Entering the year 2024, the A-share market has once again witnessed a divorce with a staggering price tag.

On January 23, 2024, Changchun High-tech (000661.SZ) released a report titled "Holding Situation of the Top Ten Shareholders and the Top Ten Shareholders with No Sale Restrictions," which indicated a change in the company's second-largest shareholder. On January 19, in the list of the top ten shareholders registered with the company, Wang Simian replaced Jin Lei as the new second-largest shareholder, with a shareholding ratio of 7.42%. Jin Lei's shareholding ratio in the company decreased to 1.14%, ranking eighth.

Public information shows that Jin Lei, born in August 1965, is currently 59 years old and serves as the general manager of Changchun Jin Sai Pharmaceutical Co., Ltd. (hereinafter referred to as "Jin Sai Pharmaceutical"), an important subsidiary of Changchun High-tech. His ex-wife, Wang Simian, is a director of Jin Sai Pharmaceutical.

According to previous announcements by Changchun High-tech, the company's shareholder Jin Lei and Wang Simian have completed the procedures to dissolve their marital relationship and have made arrangements for the division of shares. Jin Lei transferred over eighty percent of his shares in the company to Wang Simian. As a result, Wang Simian received a total of 30,014,100 shares. Based on the relevant share price, the corresponding book value exceeds 4 billion yuan.

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Data from Eastmoney Choice shows that on January 25, the total market value of 2,225 listed companies in the A-share market was below 4 billion yuan.

With a breakup fee exceeding 4 billion yuan, why did Jin Lei divorce? On January 12, during a telephone conference survey of Changchun High-tech by hundreds of institutions, one institution inquired about "the situation related to Jin Lei's divorce and the proportion of share division." In response, the company stated that over the past few years, the company has faced pressures such as transformation, and Jin Lei, leading the core management team of Jin Sai Pharmaceutical, has made great efforts for the company to successfully transform, but this has also affected his family.

As for the proportion of share division, the company responded, "The share division ratio is based on the family member situation of the relevant shareholders, considering the number of shares already held by the shareholders and the number of convertible bonds that can be converted in the future, and is an average distribution among four family members."

The A-share market has seen cases where shareholders of listed companies have used high-priced divorces as a way to indirectly reduce their holdings. Therefore, some investors question whether Jin Lei's divorce is for the purpose of indirectly reducing his holdings. Hou Dawei, a senior investment banker, told Caijing that, judging from the shareholding reduction restrictions released by Changchun High-tech, the division of Jin Lei's shares in Changchun High-tech did not deliberately evade the reduction restrictions.

Changchun High-tech told Caijing that there is no special design or special consideration for the occurrence of the (Jin Lei's divorce) related matters.

So, what can this divorce bring to Jin Lei? After the shareholding ratio drops below 5%, whether Jin Lei can become the target of subsequent equity incentives for Changchun High-tech, the market has different views.It is worth noting that Jin Lei holds 4.5 million convertible bonds of Changchun High-tech, which are subject to restrictive covenants. Specifically, the proportion of the company's shares he holds must be lower than that of the controlling shareholder, Changchun Chaoda Investment Group Co., Ltd. (hereinafter referred to as "Chaoda Investment"), and the difference in the shareholding ratio between the two parties must be ≥7%. Under this background, Jin Lei has significantly reduced his holdings in Changchun High-tech.

The breakup fee exceeds 4 billion yuan.

Following the completion of the share division due to divorce, Jin Lei is no longer the second-largest shareholder of Changchun High-tech.

After the market closed on January 11, 2024, Changchun High-tech announced that its shareholder Jin Lei and Wang Simian had gone through the procedures to dissolve their marital relationship by agreement and made arrangements for the division of shares.

According to the divorce agreement signed by both parties, Jin Lei intends to divide the 30.014 million shares of Changchun High-tech he holds, which is approximately 7.42% of the company's total share capital, to Wang Simian. Prior to this change in equity, Jin Lei held 34.6457 million shares of the company, accounting for 8.56% of the total share capital; Wang Simian did not hold any shares of the company.

After the aforementioned change in equity, Jin Lei's holdings in Changchun High-tech were reduced to 4.6316 million shares, with a shareholding ratio of 1.14%, and he is no longer a shareholder holding more than 5% of the company's shares.

This also means that the shares Jin Lei divided to his ex-wife Wang Simian are equivalent to 86.63% of the shares of Changchun High-tech he held.

Affected by the above news, on January 12, 2024, the stock price of Changchun High-tech fell by 6.3% to 125 yuan per share.

Changchun High-tech was once a high-priced stock in the A-share market, with its stock price once exceeding 500 yuan per share in 2021. Despite the recent continuous decline in the company's stock price, the value of the shares involved in Jin Lei's divorce mentioned above is still considerable.

On January 25, the closing price of Changchun High-tech was 124.02 yuan per share, with a total market value of 50.228 billion yuan. Based on this calculation, the book value corresponding to the 7.42% of the company's shares held by Wang Simian is approximately 3.727 billion yuan.According to the third-quarter report of Bio-Techne (688276.SH) for 2023, Changchun High-tech holds 41.54% of the company's shares. On January 25, 2024, the closing market value of Bio-Techne was approximately 21.736 billion yuan, and Wang Simian's indirect holdings in the company through Changchun High-tech were valued at about 670 million yuan on paper.

Based on the above calculations, on January 25, the combined book value of Wang Simian's direct holdings in Changchun High-tech and indirect holdings in Bio-Techne was approximately 4.397 billion yuan.

According to an announcement by Changchun High-tech, apart from serving as a director at Jin Sai Pharmaceutical, Wang Simian does not hold any positions in the company and is not involved in its production and operational management.

Previously, the A-share market has occasionally seen high-profile divorces among shareholders of listed companies, leading to market suspicions of indirect share reduction. On July 28, 2023, a responsible person from the China Securities Regulatory Commission (CSRC) stated in response to a journalist's question that major shareholders (i.e., controlling shareholders and shareholders holding more than 5% of shares) who allocate shares through divorce or similar means should continue to jointly comply with the relevant business rules regarding share reduction.

According to an incomplete statistics by Caijing, since 2023, including Zhou Hongyi, the actual controller of Qihoo 360 (601360.SH), eight shareholders holding more than 5% of A-share listed companies have been involved in share division due to divorce. After the share division, two shareholders' former spouses have reduced their holdings in the related companies, which are Huitian New Materials (300041.SZ) and Ke Xin Technology (300565.SZ).

In February 2023, Zhang Feng, a person acting in concert with the actual controller of Huitian New Materials, divided his direct holdings of 32.2195 million shares in the company to Yang Lianhua due to divorce. From June to July of the same year, Yang Lianhua reduced her holdings by 11.089 million shares through block trading.

According to an announcement by Changchun High-tech, after the aforementioned changes in rights, Jin Lei and Wang Simian, when calculated as shareholders, continue to jointly use the reduction quota stipulated for shareholders holding more than 5% of shares, and fulfill the pre-disclosure obligations for reducing holdings through concentrated competitive trading as shareholders holding more than 5%.

Jin Lei and Wang Simian have promised that after the change in shareholder rights, they will still act as persons acting in concert and will not reduce their holdings in Changchun High-tech stocks in any way within 12 months after completing the relevant procedures for non-transactional transfer of shares.

Changchun High-tech told Caijing that Jin Lei and Wang Simian, as persons acting in concert, should consult and express their opinions unanimously on matters related to the company's voting.

Can they obtain equity incentives?After the stakeholding ratio fell below 5%, there are divergent views in the market on whether Jin Lei can become a subsequent equity incentive target for Changchun High-tech. On January 26, 2024, Changchun High-tech announced that on January 24, the company had cumulatively repurchased 986,600 shares, accounting for 0.24% of the total share capital, through a dedicated securities account for repurchase, using a centralized bidding trading method, with a total transaction amount of 120 million yuan. With this, the company's repurchase plan has been fully implemented.

According to the company's share repurchase plan on January 20, the company intends to repurchase shares with 100 million to 120 million yuan, all of which will be used for the subsequent implementation of equity incentives for the core team of the company and its subsidiaries.

In the fourth quarter of 2023, Changchun High-tech also repurchased shares of the company. On October 27 of that year, the company repurchased 1.342 million shares through a centralized bidding trading method, with a total transaction amount of 200 million yuan. These repurchased shares were also used for the subsequent implementation of equity incentives for the core team of the company and its subsidiaries.

It is worth noting that Changchun High-tech has implemented equity incentives for the core management, technical, and business backbone of its subsidiary, Jin Sai Pharmaceutical.

In July 2022, Changchun High-tech released the "2022 Restricted Stock and Stock Option Incentive Plan (Draft)", proposing to grant a total of 4.04 million rights to the incentive targets, accounting for approximately 1% of the total share capital of the company on the announcement date of the incentive plan.

The plan initially proposed to grant no more than 380 incentive targets, all of whom are core management, technical, and business backbone serving at Jin Sai Pharmaceutical, excluding shareholders or actual controllers who hold more than 5% of the company's shares individually or in aggregate, as well as their spouses, parents, and children.

At that time, Jin Lei was a shareholder holding more than 5% of Changchun High-tech and was not an incentive target of the aforementioned equity incentive. After the divorce led to the division of shares, Jin Lei is no longer a shareholder holding more than 5% of Changchun High-tech.

According to the "Administrative Measures for Equity Incentives of Listed Companies" issued by the China Securities Regulatory Commission, shareholders or actual controllers who hold more than 5% of the shares of a listed company individually or in aggregate, as well as their spouses, parents, and children, shall not become incentive targets.

"From a purely textual perspective of the administrative measures, since Jin Lei has divorced Wang Simian and is no longer a shareholder holding more than 5% of the shares in aggregate with his spouse, his equity incentive is not subject to the above-mentioned provisions," Pang Shihao, the director of Shanghai Zhonglian (Tianjin) Law Firm, told Caijing. If one of the substantive purposes of their divorce is to evade the prohibitive provisions of equity incentives, their actions are invalid and should still be subject to the corresponding prohibitive provisions.In the view of lawyer Zang Xiaoli from Beijing Shi Ze Law Firm, although Jin Lei's shareholding has been reduced to 1.14%, after his divorce, he signed a "Consistent Action Agreement" with his ex-wife, and their shares should be calculated together. Neither of them should be eligible for equity incentives. "Otherwise, using divorce as an excuse, it would be very easy to circumvent this restriction."

Changchun High-tech told Caijing that the relevant equity incentive plan has not yet been determined, and the company will formulate the relevant plan according to the requirements of laws and regulations and the actual operating situation.

"The equity division this time has no impact on Jin Lei's role as the general manager of Jin Sai Pharmaceutical and his management of the company's operations," Changchun High-tech told Caijing. Jin Lei will continue to lead Jin Sai Pharmaceutical in advancing the implementation of subsequent industrial planning and corporate development layout, and will also continuously improve the management capabilities of the core management team.

As the main source of income for Changchun High-tech, Jin Sai Pharmaceutical has shown outstanding performance in recent years.

When Changchun High-tech acquired the shares of Jin Sai Pharmaceutical held by Jin Lei and Lin Dianhai, the two promised that Jin Sai Pharmaceutical would achieve a net profit of no less than 1.558 billion yuan, 1.948 billion yuan, and 2.32 billion yuan for the years 2019-2021, respectively, with a total net profit of no less than 5.827 billion yuan during the commitment period.

During the same period, the net profit of Jin Sai Pharmaceutical after deducting non-recurring gains and losses was 1.951 billion yuan, 2.743 billion yuan, and 3.723 billion yuan, with a cumulative net profit of 8.417 billion yuan, far exceeding the performance commitment.

In the first half of 2023, Jin Sai Pharmaceutical achieved a revenue of 5.139 billion yuan and a net profit attributable to shareholders of the listed company of 2.197 billion yuan, accounting for more than 100% of Changchun High-tech's net profit during the same period. During the same period, the above data of Jin Sai Pharmaceutical was far higher than that of another subsidiary of Changchun High-tech, Bai Ke Bio.

Before the divorce, Jin Lei had significantly reduced his holdings in Changchun High-tech shares.

Jin Lei has a close relationship with Changchun High-tech. From 2014 to 2017, he served as a director of Changchun High-tech. The company's 2017 annual report shows that Jin Lei held 39,000 shares of the company.In 2019, Changchun High-Tech purchased a 29.5% stake in Jin Sai Pharmaceutical from Jin Lei and Lin Dianhai through the issuance of shares and convertible bonds. After the completion of the asset acquisition, Changchun High-Tech held 99.5% of the shares in Jin Sai Pharmaceutical, and Jin Lei became the second-largest shareholder of Changchun High-Tech.

Changchun High-Tech's 2019 annual report indicated that Jin Lei held 11.51% of the company's shares, which was 7.29 percentage points less than the shareholding ratio held by the largest shareholder, Chaoda Investment.

It is noteworthy that during the aforementioned asset acquisition, Changchun High-Tech issued 4.5 million convertible corporate bonds to Jin Lei, with a conversion period from March 11, 2021, to March 10, 2026.

According to the 2022 annual equity distribution plan, Changchun High-Tech adjusted the conversion price of "Gaoxin Fixed Conversion," and the adjusted conversion price became 83.75 yuan per share, effective from April 28, 2023.

Based on the calculation of convertible share quantity = (convertible bond quantity × face value) ÷ conversion price, Jin Lei's convertible bond conversion quantity held in Changchun High-Tech is approximately 5.37 million shares.

However, there are restrictive clauses for Jin Lei's conversion of the aforementioned convertible bonds held in Changchun High-Tech: Jin Lei should maintain his shareholding ratio to be less than the shareholding ratio controlled by the company's controlling shareholder, and the difference in shareholding ratios between the two parties should be ≥7%. According to the company's 2022 annual report, the actual controller of the controlling shareholder, Chaoda Investment, is the Changchun New District State-owned Assets Supervision and Administration Commission.

Entering 2020, Jin Lei began to reduce his holdings in Changchun High-Tech shares.

From July 10, 2020, to December 16, 2020, Jin Lei cumulatively reduced his holdings in the company by 4.09 million shares through concentrated bidding and block trading, accounting for 1.01% of the company's total share capital.

From December 22, 2020, to May 20, 2021, Jin Lei cumulatively reduced his holdings in Changchun High-Tech by 8.0932 million shares through block trading, accounting for 2% of the company's total share capital.

During the aforementioned reduction period, Jin Lei cumulatively reduced his holdings in Changchun High-Tech by 12.1832 million shares. During this period, the lowest share price of Changchun High-Tech was 314.61 yuan per share. If the block trading was transacted at a 20% discount from the lowest price and all were calculated according to block trading, then the total amount of Jin Lei's reduction in the company's shares was approximately 3 billion yuan.It is noteworthy that on December 31, 2020, the Shenzhen Stock Exchange issued a decision to publicly censure Jin Lei for his actions. The reason was that on September 12 of the same year, Jin Lei, as the second-largest shareholder of Changchun High-tech and the director and general manager of Jin Sai Pharmaceutical, made statements to certain institutional investors regarding the operational performance of Jin Sai Pharmaceutical and his personal plan to reduce his holdings in Changchun High-tech. These statements were made without the company having disclosed any relevant performance forecasts and without pre-disclosure of the reduction in holdings, which had a significant impact on the trading price of the company's stock.

Following the reduction in holdings, the gap between Jin Lei's shareholding ratio and that of the largest shareholder has widened. The 2021 semi-annual report of Changchun High-tech shows that Jin Lei's shareholding ratio in the company has decreased to 8.5%, increasing the gap to 10.3 percentage points from the shareholding ratio of the largest shareholder.

Currently, after the division of equity due to divorce, Jin Lei directly holds 4.6316 million shares of Changchun High-tech. Calculated based on the closing price on January 25, the book value of these shares is approximately 574 million yuan.