong Bus, Director of Shanghai Yutong, and Director of Yutong Development) personally contributed RMB 300 million. Thus, the 21 natural person shareholders of Shanghai Yutong represent full employee shareholding, with all contributions made in cash.
In the research report published on December 30, 2003, in the "Theoretical Dynamics" journal hosted by the Central Party School, the article did not mention the terms "management buyout" or "MBO" but instead formally referred to it as "the operators and employees of Yutong Bus acquiring 89.8% of the shares in Yutong Group."
"If employee shareholding was indeed implemented this way, then Yutong Bus isn't a complete MBO," said Liu Kan, Deputy Director of the Huacheng Securities Research Institute. "One could say that Yutong Bus achieved a model of full employee shareholding."
From these records, it can be seen that Yutong's institutional reform can be fully described as Employee Stock Ownership Plan (ESOP) rather than MBO. Yutong's institutional reform has had a significant impact on the reform of state-owned enterprises. Currently, China is still in the transition phase from a planned economy to a market economy, with state-owned assets spread too thinly across competitive industries. Compressing the layout of state-owned assets and withdrawing them from competitive sectors will help the government focus on what needs to be done and facilitate the establishment of a healthy socialist market economy system. Due to unresolved issues like "absent owners," many SOEs have formed "internal control," leading to situations where they bear losses but not profits, resulting in poor economic performance and significantly affecting the quality and speed of national economic growth. Implementing MBOs in competitive industries and enterprises can reduce the agency costs of enterprises, not only meeting the needs of strategic reorganization of state-owned assets but also being a good solution for SOE reform. The MBO of Yutong Bus can effectively address the issue of insufficient incentives and constraints for SOE operators, greatly motivating the management team, improving management efficiency and productivity, creating more wealth for the country, and aligning with the trends of the economic era, accelerating the reform of state-owned enterprises.