(Yicai) May 26 -- Chinese central processing unit chip developer Hygon Information Technology plans to merge with its largest shareholder and key client, Dawning Information Industry, in a move aimed at speeding up the vertical integration of the industrial chain. The deal stands to benefit from new regulations that encourage public companies to boost their competitiveness through mergers and acquisitions.

To seize new opportunities in the development of the information technology industry, Hygon will acquire Dawning through a share swap and will issue new shares to raise supporting funds, both companies said in separate statements yesterday.

Due to the uncertainty surrounding the deal, both firms halted the trading of their shares starting today. Trading is expected to resume within 10 working days.

Hygon’s stock price [SHA: 688041] dipped 0.4 percent to close at CNY136.13 (USD18.98) on the last trading day, May 23, giving it a market capitalization of CNY316.4 billion (USD44.1 billion). While Dawning’s stock [SHA: 603019] slid 0.5 percent to end the day at CNY61.90 (USD8.63), with a market capitalization of CNY90.6 billion (USD12.6 billion).

Hygon mainly focuses on developing high-end computing chips. The firm, which was founded in 2014, went public on the Shanghai Stock Exchange’s Nasdaq-like Star Market in August 2022. The Beijing-based company’s net profit soared 75 percent in the first three months from a year earlier to CNY506 million (USD70.6 million), while revenue jumped 51 percent to CNY2.4 billion (USD334.6 million), according to its latest financial report.

Dawning was founded by the Institute of Computing Technology under the Chinese Academy of Sciences. The Beijing-based company specializes in the research and development as well as the manufacturing of supercomputers, data centers and storage systems. In the first quarter, its net profit surged 31 percent year on year to CNY186 million (USD25.8 million) while revenue climbed 4 percent to CNY2.6 billion.

Dawning held approximately 28 percent of Hygon's shares as of March 31, making it the largest shareholder. Dawning’s biggest stakeholder is an asset management company affiliated to the Institute of Computing Technology, which owns about 15 percent equity.

Since last year, Chinese regulators have been rolling out policies to encourage public companies to enhance their competitiveness through M&As.

On May 16, the China Securities Regulatory Commission released the revised Administration Measures for Significant Asset Restructuring of Listed Companies. The new measures aim to speed up the review process for M&A deals between listed firms by simplifying the process and cutting the review timeline to as little as 12 working days.

If the Hygon-Dawning deal goes through, it will mark the first merger between mainland-listed companies since the introduction of the new rules.

Editor: Kim Taylor