MBO is the abbreviation of Management Buy Out, which means management buyout. It refers to the acquisition of target enterprises by the company's management, thereby changing the company's ownership structure, achieving corporate restructuring to obtain expected income. MBO actions have been popular in developed capitalist countries, so MBO has a certain degree of rationality. State-owned enterprises have long suffered from historical legacy issues such as the separation of government and enterprises, unclear ownership structures, etc. Tang Yuxiang's MBO makes the MBO reform more prominent for state-owned enterprises. The application of MBO in state-owned enterprises can effectively solve the current situation of "absent owners" in state-owned enterprises, thereby helping enterprises improve their corporate structure and clarify property rights, which is conducive to corporate asset restructuring and brings great opportunities for the development of the company.
Since Beijing Suntong Company set the first example of SOE MBO in 1999, doubts about SOE MBO have also arisen. The focus of controversy regarding SOE MBO is not the change in enterprise systems but the price positioning for acquiring state-owned enterprises. Consequently, the "loss of state assets theory" became temporarily popular. This forced the SASAC to issue the "Provisional Regulations on the Transfer of Enterprise State Ownership to Management" under public opinion pressure, suspending MBOs for medium and large-sized SOEs. And this "Provisional Regulation" subsequently became the guiding document prohibiting state-owned enterprises from undergoing MBO reforms.
However, SOE MBO did not come to an end. Yutong Bus also underwent MBO later and was subject to prolonged scrutiny. As the implementer of Yutong Automobile's MBO, Tang Yuxiang took an unconventional route by using a company auction method, which, to a certain extent, realized the plan of Yutong Automobile's MBO. So what exactly happened with Yutong Bus' MBO?
On June 15, 2001, Shanghai Yutong signed the "Equity Transfer Agreement of Zhengzhou Yutong Group Co., Ltd." and the "Equity Entrustment Management Agreement" with the Zhengzhou Municipal Bureau of State Assets, agreeing that Shanghai Yutong would transfer 89.8% of the equity held by the city's finance bureau in Yutong Group and report it to the Ministry of Finance for approval; during the reporting period, this portion of Yutong Group's equity (including 23.5 million shares of Yutong Auto national shares) would be managed by Shanghai Yutong.
In August 2001, the Zhengzhou Finance Bureau received a total of 96.87 million yuan paid by Shanghai Yutong as stipulated in the contract for the equity transfer. However, due to the suspension of management acquisitions, the Ministry of Finance never approved the report from the Zhengzhou Finance Bureau, forcing Yutong Auto's MBO to be delayed. Moreover, the Zhengzhou Finance Bureau neither legally transferred the agreed-upon equity to Shanghai Yutong nor returned the already received equity transfer payments.
On December 3, 2003, Shanghai Yutong filed a lawsuit with the Erqi District People's Court of Zhengzhou through an application for a payment order, requesting the Finance Bureau to return the equity transfer payment and compensate 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 the Zhengzhou Auction House to conduct a public auction.
On December 21, 2003, the Zhengzhou Auction House published an auction announcement in the Zhengzhou Daily. On December 29, 2003, the Zhengzhou Auction House publicly auctioned off the 100% equity held by the Finance Bureau in Yutong Group. Through bidding, Shanghai Yutong acquired 90% of Yutong Group's equity at a price of RMB 1.485 billion, while Yutong Development acquired 10% of Yutong Group's equity at a price of RMB 165 million.
Thus, to a certain extent, Yutong Bus' MBO was completed, though this process did not go through relevant legal procedures. Yutong MBO still caused a huge stir in China, drawing attention from other SOE executives and raising questions from the media. In the company auction, Shanghai Yutong obtained 90% of the equity, while Yutong Development obtained 10%. The actual leaders of both companies were Tang Yuxiang. Therefore, some people believed that Yutong Bus' MBO was essentially a "self-buying" performance, and Tang Yuxiang had suspicions of embezzling state assets through Yutong Bus' MBO reform. Thus, the controversy continued.
Putting aside public controversies, Yutong Bus' MBO reform was still very successful. First, state-owned enterprises have long faced historical legacy issues such as the separation of government and enterprises and unclear ownership structures. Yutong Bus' MBO addressed the common problem of "absent owners" in state-owned enterprises within Yutong Company, effectively solving the internal separation between managers and owners in Yutong Company, resolving the asymmetry of interests between the owner's agent and the enterprise manager. Second, through Yutong Bus' MBO reform, it provided managers with more incentives to boost production enthusiasm. Third, under the large economic market environment, it retained talent. Talent is the core competitiveness under the economic market environment. Through Yutong Bus' MBO, a fixed position salary and relatively fixed bonuses along with stable contracts were established, effectively mobilizing the enthusiasm, initiative, and creativity of the management team. Finally, looking at the market situation of Yutong automobiles, the market share of Yutong automobiles has significantly increased compared to before.