Retirement benefits business: acquisition of Chinese enterprises overseas reefs

Retirement benefits are often provided by Europe and the United States to a employee benefits, the cash flow its businesses, assets and liabilities as well as the level of profitability may have a considerable impact.

Recently, we glimpsed that Chalco (10.83,0.04,0.37%) Rio Tinto to invest 19.5 billion U.S. dollars to set up a junction project business and the subscription of convertible bonds, China Minmetals Group to purchase Australian dollars 2.6 billion financed the world’s second biggest zinc mine excavation enterprise – OZ Minerals Co. of Australia. In supplement, numerous vehicle businesses in China have been described interest in buying Ford’s Volvo vehicle emblems, as well as GM’s Hummer SUV segments.

Chinese enterprises to actively seek opportunities abroad, we must always pay attention to discovery and to guard against potential risks. Internationalization of Chinese enterprises is currently relatively low extent, to overseas, such as legal, financial, trade unions and human resources rules and many other poorly understood, so the acquisition should be very careful to avoid falling into a “trap.” This article will mergers and acquisitions of Chinese enterprises in overseas when a comparatively new area – the retirement benefits business to do the inspiring.

Many nations round the world, particularly Europe and the United States numerous businesses, due to chronicled causes often granted to employees to work out remedy kind (DB) retirement designs, encompassing retirement benefit and health benefits. And the United States in agreement with worldwide accounting measures obligations, enterprises need to be echoed in the economic declarations of the capital its retirement advantages (that is, assets and liabilities). China in 2007, the implementation of new accounting measures for retirement advantages in the remedy of workers is furthermore the identical with quotation to worldwide accounting standards. However, because numerous Chinese businesses did not supply remedy to work out kind of retirement advantages, or even if, welfare design liabilities are a somewhat little scale, so the most of enterprises in China in this consider do not have sufficient know-how, and not sufficient on this topic attention. Following the United States, GM and Ford Motors, for demonstration two to interpret the retirement advantages may have a foremost influence on businesses.

As can be seen from the table, which the market value of the two major car companies of its retirement benefits scheme is a small part of the balance, the deficit in the retirement plan is far more than its market value. From 1993 to 2007, General Motors spent a total of 103 billion U.S. dollars for its U.S. pension and retirement medical scheme contributions, an annual average of about seven billion U.S. dollars. It can be said that retirement benefits may be down U.S. auto companies, led to the decline in the competitiveness of an important factor.

In 2008 as a effect of the descent in worldwide store markets, primary to serious shrinkage of award assets. In augmentation, for the derived worth of award liabilities as a effect of the discount rate (based on high-quality company bonds or government bonds yield) impressively lessened the stage of a corresponding advance in liabilities, effecting in more financial gatherings in the award load on the rise. So be definite, the above-mentioned two greatest automobile financial gatherings in the U.S. retirement gains in the circumstances to decline farther in 2008.

Mercer recently for their pension schemes carried out in-depth research and measurement. Research shows that as at the end of 2008, the company’s pension scheme deficit (that is, liabilities than assets) the sum has reached 410 billion U.S. dollars. In contrast, by the end of 2007 to a surplus of 60 billion U.S. dollars. In accordance with the requirements of accounting standards, pension plan funding deteriorating situation needs to be reflected in the balance sheet of enterprises, which directly affects the decisions of corporate capital expenditure, loan contracts and credit ratings.

According to Mercer’s study displays that the S & P 1500 business the addition of the cost of retirement benefit designs in 2009 is anticipated to increase to 70 billion U.S. dollars (in 2008 about 10 billion U.S. dollars), producing in a down turn in the profitability of enterprises. Standard & Poor’s in 2007 the company’s 1500 snare earnings as the addition of 727 billion U.S. dollars, thus expanding the cost of retirement benefit designs would signify 60 billion U.S. dollars of the earnings of these businesses (2007 level) will be decreased by 8%.

In the merger and reorganization, the international practice is in M & A due diligence, through the actuarial liabilities of retirement benefits will carry out a detailed calculation of the liabilities of the current situation to make an accurate assessment. If the measured level of public debt and the seller on the enterprise’s financial statements reflect the discrepancies between the purchaser and the seller is allowed to negotiate on price. Liabilities as a result of the size of retirement benefits can be large, so estimates of liabilities can be a little out of price negotiations resulted in the great room. Many European and North American multinational corporations in the acquisition of Chinese companies often will investigate aspects of retirement benefits, so when Chinese companies are also going to need to have enough attention.

To sum up, Europe and the United States retirement benefits are often provided by the employee benefits, the cash flow its businesses, assets and liabilities as well as the level of profitability may have a considerable impact. Chinese enterprises in overseas mergers and acquisitions, we must have sufficient knowledge and understanding of, and may reflect the impact of the purchase price. Not because of their lack of preparation caused by M & A transactions can not be carried out smoothly, or after the transaction caused a lot of accidents.