(Yicai) March 17 -- Xiangcai, the parent company of Chinese brokerage Xiangcai Securities, plans to merge with Shanghai DZH, an internet financial data and software firm, to form an internet-based securities company and bring to fruition a plan first broached 10 years ago.

Xiangcai will complete the merger by issuing shares to all DZH’s shareholders, the two companies said yesterday. Harbin-based Xiangcai will also raise additional funds by issuing more shares to support the development of the merged company.

Both firms have suspended their stock trading from today due to the significant uncertainty in the matter. On the last trading day, March 14, Xiangcai’s share price [SHA: 600095) finished up 2.5 percent at CNY6.89 (USD0.95), giving it a market value of CNY19.7 billion (USD2.7 billion). While DZH’s stock (SHA: 601519) climbed 4.8 percent to end the day at CNY9.01, giving it a market capitalization of CNY18.1 billion.

The two companies first tried to merge back in 2015, when DZH offered CNY8.5 billion (USD1.2 billion) to take over Xiangcai Securities. However, the deal was later blocked by regulators after DZH was found to have inflated its profits.

Xiangcai Securities then went public in 2020 through a backdoor listing of Harbin High-Tech Group which was renamed Xiangcai. That year, after the listing, Xiangcai purchased a 15 percent stake in DZH to become its second-largest shareholder.

Last month, DZH said that Xiangcai planned to pare its stake in the company by up to 1 percent within the next three months. At the time, Xiangcai’s stake had already fallen to 11.7 percent.

DZH's largest shareholder is its founder, Zhang Changhong, who resigned as chairman and general manager in 2016 due to the financial fraud scandal, but still owned 33.2 percent of the Shanghai-based company as of September last year.

Both DZH and Xiangcai have performed poorly recently. DZH is bracing for a net loss of between CNY190 million (USD26.3 million) and CNY225 million in 2024, which is a big turnaround from the net profit of CNY102 million it made in 2023, according to its earnings forecast released in January.

Xiangcai’s net profit dipped 3 percent in the first three quarters last year compared to the same period in 2023 to CNY146 million (USD20.1 million), while revenue plunged 17 percent to CNY1.5 billion (USD207.3 million), according to its previous financial reports.

Editor: Kim Taylor