Hong Kong’s market watchdog is being urged to intervene in a dramatic takeover battle after the chairman of Yingde Gases agreed to sell his shares partway through a bidding process in a form no other likely bidder can match.
Angry shareholders and other stakeholders are petitioning the city’s Securities and Futures Commission to block an agreement signed this week by Zhao Xiangti and the company’s two founders Zhongguo Sun and Trevor Raymond Strutt, to sell their shares to PAG Capital for HK$6 a share, giving the private equity group control of 42 per cent.
The deal, which valued the industrial gases group at $1.5bn, trumped a non-binding offer of HK$5.5 from US group Air Products.
Shareholders are upset because while the PAG deal lapses if a firm bid comes in at at least HK$6.30, that new bid must also precisely match the conditions of the PAG deal. The PAG offer did not carry the standard condition of being subject to approval from China’s Ministry of Commerce, which other likely investors would be obliged to include.
The language effectively blocks would-be bidders from topping the PAG bid.
Mr Zhao pledged his 12 per cent stake to PAG a day after the private equity group signed up the 29.48 per cent held by Mr Sun and Mr Strutt, the founders who were forced out of the company by Mr Zhao last November.
“There’s no advantage to [Mr Zhao] in signing this, so we don’t understand how he got roped into it,” said one shareholder. “Zhao could have just kept his cards in his pocket.”
Shares in Yingde jumped 17 per cent on news of the PAG deal on Wednesday and stood at HK$6.23 on Friday – implying investors are betting there is a strong chance the PAG offer will be topped.
“How can you be maximising value for shareholders in this process when you are delivering 42 per cent to PAG and you are the chairman of the board managing the sale process?” asked one complainant to the SFC, who thinks the deal has effectively created a false market in the shares.
Mr Zhao said in a statement to the stock exchange last month that a HK$6 offer — equivalent to 7 times its last 12 months operating earnings — would not represent full value for the company.
The pressure on the SFC to act comes as shareholders are due to vote next week on two motions at an extraordinary general meeting. One proposal seeks to remove Mr Sun and Mr Strutt from the board while the other motion, proposed by the pair, aims to oust Mr Zhao and four other directors.