3. Elimination of related party transactions and of intra-group competition.
4. Consolidation and simplification of management structure and efficiency improvement.
Reasonable Valuation: A Win-Win Transaction
The cancellation price of HK$10.60 per ZRCC H share is a reasonable price for both Sinopec Corp. and ZRCC.
To the shareholders of Sinopec Corp, as the implied P/E and the EV/EBITDA multiple based on the cancellation price for ZRCC is reasonable. Moreover Sinopec Corp. believes that the merger should have a positive impact on Sinopec Corp's profitability as well as shareholder value.
To the shareholders of ZRCC, the cancellation price of HK$10.60 represents a reasonable premium to the historical market price of ZRCC. It represents a premium of 12.17% over the closing price of HK$ 9.45 per share on November 2, 2005. It also represents a premium of 22.93% and 29.91% over the average closing price of HK$8.62 per share over the last month, and the average closing price of HK$8.16 per share over the last 12 months respectively.
Total outstanding number of shares of ZRCC is 2,524 million. Of which, Sinopec Corp. holds 1,800 million shares, accounting for 71.32% stakes. The public holds 724million shares, accounting for the remaining 28.68% stake. This merger proposal will be implemented by way of “merger by absorption”.
First, Sinopec Corp will set up a wholly-owned subsidiary, Ningbo Yonglian. Ningbo Yonglianwill enter into a merger agreement with ZRCC. The completion of the merger will be subject to the approval by shareholders at the general and independent shareholder meetings.
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