Wanda Group, a well-known business group, recently announced that Dalian Wanda Commercial Management Group and PAG Investment Group (PAG) have signed a new investment agreement, under which PAG and other investors will be redeemed by Dalian Wanda Commercial Management Group at the end of the investment redemption period in 2021 to reinvest in Zhuhai Wanda Commercial Management. New investments will no longer enter into VAM agreements. In this regard, Wanda Commercial Group's VAM crisis was successfully resolved, but Wanda Commercial Group also paid a huge price.
1. The beginning of the gambling crisis
In September 2021, Zhuhai Wanda Commercial Management signed share transfer agreements with 22 investors, including PAG, in order to seek a listing in Hong Kong, and received an investment of RMB 38 billion. Some of these investors signed a VAM agreement with Zhuhai Wanda Commercial Management, stipulating that: 1. The actual net profit in 2021, 2022 and 2023 shall not be less than 51900 million yuan, 74300 million yuan, 94600 million yuan, if the above performance targets are not met, Wanda Commercial Management will transfer the relevant number of shares at zero consideration or give corresponding cash compensation;Two. Zhuhai Wanda Commercial Management should be successfully listed in 2023 at the latest, otherwise it should bear the responsibility of repurchasing shares from investors and paying additional compensation for losses.
Once the VAM expires and Zhuhai Wanda Commercial Management fails to go public, it needs to pay about 30 billion yuan of equity repurchase money to investors in the VAM agreement, which has a great impact on Wanda's cash flow.
The signing of the new investment agreement resolved the crisis, but Wanda also paid the price of losing nearly 30% of Zhuhai Wanda Commercial Management's stake and losing its absolute controlling stake.
II. Determination of the validity of VAM agreements
A VAM agreement refers to an agreement between the investor and the financier to adjust the development valuation of the target company in order to solve the uncertainties, information asymmetry and cost of the future development of the target company between the two parties to the transaction in order to solve the uncertainties, information asymmetry and cost of the target company's future development at the same time as the investor and the financier reach an equity financing agreement.
VAM agreements are conducive to alleviating the financing difficulties of enterprises and other related issues to a certain extent, and are generally regarded as supplementary agreements to investment and financing agreements. The classification of VAM agreements can be divided into VAM between the investor and the shareholder or actual controller of the target company, and the VAM between the investor and the target company.
According to the minutes, a VAM entered into between an investor and a shareholder or actual controller of the target company may be deemed valid and supported for actual performance on the basis that there are no other reasons for invalidity. However, there has been controversy over the validity of the VAM agreement between the investor and the target company. Therefore, when judging the validity of a VAM, it should be based on the relevant provisions of the Civil Code and the Company Law, and in accordance with the principles of encouraging investment, maintaining capital and protecting the legitimate rights and interests of creditors, so as to balance the interests of the investor, the company's creditors and the company.
III. Risks of VAM Agreements
Once the VAM is successful, you can get the coveted huge gains, but once it fails, it is easy to cause huge risk losses. Although the VAM agreement of Zhuhai Wanda Commercial Management eventually reached a relatively good solution, Wanda lost absolute control of Zhuhai Wanda Commercial Management, and the loss was not insignificant.
Common VAM risks include upfront risks, i.e., market policies and the status quo of industry competition, which may lead to the failure of a VAM to be reachedMedium-term risk – inaccurate business valuation can affect access to financing and the development of operating indicatorsLate-stage risk – i.e., whether the development of the enterprise's performance can meet the agreed requirements of the VAM. Zhuhai Wanda will face a VAM risk of nearly RMB 30 billion because it has not met the conditions for completing the listing in the VAM agreement.
Fourth, summary
The conclusion of VAM agreements between investment and financing enterprises can improve the financial capacity of the enterprises on the one hand, and appropriately reduce the corresponding risks caused by poor information on the other hand, but there are still considerable risks and hidden dangers, so whether an enterprise chooses a VAM agreement should be carefully considered when facing financing problems. 100 help plan