Jiang Xi, an Intern Reporter from Jianyanews Interface

As a veteran enterprise in the chlor-alkali industry, Yaxing Chemistry (600319.SH) has disclosed an elephant-swallowing snake style merger and acquisition.

On the evening of November 3, Yaxing Chemical announced that it plans to purchase the control rights of Tianyi Chemical, or simultaneously acquire the shares of the target company held by other shareholders, and also intends to issue shares to raise

On the same day, Yaxing Chemical signed an investment cooperation intention agreement with Shandong Tianyi Holding Group Co., Ltd. (hereinafter referred to as Tianyi Holding Group), intending to purchase the shares of Tianyi Chemical held by the latt

The transaction is still in the planning stage, and it is expected to constitute a significant asset reorganization and a related-party transaction. The shares of Yaxing Chemical will be suspended from trading starting from the opening of the market

On one side, there is Yaxing Chemical, an old state-owned enterprise in the chlor-alkali industry that has suffered consecutive years of losses, and on the other, Tianyi Chemical, a hidden champion in the bromine chemical industry. Can this transacti

Based in Weifang, Shandong, Yaxing Chemistry was founded in 1994 with the support of local state capital. It is a member of the Weifang Urban Construction Development Investment Group (hereinafter referred to as Weifang Urban Investment Group). The c

In the first three quarters of this year, Yaxing Chemical achieved an operating income of 641 million yuan, which was a 2.53% year-on-year decline. The company's net profit attributable to shareholders was -1.44 billion yuan, indicating a further exp

In the first three quarters, the cash flow generated from its operating activities was -5090.38 million yuan, reflecting insufficient capacity of its main business to generate cash flow.

The company's main business in the CPE market was oversupplied in the first half of this year, with intensifying industry competition that further compressed profit margins. This resulted in widespread pressure on production enterprises, according to

At the same time, the contradiction between supply and demand of hydrogen peroxide was prominent, and the whole industry struggled on the edge of profit and loss for a long time. Against the backdrop of oversupply, some enterprises either shut down o

The profitability of Yaxing Chemical has shown a declining trend for some time now.

Interface news inquiries about past years 'financial reports found that Yaxing Chemical's net profit has been declining continuously since 2022. The parent's net profit that year was 109 million yuan, a year-on-year drop of more than 40%.

By 2024, its parent net profit will drop to-97.0347 million yuan, a year-on-year drop of approximately 1624%.

Meanwhile, the gross profit margin of its chemical business has shrunk from 15.64% in 2022 to around 2.22% in 2023, and continued to hover at this low level in 2024.

Under the background of weak main business, Yaxing Chemical is in urgent need of new businesses to replace old ones, and has turned its attention to Tianyi Chemical in the field of fine chemicals industry.

Founded in 2001, Tianyi Chemical is known as the "hidden champion" in the domestic bromine chemicals industry. Its main products are bromine flame retardants, homogeneous ion membranes, water-based functional materials, and potash fertilizers. Some o

In contrast to Yaxing Chemistry, Tianyi Chemistry has strong profitability capabilities.

According to the announcement disclosed by Luxin Venture Capital in 2022 that a wholly-owned subsidiary transferred part of Tianyi Chemical, Tianyi Chemical achieved revenue of 1.638 billion yuan and net profit of 240 million yuan in 2021; from Janua

As of July 31, 2022, Tianyi Chemical had total assets of 1.823 billion yuan and net assets of 1.21 billion yuan.

In March 2024, Dong Yong, the general manager of Tianyi Chemical, told the media that they would strive to achieve a sales revenue of over 1.9 billion yuan and a tax payment of more than 80 million yuan throughout the year.

Despite being a rising star in the industry, its IPO journey has been rough.

Tianyi Chemical had signed a coaching agreement with Dongxing Securities in November 2022 to prepare for its listing on the A-share main board. However, at the end of 2023, Tianyi Chemical voluntarily withdrew its listing coaching registration.

According to local media reports, a document disclosed by Dongxing Securities in July of that year showed that the fund-raising issues in the history of Tianyi Chemistry were the key problems that needed to be solved during the coaching period. The c

In IPO review, the process of sorting out historical fund-raising events is complicated, which requires confirming their legitimacy, clarifying property rights, assessing value, and potential risks. Currently, domestic IPO reviews are becoming strict

Under this background, Tianyi Chemical began to seek new capital paths, resorted to listed companies, and achieved asset securitization in a curved way.

As a private enterprise, Tianyi Chemistry's acquisition by Yaxing Chemistry can also be regarded as finding a state-owned capital backer. The controlling shareholder behind Yaxing Chemistry is Weifang City Investment Group.

What are the chances of success in this transaction?

In addition to the huge disparity in profitability between the two parties mentioned above, this acquisition also faces multiple practical challenges.

The complex ownership structure of Tianyi Chemical adds uncertainties to the acquisition. Tianyi Chemical has up to 24 shareholders, with Tianyi Holding Group, the largest shareholder, holding 56.36% of the shares, followed by Shandong Hi-Tech Ventur

Among them, Weifang Huaiwei Talent Equity Investment Fund Partnership (limited partnership) is a subsidiary of Weifang City Investment Group, which is the controlling shareholder of Yaxing Chemistry. This relationship makes the current transaction a

The announcement of Yaxing Chemical mentioned or simultaneous acquisition of shares of the target company held by other shareholders, indicating that its acquisition scope may not be limited to control rights, which brings greater coordination diffic

The company also reminded in the announcement that as of now, the transaction is in the planning stage, the parties to the transaction have not yet signed a formal transaction agreement, and the specific transaction plan is still under discussion and

Capital pressure is another challenge faced by Yaxing Chemical.

In its 2024 annual report and 2025 semi-annual report, the company both warned of the risk of capital security.

In recent years, Yaxing Chemical has been promoting the construction of high-end new material projects such as PVDC and hexachlorocyclotriphosphazene, regarding them as business priorities and key to turning losses into profits.

According to the semi-annual report this year, the company's 45,000 tons/year high-end new material project, as well as the industrialization projects of 500 tons/year of hexachlorocyclotriphosphazene and 500 tons/year of benzisothiazolinyl chloride

In the first three quarters of this year, the company's projects under construction have increased by 196.33% compared with the same period last year. Yaxing Chemical indicates that the aforementioned two projects are planned to be put into operation

At the time of the project's completion, Yaxing Chemical's financial situation was tight.

As of the end of the third quarter of this year, Yaxing Chemical's monetary funds stood at only 61.4981 million yuan, while its short-term borrowings reached 671 million yuan, resulting in a significant funding gap. Additionally, the company's asset-

Regarding the specific strategic considerations of this acquisition, a journalist from Jiemianews called Yaxing Chemistry as an investor. The relevant staff said that the acquisition was a decision made by the company's leadership, and they were not

As of the suspension of trading on November 4th, the stock price of Yaxing Chemical was reported at 8.9 yuan per share, with a market value of 3.451 billion yuan.