Yutong Bus's General Manager, Tang Yuxiang, was the mastermind behind the Management Buyout (MBO) of Yutong Bus, reigniting a domestic MBO craze at that time. However, Yutong Bus wasn't the first state-owned enterprise in China to implement an MBO; the true pioneer was Yue Mei Company (the former "Midea"). Tang Yuxiang, who has a junior college education and started working in 1977, transferred to Zhengzhou Bus Factory in 1981. He has held various positions including technician, deputy director, director, workshop manager, and vice factory manager. After the company restructured in 1993, he served as a board member and vice general manager, then became general manager and financial officer in 1996. He was once named a "New Long March Vanguard" in Zhengzhou and one of the city's "Top Ten Young Entrepreneurs," receiving the "May 1st" Labor Medal multiple times from Zhengzhou.
Tang Yuxiang once said: "Rather do extraordinary things than say extraordinary words," a statement well-proven during the planning and execution of Yutong Bus's MBO. MBO refers to Management Buyout (Management Buy Out), where the management team uses leveraged financing to acquire the target company, altering its ownership structure, control structure, or asset structure to achieve corporate restructuring and expected returns. MBO has been favored by state-owned enterprise reforms mainly because it addresses the separation of managers and owners, resolving the asymmetry of interests between owner delegates and enterprise managers, providing more incentives for managers to boost production enthusiasm. In China, MBO is necessary for establishing modern enterprise systems and improving the legal person governance structure, solving the issue of "one share dominating" in state-owned enterprises, improving equity structures, and achieving diversified property rights.
So, what exactly happened with Yutong Bus's MBO? Let our MBO expert Zheng Peimin take us back through the process: "As early as 2001, the Zhengzhou municipal government proposed two development ideas for state assets: one was to strengthen the momentum mechanism of state economic growth, and the other was to enhance the internal vitality of economic development. Behind these two enhancements was property rights reform, and Yutong Group was one of the experimenters of Zhengzhou's property rights reform at the time." Zheng Peimin said. He believed that Yutong Bus's MBO also received support from the Zhengzhou municipal government. Thus, on June 15, 2001, Yutong Bus announced that Shanghai Yutong had signed agreements with the Zhengzhou State-owned Assets Administration Bureau for the transfer of 89.8% of Yutong Group's equity and an Equity Entrustment Management Agreement, subject to approval by the Ministry of Finance.
During the approval period, the part of Yutong Group's equity, along with the 23.5 million state shares held by Yutong Group in Yutong Bus, were managed by Shanghai Yutong. On August 6th and 8th, 2001, Shanghai Yutong paid the full agreed-upon equity transfer amount to the Zhengzhou Finance Bureau in two installments.
According to Zheng Peimin, Shanghai Yutong was established in March 2001, with Tang Yuxiang as the legal representative, who is also the chairman and legal representative of the listed company Yutong Bus (600066). Its registered capital was 125 million yuan, located in Pudong New Area's Shangcheng Road. Among the 23 natural person shareholders, 21 were originally employees of Yutong Bus. Therefore, Shanghai Yutong was a company specifically established for this equity transfer. "That is to say, at this point, Shanghai Yutong had become the actual controller of Yutong Bus," he said.
Because the Ministry of Finance was still studying the operational standards for MBOs at the time, Yutong Bus's application did not receive approval. "This put the plan on hold for two years, making Yutong Bus's MBO the most awkward MBO," Zheng Peimin said.
Two years later, on December 3, 2003, Shanghai Yutong applied to the Erqi District People's Court of Zhengzhou for a payment order, citing contract violations and non-timely return of the equity transfer payment by the Zhengzhou Finance Bureau, demanding the return of the equity transfer payments and compensation for costs.
On December 20, 2003, the Erqi District People's Court of Zhengzhou ruled to freeze 100% of the equity held by the Zhengzhou Finance Bureau in Yutong Group and entrusted Zhengzhou Auction House to conduct a public auction. On December 21, 2003, Zhengzhou Auction House published the auction announcement in the Zhengzhou Daily. On December 29, 2003, Zhengzhou Auction House publicly auctioned off 100% of the equity held by the Zhengzhou Finance Bureau in Yutong Group. Shanghai Yutong and its subsidiary Zhengzhou Yutong Development participated in the bidding. Shanghai Yutong acquired 90% of Yutong Group's equity for RMB 1.485 billion, while Zhengzhou Yutong Development acquired the remaining 10% for RMB 165 million.
Based on the judicial ruling made by the Erqi District People's Court of Zhengzhou, Yutong Group completed the industrial and commercial change registration procedures at the Zhengzhou Industrial and Commercial Bureau on December 30, 2003. The equity structure of Yutong Group changed to Shanghai Yutong holding 90% and Yutong Development holding 10%. The enterprise type of Yutong Group legally changed to a private limited liability company. As a result, Shanghai Yutong indirectly held 17.19% of the equity in the listed company Yutong Bus, gaining actual control over the listed company Yutong Bus. Thus, in a certain sense, Yutong Bus's MBO was completed.
In the research report published in the Theory Dynamics journal hosted by the Central Party School on December 30, 2003, the term "management buyout" or "MBO" did not appear throughout the text. Instead, it was formally referred to as "Yutong Bus operators and employees acquiring 89.8% of Yutong Group's shares." Therefore, Yutong Bus's MBO was not a true MBO action.
"If employee stock ownership was implemented this way, then Yutong Bus would not be a complete MBO," said Liu Kan, Deputy Director of the Hualin Securities Research Institute. "One could say that Yutong Bus achieved a model of a comprehensive employee stock ownership plan."
From the perspective that Yutong Bus remains the leader in China's bus industry, Yutong Bus's MBO reform was quite successful. First, state-owned enterprises have long faced issues such as the separation of government and enterprise and unclear property rights structures. Yutong Bus's MBO addressed the common problem of "owner absence" in state-owned enterprises within the Yutong Company, effectively solving the situation of separation between internal managers and owners. Tang Yuxiang's MBO became a significant model for the development of listed companies, addressing the asymmetry of interests between owner delegates and enterprise managers. Second, through the MBO reform of Yutong Bus, more incentives were provided to managers to boost production enthusiasm. Third, under the large environment of the economic market, talent was retained. Talent is the core competitiveness in the economic market environment. Through the MBO of Yutong Bus, a fixed position salary, relatively fixed bonuses, and stable contractual relationships were established, effectively motivating the initiative, proactivity, and creativity of the management team. Finally, from the market situation of Yutong Bus, the company's market share has significantly improved compared to before.