Management Buy-out (MBO) refers to an action where the company's management team uses borrowed capital or equity transactions to acquire their own company. Through the acquisition, the business operators become the owners of the enterprise. Because MBO plays a positive role in motivating internal staff, reducing agency costs, and improving the business operation status, it has become a popular corporate acquisition method in Europe and America during the 1970s-80s. After the domestic first MBO reform of Suntone Group in 1999, Tang Yuxiang, who had been planning for a long time, also implemented his Yutong Bus management buyout plan. He actively tried to bypass the existing laws and regulations, and finally realized the Yutong Bus management buyout process through an auction form. Although the Yutong Bus MBO has always been controversial, the successful implementation of the Yutong Bus MBO also has its value.
Firstly, from the perspective of the Yutong Bus management:
1. Macroscopically speaking, the management buyout has a positive meaning. China is still in the stage of transforming from a planned economy to a market economy. State-owned assets are distributed over too long a front and are generally present in competitive industries. Compressing the layout of state-owned assets and withdrawing them from competitive fields will help the government do what needs to be done and contribute to the establishment of a healthy socialist market economy system. Due to the fact that state-owned enterprises have never solved problems such as "the absence of owners", many enterprises have formed "internal control", which leads to state-owned enterprises being responsible for losses but not profits, affecting the quality and speed of national economic growth. Implementing MBO in competitive industries and enterprises can reduce the principal-agent cost of enterprises, not only meeting the need for strategic reorganization of state-owned assets but also being a good solution for state-owned enterprise reform. It can effectively solve the problem of insufficient incentives and constraints for SOE operators, greatly mobilize the enthusiasm of the management, improve the management efficiency and production efficiency of the enterprise, and create more wealth for the country.
By implementing the Yutong Bus MBO, not only did it realize the strategic reorganization of state-owned assets exiting the competitive field, effectively solving the problem of insufficient incentives and constraints caused by the principal-agent relationship in state-owned enterprises, but also achieved entrepreneurship for the management and employees, which is conducive to establishing a modern enterprise system.
2. Microscopically speaking, the Yutong Bus management received government support and had a clear willingness to invest shares. Tang Yuxiang, chairman of Yutong Bus, pointed out in an interview with the Shanghai Securities News: "We just want to do well in the enterprise and expand the industry. We don't engage in capital operations. Our cooperation with German companies, our acquisitions of other companies, etc., are all aimed at integrating the bus industry. The acquisition of state shares was not initially proposed by us, but because the second largest shareholder, Zhengzhou No.1 Steel Plant, had difficulties and wanted to sell shares, it triggered the local government's idea of allowing state-owned assets to completely exit Yutong Bus. The Zhengzhou municipal government successively negotiated with and conducted on-site investigations of several companies with acquisition intentions. None of the potential acquirers were engaged in automobile manufacturing operations; they were all institutions engaging in capital operations, lacking professional capabilities and sincerity to make the main business of buses bigger and stronger. Based on this, we stepped forward under the impetus of the municipal government. In fact, implementing property rights system reform and allowing employees to hold shares will greatly motivate the enthusiasm of employees and inject strong momentum into the development of the enterprise." Tang Yuxiang takes "Rather do extraordinary things than say extraordinary things" as his motto, which was fully demonstrated in the design and implementation of the Yutong MBO.
Secondly, from the internal perspective of Yutong Bus:
1. Retaining talent
Talent is a scarce resource under market economy conditions and is the core competitiveness of enterprises. Yutong Bus lacks sufficient incentives and constraints for its management, and the medium-to-long-term incentive constraint mechanism based on equity has not been established. Fixed position salaries, relatively fixed bonuses, and stable contractual relationships cannot effectively motivate the enthusiasm, initiative, and creativity of the management. Through management shareholding, achieving equity-based incentives and constraints can effectively retain and attract talent, realizing Yutong Bus's talent strategy and development strategy.
2. Exit of state-owned assets
The bus industry competition is very fierce and risky. The Zhengzhou municipal government's state-owned asset department decided to "marry off the beautiful daughter first" and exit the equity, giving Yutong Bus a good opportunity for a management buyout. All of this led to the implementation of the Yutong Bus MBO.
Setting aside public controversy, the behavior of the Yutong Bus management buyout MBO was still quite successful. First, state-owned enterprises have long suffered from historical legacy issues such as separation of government and enterprises and unclear ownership structure. The Yutong Bus MBO improved the common ailment of state-owned enterprises, "the absence of owners," effectively solving the situation of separation between managers and owners within the Yutong Company, resolving the asymmetry of interests between the owner's agent and the enterprise manager. Second, through the Yutong Bus MBO reform, it gave managers more incentives to mobilize production enthusiasm. Third, in the context of the economic market, it retained talent. Talent is the core competitiveness under the economic market environment. Through the Yutong Bus MBO, a fixed position salary, relatively fixed bonus, and stable contractual relationship were established, effectively mobilizing the enthusiasm, initiative, and creativity of the management. Finally, from the market situation of Yutong Automobile, the market share of Yutong automobiles has significantly increased compared to before.