"Early Education First Share" Delisting "Hidden Situation"

On July 30, *ST Meiji (002621.SZ, hereinafter referred to as "Meijim"), known as the "first stock of early education", announced that the company's shares will be closed below 1 yuan for 20 consecutive trading days from May 16, 2024 to June 13, 2024.

According to the performance forecast for the first half of 2024 recently released by Meijim, the net profit loss attributable to the parent company is expected to be 60 million yuan to 90 million yuan. When explaining the reasons for the change in performance, the announcement said that the cash flow of Meijim centers across the country was tight, and the operating pressure and cash payment pressure were huge, and some Meijim centers had taken phased or permanent closure measures due to operational difficulties.

The reporter noticed that on the eve of the above-mentioned store closure measures, Tianjin Meizhimu Education Technology Co., Ltd., a subsidiary of Meijim, signed equity transfer agreements with a number of natural persons, and transferred the controlling stake of a number of Meijim franchised store operating entities to natural persons at a consideration of 0 yuan.

High-premium M&A "inside story"

The last "straw" that crushed MGM was the "Annual Audit Report" issued by Grant Thornton on the company's 2023 financial report with "no opinion", which pointed out that in 2023, the operation of MGM's franchise center will be difficult, the company will close 203 franchise centers, and the franchise fee and royalty collection cycle in the historical period will be extended year by year.

At the same time, Grant Thornton also stated that it could not evaluate the reasonableness of the impairment of assets such as the intangible assets of the listed company, such as the franchise rights and goodwill.

According to public information, the "predecessor" of Meijim in the capital market is the third base shares. In November 2016, Zhuhai Rongcheng Investment Center (Limited Partnership) (hereinafter referred to as "Zhuhai Rongcheng") became the owner of the third base shares. At the beginning of 2018, Zhuhai Rongcheng had a total of 65.25 million shares with voting rights in the third base through direct shareholding and voting rights entrustment, accounting for 29% of its total share capital, and the actual controller of the company was changed to Xie Zhikun.

In June 2018, Third Base Co., Ltd. purchased 100% of the shares of Tianjin Meijiem Education Technology Co., Ltd. (hereinafter referred to as the "target company") held by Huo Xiaoxin, Liu Junjun, Liu Yi, Wang Yan and Wang Shenbei by paying cash, and the unaudited net assets of the target company were 85.51 million yuan, and the transaction price was 3.3 billion yuan, with a transaction premium of 37.66 times.

After the completion of the acquisition, in April 2019, the third base shares were officially renamed Meijim, and Liu Junjun, the general manager of the target company, served as the director and general manager of the listed company Meijim; At the same time, the target company promised to achieve a net profit of not less than 180 million yuan, 238 million yuan and 290 million yuan from 2018 to 2020.

On July 30, a departing executive told the Economic Observer that the company's business difficulties are closely related to the complexity of its internal personnel and business composition. At the same time, he said that the biggest hidden danger when acquiring the target company in 2018 was that the actual operation right of the Meijim store business was still in the hands of Liu Junjun.

According to the relevant announcement, Liu Junjun has the right of permanent residence in United States, and he holds the franchise right of the United States early education brand "Meijim" and related trademark rights through the above-mentioned target company. In 2018 and 2019, the target company achieved a non-net profit of 191 million yuan and 238 million yuan respectively, stepping on the line to complete the performance commitment.

It is worth noting that the acquisition at a high premium of nearly 38 times also added 1.8 billion yuan of goodwill and 1.3 billion yuan of intangible assets to the consolidated statements of MGM. In 2020, the offline early education business was impacted, and the target company only achieved a non-net profit of 97 million yuan and did not complete the performance commitment of 290 million yuan. During the reporting period of 2020, MGM made an impairment provision of 285 million yuan for intangible assets and a goodwill impairment provision of 259 million yuan, and the net profit attributable to the parent company of the listed company plummeted by 499.41%, with a loss of 478 million yuan.

Not only that, affected by the decline in the performance of the target company, from 2021 to 2023, the net profit attributable to the parent company of MGM will lose 198 million yuan, 440 million yuan and 949 million yuan respectively.

"The contradiction between Liu Junjun and the company is very intense, according to the transaction agreement at that time, in order to avoid competition in the same industry, the 96 directly operated stores actually controlled by Liu Junjun and others need to be transferred to a listed company or a third-party company within three years, but in fact he did not do so." The above-mentioned outgoing executives told the Economic Observer reporter that the original shareholders of the target company violated their original commitments, and in 2021, the equity of Meijim's direct store was transferred to an overseas company controlled by Liu Junjun and others.

The reporter also noted that in May 2022, Meijim said in the announcement that the company learned through a third-party agency that the equity of the asset owner under the "Letter of Commitment to Avoid Competition" had changed, and in October 2021, the shareholder of the affiliated shareholding platform signed an equity transfer agreement with the overseas company Blue Skyline, and the transferor transferred the relevant equity to the transferee Blue Skyline at a transaction price of 0 yuan, and the controlling entity after the equity penetration has been changed to Blue Skyline。

Chen Xin, then chairman of MGM, participated in the merger and acquisition transactions of the above-mentioned target companies. According to the announcement, the appointed representative of Zhuhai Rongyuan Investment Center (Limited Partnership), one of the payers of the above-mentioned 3.3 billion yuan cash transaction, is Chen Xin. In August 2020, Meijim issued an announcement stating that Chen Xin resigned as chairman and director of the company for personal reasons and would not serve in the company after his resignation.

So, what is the real reason for Chen Xin's resignation? The reporter checked the information published on the China Judgment Document Network and found that there was a case that was "suspected to be highly related": On May 19, 2021, the People's Court of Dalian High-tech Industrial Park sentenced Chen to 10 years and six months in prison for accepting bribes from non-state employees.

According to the judgment, in October 2018, Dalian Company A signed an acquisition agreement with five shareholders of a limited company in Tianjin, which stipulated that Dalian Company A would acquire 100% of the shares of a limited company in Tianjin for RMB 3.3 billion. In December 2018, defendant Chen, then chairman of Dalian Company A, and Gongmou, then assistant to the president, agreed with the intermediary Wang Yi (Canada, not yet in the case) to demand 1% of the after-tax amount of the acquisition consideration from the five shareholders as an "intermediary fee", and the five shareholders were forced to transfer 18.28 million yuan to Wang Yi's account in five times under pressure. At the same time, the court held that Chen was arrested with the assistance of Gong XX, and it could not be determined that he had voluntarily surrendered.

In addition, the distant performance compensation of the above-mentioned target companies has also become an intensification point of conflict between the two parties to the M&A transaction. In June 2022, MGM announced that because the target company did not achieve its three-year performance commitment, the counterparty needed to pay 96.24 million yuan in compensation to the listed company, but the listed company did not receive the compensation, in this regard, MGM has filed an arbitration application with the Beijing Arbitration Commission.

As of press time, the above-mentioned performance commitment compensation has not yet been able to issue a final effective legal document.

In December 2023, MGM announced that the company's board of directors agreed to dismiss Liu Junjun as general manager, and after the dismissal, Liu Junjun will no longer hold any position in the company.

0 yuan consideration "golden cicada shelling"?

"The store was closed suddenly, the staff did not disclose any information to the parents of the students in advance, and nearly 1,000 parents were kept in the dark." On July 30, a parent of a student at the Beijing Xizhimen Kaidemao store told the Economic Observer that all of the Meijim franchised stores were required to pay tuition fees in advance through the prepayment model, and within a week before the closure of the above-mentioned stores, the sales staff still asked them to pay more than 10,000 yuan for the renewal fee, which has not been refunded so far.

On July 31, a parent of the Guangzhou AEON Mall store told the Economic Observer that the operators of a number of MGM franchised stores in Guangzhou have fallen into an abnormal state of operation, and even if the parents jointly sue the store operators, they may not be able to recover the unused prepaid class fees.

According to the national enterprise credit information publicity system, Guangzhou Meizhijie Information Consulting Co., Ltd. (hereinafter referred to as "Guangzhou Meizhijie"), the operator of the Guangzhou AEON Mall store, has been included in the list of abnormal operations, and its legal representative, Sui Wei, has been restricted from high consumption.

The reporter noticed that in September 2018, Guangzhou Meizhijie was funded and established by the above-mentioned target company, and in January 2022, the legal representative of Guangzhou Meizhijie was changed from Huo Xiaoping to Sui Wei. According to the information announced by Meijim, Huo Xiaoping and Huo Xiaoxin are sisters, and Huo Xiaoxin is one of the original five shareholders of the above-mentioned target company.

In addition, Grant Thornton Certified Public Accountants mentioned a detail in its 2023 audit report: between May and August 2023, Tianjin Meizhimu Education Technology Co., Ltd. signed equity transfer agreements with a number of natural persons, transferring the controlling stake in a number of Meijim franchised store operating entities held by it to natural persons at a consideration of 0 yuan.

According to the relevant announcement information, from 2021 to 2023, the total number of early education centers contracted by MGM will be 562, 479 and 281; As of the first half of 2024, the number of early education centers contracted by MGM is 210, a net decrease of 197 from the first half of 2023.