Two acquisitions successively end the pan-entertainment transformation of Tianzhou culture and encounter "labor pains".

this year, Tianzhou Culture plans to wholly-own another game manufacturer to see science and technology for the first time, in order to improve the company's strategic layout in the pan-entertainment plate, and to form coordination with the magical era and Youlove network.

original title: Tianzhou culture pan-entertainment transformation encountered "labor pains": two acquisitions terminated one after another, performance growth slowed down and share prices hit a four-year low

"Editor's Note" along with the prosperity of the game industry, game mergers and acquisitions of listed companies have shown a blowout in recent years, among which there are not a few cross-border mergers and acquisitions. Tianzhou Culture, which is engaged in the publication and distribution of youth books, is one of them. Since setting foot in the game field in 2014, the company has been on the road of game merger and reorganization. Beijing Magic Times Network Co., Ltd. (hereinafter referred to as "Magic Times") and Guangzhou Youai Network Technology Co., Ltd. (hereinafter referred to as "Youai Network") have been acquired.

at the beginning of this year, Tianzhou Culture re-launched the acquisition strategy to achieve 100% control of Beijing first sight Technology Co., Ltd. (hereinafter referred to as "first sight Technology"), but the acquisition was recently terminated. At the same time, the after-effects of previous high-premium acquisitions are emerging. Due to the delay in the launch of new game products in the magical era, the flow of online game products has declined, Tianzhou cultural profits have declined, and its pan-entertainment transformation is experiencing "labor pains".

in 2014 and 2016, Tianzhou Culture acquired two game makers, Magic Times and Youai Network, for 1.254 billion yuan and 1.62 billion yuan respectively. This year, Tianzhou Culture plans to wholly control another game manufacturer to see technology for the first time, in order to improve the strategic layout of the company in the pan-entertainment plate, and to form coordination with the magical era and Youlove network.

but the 10-month restructuring plan ended in failure. On the evening of December 1, Tianzhou Culture announced the termination of the acquisition of first sight Technology. It is worth noting that in this restructuring plan, Tianzhou Culture originally planned to promote the acquisition of 100% stake in Beijing Qingyun Interactive Technology Co., Ltd., but because the parties finally failed to agree on important business terms such as performance commitment and transaction consideration, Tianzhou Culture issued an announcement in early July this year and decided to promote only the acquisition of first-time technology.

it is worth noting that the transformation from publishing media to pan-entertainment once gave Tianzhou Culture a taste of the game industry, but now its performance growth has begun to slow and its share price has fallen to a freezing point. Just last night (December 4), Tianzhou Culture announced that the controlling shareholders and actors intend to reduce their shares by no more than 6%.

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Unfortunately, the good times did not last long. Two years after listing, Tianzhou Culture caught up with the era when the traditional publishing media industry was in decline. In 2012, the company's net profit was only 19 million yuan, down 42.74% from the same period last year. In 2013, the operating performance improved slightly, with a net profit of 20.32 million yuan, up 6.96% from the same period last year, but compared with the net profit of 30.83 million yuan in the year of listing, it was still in the decline stage.

the flagging Tianzhou culture, in order to open up a new growth engine, began to spend a lot of money on mergers and acquisitions. On July 5, 2017, Tianzhou Culture issued the "preliminary Plan for issuing shares and paying Cash to purchase assets and raising matching funds" (hereinafter referred to as the "restructuring Plan"), which is intended to be priced at 1.178 billion yuan by the combination of cash payment and share issue. to buy 73% of the equity of first sight Technology, as the listed company already owns 27% of the shares of first sight Technology, the subject will become its wholly-owned subsidiary after the reorganization is completed.

data show that Chuanjian Science and Technology was founded on May 21, 2014, jointly established by natural persons Fang Xiaoqi and Ye Dongzan with a contribution of 7.9 million yuan and 2.1 million yuan respectively. In June 2016, out of consideration for the future business development of the company, Fang Xiaoqi, the controlling shareholder of science and technology, decided to acquire some shares in order to increase his control over technology. In this regard, Teng Weihua and Li Tao, shareholders of natural persons of science and technology for the first time, and Creative Power (Beijing) Network Technology Co., Ltd., Hangzhou Henghua Investment Co., Ltd., Shenzhen Molin and YouZong Network. The shares of 3.44%, 3.44%, 7.23%, 2.07%, 1.82% and 4.25% of the underlying company held by Fang Xiaoqi were transferred to Fang Xiaoqi at the transfer prices of 18.93 million yuan, 18.93 million yuan, 39.76 million yuan, 11.36 million yuan, 9.3 million yuan and 23.375 million yuan respectively. Based on this, it is estimated that the valuation of the first technology at that time was only 555 million yuan.

A year later, in June 2017, Fang Xiaoqi transferred 12% of the shares of the underlying company to Tianzhou Culture at a transfer price of 144 million yuan, when the valuation of the underlying company rose to 1.2 billion yuan. Shortly after that, Tianzhou Culture announced again that it would buy the remaining 73 per cent stake in Chunmian Technology at a price of 1.178 billion yuan. In other words, the valuation of first-time technology has nearly tripled in more than a year.

with regard to the termination of the acquisition, Tianzhou Culture said that it was due to great changes in the securities market environment and the failure of the company and the counterparty to agree on the core terms (transaction price and performance commitment, etc.) of the final transaction plan for this restructuring.

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The total revenue of the above five games accounted for 100.00%, 94.37% and 92.91% of business revenue in 2015, 2016 and January-April 2017, respectively. Among them, the agent game products are "Brothers of the three Kingdoms", "death Awakening", "indiscriminately bombarding the Records of the three Kingdoms" and "making evil tricks".

it is worth noting that the "three Kingdoms Brothers", as a product mainly operated by the first technology, was launched in August 2015. since January 2016, the game pipeline has dropped sharply, and in July of the same year, because the game pipeline is still in a state of decline (only 380000 in that month), the game stopped updating, and after stopping the update, the game recharge pipeline dropped further, and the recharge pipeline in April 2017 was only about 130000 yuan. Another game, "Devil trick", suffered a similar fate. The monthly flow of the game peaked at 20.26 million yuan in June 2016 and has been declining since then, reaching only 556000 yuan in April 2017.

at the same time, the research report of gamma data also shows that although the other two games of science and technology, the Annals of the three Kingdoms and the contract of the Holy Sword, contributed 85.5% of the revenue in the first four months of 2017, the revenue of these two products also declined to a certain extent a few months after their launch.

what is more serious is that the game "death Awakening" contributed 72.01 million yuan in revenue in 2016, accounting for 39.65% of the total revenue of first-time technology. However, due to the failure to get the version number, the game has stopped acting as an agent for the game since 2017.

on April 10, 2017, first sight Science and Technology received a decision on Administrative punishment issued by the Beijing Municipal Shijingshan District Culture Commission, because without approval, it published "death Awakening" online games on its website, ordered it to correct illegal acts, and imposed an administrative penalty of 5000 yuan. For the above violations, first saw Technology said that it was due to the negligence of the staff that they failed to close the download port of the "death Awakening" game in time on the operating website "16801 net".

in addition, in the reply to the inquiry letter about the reorganization of the Shenzhen Stock Exchange released by Tianzhou Culture on August 1, it was first seen that "Xuan Dou unparalleled", which was officially launched in April 2016, did not get a version number. On October 8 of the same year, "dazzling Dou unparalleled" stopped the game operation due to poor game operation data. "Xuan Dou unparalleled" is a game that has been published and operated before July 1, 2016. It has been in operation for a short time. For the first time, technology has not gone through the formalities for approval of the version number.

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as mentioned above, even though the game products of technology are "frequently happening", Fang Xiaoqi has previously promised that after the completion of this acquisition, the net profit of technology from 2017 to 2019 will be no less than 140 million yuan, 170 million yuan and 210 million yuan, respectively. If the transaction is postponed, it is promised that the net profit in 2020 will not be less than 240 million yuan. However, the reporter noted that according to financial data, from 2015 to 2016, the operating income of first sight Technology was 21.8502 million yuan and 182 million yuan respectively, and the net profit was-25.7219 million yuan and 71.951 million yuan respectively (unaudited). If you want to fulfill the performance commitment, the net profit growth of initial technology from 2017 to 2020 will be 94.58%, 21.43%, 23.53% and 14.29%, respectively.

and the merger of Tianzhou Culture and first sight Technology has also attracted the attention of Shenzhen Stock Exchange. in the reorganization inquiry letter, Shenzhen Stock Exchange asked Tianzhou Culture to explain the basis for setting the performance commitment amount of this transaction and its realizability.

in response, Tianzhou Culture responded that in view of the resource reserves, competitive advantages and market space of the industry in which science and technology has accumulated, it is clear that there are broad prospects for the development of science and technology and a strong ability of sustainable management of assets in the future. The performance commitment made by Fang Xiaoqi, the performance committer, on the basis of this reasonable expectation, is realizable. In view of the fact that the consideration obtained by Fang Xiaoqi in this transaction has a high performance commitment coverage in the last three years of the commitment period, and the proportion of share payment in this transaction is relatively high, at the same time, Fang Xiaoqi has certain economic strength, good personal credit and realizable performance compensation.

however, according to an industry insider who spoke on condition of anonymity, although several games that first saw technology are basically medium-level in the industry, the number of users has declined to a certain extent as the life cycle has shrunk, and the product itself does not have a particularly eye-catching IP blessing. Although the technology itself is good in terms of sustainable development, it may not be realistic to rely solely on the above games to achieve gambling.

and in the announcement to terminate the restructuring, Tianzhou Culture also mentioned that the two sides of the transaction failed to agree on the core terms of the restructuring (transaction price and performance commitment, etc.), making it difficult for the transaction to continue to be implemented.

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it is not the first time that Tianzhou Culture has set foot in the game field. As early as 2014, Tianzhou Culture spent 1.254 billion yuan to acquire the Magic Age. The evaluation report shows that as of June 30, 2013, the book value of the net assets of the Magic era was 56.977 million yuan, corresponding to the acquisition price, the premium rate of this M & A was as high as 21 times.

however, this M & A does bring performance growth when the main business of Tianzhou Culture is going downhill. According to the financial report, from 2014 to 2016, the Magic Times contributed 98.0898 million yuan, 154 million yuan and 163 million yuan to Tianzhou Culture's net profits, accounting for 82.95%, 87.18% and 66.8% of the total profits respectively.

mergers and acquisitions have led to the continuous growth of Tianzhou culture's revenue and profits, but the reporter has noticed that its performance growth has begun to slow. According to the financial report, Tianzhou Culture achieved a net profit of 118 million yuan in 2014, an increase of 481.86 percent over the same period last year, 176 million yuan in 2015, an increase of 49.01 percent over the same period last year, and a net profit of 244 million yuan in 2016, an increase of 38.22 percent over the same period last year. In the first three quarters of 2017, Tianzhou Culture achieved revenue of 517 million yuan, an increase of 41.81 percent over the same period last year, and net profit of 139 million yuan, an increase of 21.24 percent over the same period last year. In the third quarter of 2017 alone, the company achieved revenue of 154 million yuan, an increase of 22.88% over the same period last year, while net profit was 29.1012 million yuan, down 31.66% from the same period last year.

for the profit growth in the first three quarters of this year, the company explained that it was mainly due to the inclusion of Youai Network in the company's consolidated statements since September 2016. As for the decline in profits in the third quarter, on the one hand, due to the delay in the launch of new game products in the magic era, the flow of online game products has declined, resulting in a decline in business revenue compared with the same period last year; on the other hand, due to the strict implementation of the policy of "one teaching and one assistant" in Hunan, the company's traditional teaching and distribution business has been affected to a certain extent.

judging from the performance of the stock price, Tianzhou Culture fell by the limit on the day of resumption of trading on August 1 after being suspended for more than half a year, and fell by 42.68% in the following four months. Just yesterday (December 4), its share price hit 7.98 yuan, the lowest in nearly four years.

although Tianzhou Culture already had a 27% stake in first sight Technology before this reorganization, the successive termination of the acquisition of Qingyun Interactive and first seeing Technology also means that Tianzhou Culture's attempt to further layout the game distribution channel has encountered setbacks, and the layout of the whole industry chain from game research and development, distribution to operation will still take time. What are your plans for the next step? Tianzhou Culture told reporters, "there is no plan to be interviewed for the next step."

it is worth noting that the termination of this reorganization will lead to the loss of consolidated revenue and profits brought about by mergers and acquisitions of Tianzhou Culture. How to boost performance in this case is a major problem in front of Tianzhou Culture.

Edit: mary