Management Buyout (MBO) refers to the process where a company's management uses leveraged financing to acquire the target enterprise, thereby changing the structure of ownership, control, or assets of the company. The goal is often restructuring the company and achieving expected returns. In reality, MBO-style corporate reforms are very suitable for China’s current situation. Long-standing issues in state-owned enterprises (SOEs), such as unclear separation between government and business and ambiguous property rights structures, make MBO reform particularly significant for SOEs. Generally, MBO reform can address the "absence of owners" problem in SOEs, promote property rights system reform, and simultaneously incentivize and constrain management, reducing agency costs and enhancing profitability to achieve the "preservation and appreciation" of assets. Under the backdrop of state asset layouts involving both advancement and retreat, MBOs in SOEs can help state capital gradually withdraw from non-competitive industries, optimizing the layout of state assets.
The Yutong Bus MBO happened a long time ago, and at that time, it caused quite a stir with various controversies surrounding it. However, ultimately, the Yutong Bus MBO was successfully completed. In fact, the Yutong Bus MBO process wasn't overly complex. This pioneering MBO started on June 15, 2001, when Shanghai Yutong signed the "Equity Transfer Agreement" and the "Equity Entrusted Management Agreement" with the Zhengzhou State-owned Assets Bureau (whose functions were later transferred to the Municipal Finance Bureau). It was agreed that Shanghai Yutong would take over the 89.8% equity held by the Zhengzhou Finance Bureau in Yutong Group and report to the Ministry of Finance for approval; during the reporting period, this portion of Yutong Group's equity (including the 23.5 million shares of Yutong Bus national stock) would be managed by Shanghai Yutong.
On August 6 and 8, 2001, the Zhengzhou Finance Bureau received the full contractual price for the equity transfer paid by Shanghai Yutong. However, the Ministry of Finance did not approve the Yutong Bus MBO, and Shanghai Yutong's equity custody continued until 2003. Given that the Zhengzhou Finance Bureau neither legally transferred the agreed-upon equity to Shanghai Yutong nor returned the collected equity transfer payments, on December 3, 2003, Shanghai Yutong filed a lawsuit with the Erqi District People's Court of Zhengzhou City via an application for a payment order, demanding that the Zhengzhou Finance Bureau return the equity transfer payments and compensate for costs. On December 20, 2003, the Erqi District People's Court of Zhengzhou ruled to freeze the 100% equity held by the Zhengzhou Finance Bureau in Yutong Group and entrusted the Zhengzhou Auction House with its public auction. On December 21, 2003, the Zhengzhou Auction House published the auction announcement in the Zhengzhou Daily. On December 29, 2003, the Zhengzhou Auction House publicly auctioned off the 100% equity held by the Zhengzhou Finance Bureau in Yutong Group. The auction reserve price for this equity was determined by Beijing Zhongqi Hua Asset Appraisal Co., Ltd., at RMB 1.597642 billion. 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 was the process of the Yutong Bus MBO.
Yutong Bus has been referred to within the industry as the "first case of MBO implemented with listed company state shares as the target." However, this is not entirely accurate. The first domestic MBO was Yue MeiDi (Guangdong Midea Group), and the Yutong Bus MBO was not a complete MBO in the true sense.
"We are not doing MBO; we are just employee shareholding," stated Qi Jianguo, General Manager of Shanghai Yutong firmly. "Behind the 21 natural person shareholders of Shanghai Yutong are 838 employees of Yutong Bus." According to insiders from Yutong: in a document named "Explanation of the Source of Registered Capital of Shanghai Yutong," Shanghai Yutong's registered capital was RMB 1.20538 billion. Behind the 20 shareholders were 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. Therefore, the 21 natural person shareholders of Shanghai Yutong actually represent all employees holding shares. All contributions were made in cash.
In the research report published on December 30, 2003, in the Theory Dynamics journal hosted by the Central Party School, there was no mention of management buyouts or MBO but rather a standardized description as "the operators and employees of Yutong Bus acquiring 89.8% of Yutong Group's shares."
"If it truly implemented employee shareholding, then Yutong Bus isn't a complete MBO," said Liu Kan, Deputy Director of the Huachin Securities Research Institute. "One could say that Yutong Bus achieved a model of an employee shareholding plan."
From these records, it can be seen that Yutong Company's institutional reform can be more accurately described as ESOP (Employee Stock Ownership Plan) rather than MBO. Yutong Company's institutional reform has also had a significant impact on SOE reform. China is currently still in the transitional phase from a planned economy to a market economy, with state assets distributed across too many sectors, especially in competitive industries. Compressing the layout of state assets and withdrawing them from competitive sectors will help the government focus on what it should do and contribute to the establishment of a healthy socialist market economy system. Many SOEs have formed "internal control" due to unresolved issues like the "absence of owners," leading to situations where they bear profits but not losses, 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 assets but also serving as a good solution for SOE reform. It effectively addresses the insufficient incentives and constraints for SOE operators, greatly mobilizing the enthusiasm of the management, improving management efficiency and production efficiency, and creating more wealth for the country. Yutong Company's institutional reform aligns with the trends of the economic era, accelerating the pace of SOE reform.