Shandong Ruifeng Chemical Co.,Ltd. (300243.SZ) has unveiled further details of its acquisition plan, which has been in the works for over a month. The company recently announced its intention to acquire a partial stake in Anhui Mituo New Material Technology Co., Ltd. (hereinafter "Mituo New Materials") and inject capital into the target company, using its own funds and self-raised capital totaling 499.4171 million yuan, ultimately securing 68.065% equity in the target.
Notably, Mituo New Materials remains in a loss-making state due to its relatively recent production capacity establishment. Despite this, Shandong Ruifeng Chemical Co.,Ltd. has offered a premium of five times. The controversy stems from the fact that Mo Hongbin, the actual controller and core founder of Mituo New Materials, will step away from active management after the transaction and will not bear any performance compensation obligations.
Even the performance compensation scheme proposed by the committed parties is offset by performance rewards, salaries, and 20% equity stakes. This overly lenient performance compensation plan, which lacks a robust safety net, raises questions about its ability to effectively cover risks and offers inadequate protection for the listed company.
Core Founder to Depart Post-Transaction Without Performance Compensation Obligations
A comparison between the current transaction plan and the previous framework agreement reveals significant changes in the arrangement for Mo Hongbin, the legal representative and actual controller of Mituo New Materials. The earlier framework agreement stipulated that, post-transaction, Mituo New Materials would establish a board of directors comprising five or seven members. Shandong Ruifeng Chemical Co.,Ltd. would nominate three or four, while Mo Hongbin would nominate two or three and serve as the inaugural chairman.
Additionally, key personnel including Mo Hongbin were required to sign employment contracts of no less than five years with Mituo New Materials, along with confidentiality and non-compete agreements. However, in the latest transaction contract, Mo Hongbin is not only exempt from signing these agreements but is also slated to leave the company after the transaction.
"Due to age and health reasons, Mr. Mo Hongbin will withdraw from the target company's actual operational management after the transaction (equity transfer + capital increase) and will no longer serve as its legal representative. The target company's legal representative will be assumed by its chairman," stated Shandong Ruifeng Chemical Co.,Ltd. It added that Mo Hongbin, leveraging his experience at renowned overseas chemical companies and extensive industry resources, will continue to support the development of both the company and the target in the capacity of an advisor or consultant.
Public records show that Mo Hongbin was born in February 1969 and is currently 57 years old. Is the justification of age and health reasons for stepping back from operational management sufficient? Moreover, as the actual controller and core founder, Mo Hongbin is also exempt from performance compensation responsibilities. The transaction details disclosed by Shandong Ruifeng Chemical Co.,Ltd. indicate that the performance commitment parties are Zou Min, Chen Jing, and Shu Jiawei (collectively referred to as "Party D"), with Mo Hongbin not included.
Party D jointly commits that the target company's net profit attributable to the parent company excluding non-recurring gains and losses will be no less than -8 million yuan, 30 million yuan, and 75 million yuan for the fiscal years 2027, 2028, and 2029 (the "Commitment Period"), respectively. The agreement stipulates that if the target company's cumulative net profit from 2027 to 2029 falls below 90% of the committed performance (87.3 million yuan), the committing parties will trigger performance compensation to Shandong Ruifeng Chemical Co.,Ltd., with joint and several liability for compensation via cash, shares, or other methods accepted by the company.
Multiple Design Flaws in Performance Compensation Clauses
The performance compensation clauses have also been criticized as overly lenient and self-contradictory with insufficient binding force. The agreement specifies that, upon triggering compensation obligations, all parties agree to first deduct from performance rewards actually received by Party D from the target company between 2027 and 2031. However, performance rewards are only paid when performance targets are met or exceeded. If the target company fails to achieve committed performance, no performance rewards would materialize, rendering this compensation source null. Designing a compensation source as a "fund pool that only exists when compensation is unnecessary" is logically contradictory.
Furthermore, the agreement states that if compensation remains insufficient after the aforementioned deductions, Mr. Zou Min will bear share compensation capped at 20% of his total shareholding in the target company at that time. This compensation obligation falls solely on one of the three committing parties. Based on the current valuation of 712 million yuan and Zou Min's 5.2642% stake, this share component is worth only approximately 7.4962 million yuan — just 8.59% of the total committed performance (97 million yuan) or the compensation threshold (87.3 million yuan). The listed company is paying 499 million yuan for control, yet the rigid compensation cap is under 8 million yuan, providing extremely weak risk coverage.
More critically, this 20% share compensation is not anchored to the transaction consideration but is based on the appraised value at that future time. If the target company's performance continues to underdeliver, its share appraisal value will likely shrink correspondingly, potentially making the actually enforceable compensation amount far lower than current estimates. The third clause of this performance compensation arrangement is even less binding.
"Third, if the aforementioned measures still prove insufficient to cover the compensation amount, Party A and Party D will engage in further negotiations, using Party D's revised salary assessment plan for fiscal year 2032 as a balancing supplement, with the specific amount, payment method, and execution conditions to be determined in writing upon mutual agreement at that time." This third clause resembles a non-binding letter of intent rather than an enforceable obligation. The specific amount, payment method, and execution conditions are all subject to "negotiation at that time," meaning compensation obligors could evade substantial compensation by refusing to negotiate or proposing unreasonable conditions upon triggering. This clearly contradicts regulatory requirements that "performance commitment parties must not alter their performance compensation commitments."
Notably, the target company has signed five-year employment contracts with core technical and management personnel, which will expire in 2032. If these contracts terminate in 2032 without renewal, Party D will no longer be employees of the target company, eliminating the subject basis for the so-called "salary assessment plan." Should compensation obligors refuse to fulfill negotiation obligations citing the absence of an employment relationship, the third compensation mechanism would completely fall through.