Inner Mongolia Meng Dian's $5.3B Acquisition of Parent Company Assets Sparks Concerns Over Overpricing and Undervalued Share Issuance

On December 11, Inner Mongolia Meng Dian Hua Neng Thermal Power Corporation Limited's acquisition proposal will undergo regulatory review. According to the latest transaction draft, the purchase price has been reduced from 5.717 billion yuan to 5.336 billion yuan.

The deal has drawn market scrutiny for potential overpayment and undervalued share issuance. This constitutes a clear related-party transaction, as the acquisition targets - Zhenglanqi Wind Power and Northern Duolun - are both controlled by Inner Mongolia Meng Dian's parent company, Northern United Power Co., Ltd. (Northern Company).

Northern Company, directly held 70% by China Huaneng Group and serving as Inner Mongolia's largest power generator, stands as the sole counterparty in this transaction. Post-acquisition, its stake in Inner Mongolia Meng Dian will rise from 53.23% to 58.18%, significantly consolidating control.

Market concerns focus on the high valuation premiums - 106.18% for Zhenglanqi Wind Power and 78.74% for Northern Duolun, both assessed as of December 31, 2024. The payment structure includes 2.6655 billion yuan in cash for Zhenglanqi Wind Power, with the remaining 2.67065 billion yuan settled through share issuance to the parent company.

The 3.46 yuan/share issuance price, representing 80% of the 60-day average trading price, has drawn criticism from minority investors given the stock's December 10 closing price of 4.67 yuan and year-low of 3.51 yuan. While legally compliant, the pricing rationale remains debated.

Regarding performance commitments, Northern Company guarantees combined cumulative net profits of at least 2.683 billion yuan (2025-2027) if the deal closes in 2025. Notably, these projections fall below historical performance: Zhenglanqi Wind Power's 2024 net profit reached 649 million yuan versus promised annual average of 600 million yuan, while Northern Duolun's 344 million yuan 2024 profit exceeds its 285 million yuan commitment. This conservative outlook may reflect anticipated operational challenges including electricity pricing and utilization hours.