(Yicai Global) Oct. 11 -- Shares in Xinjiang Tianshan Animal Husbandry Bio-engineering soared as much as 13 percent today after a Chinese court ruled in favor of the cattle and sheep breeding company with regard to a CNY2.4 billion (USD373 million) merger and acquisition deal that went badly wrong.

Tianshan’s share price [SHE:300313] closed up 4.01 percent at CNY12.20 (USD1.90). Earlier in the day it had reached CNY13.29.

Daxiang Advertisement, its head Chen Dehong and secretary-general Chen Wanke were found guilty of contract fraud in a judgement issued by the Intermediate People's Court of Changji Prefecture in Xinjiang Uyghur Autonomous Region, Changji-based Tianshan said yesterday.

Daxiang was fined CNY10 million (USD1.6 million), Chen Hongde sentenced to life imprisonment and all his personal assets confiscated and Chen Wanke given 15 years in jail and fined CNY3 million (USD466,200). Some 37.28 million shares in Tianshan held by Chen Dehong and 78.35 million acquired by 35 shareholders of Daxiang must also be returned to Tianshan, the court said.

The first-instance ruling, whose exact execution is still uncertain, brings a measure of finality to an M&A deal that turned very sour. In 2017, Tianshan paid CNY2.4 billion to take over Daxiang to try and turn around its ailing profits. However, a year later, it turned out that Daxiang was not the profitable company it had claimed to be.

In December 2018, Tianshan accused Daxiang and Chen Dehong of manipulating their accounts to trick it into acquiring the company. According to Tianshan, they inflated bank deposits, deflated operating costs, invented accounts receivable, provided illegal guarantees and hid liabilities. As a result of this fraud, Tianshan accrued losses of CNY1.9 billion (USD295 million) in 2018. Chen and others involved in the case were arrested in February 2019.

Editor: Kim Taylor