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China Property

China Vanke considers issuing new shares amid battle for control of company

Mainland’s biggest home builder says it plans to acquire another company via a share and cash deal

PUBLISHED : Tuesday, 29 December, 2015, 11:52am
UPDATED : Friday, 15 July, 2016, 10:32am

China Vanke says it may issue new shares to acquire a company, a move that could dilute the value of shares held by existing shareholders as a high-profile battle for control of the company being waged.

China’s largest home builder, which is listed in both Shenzhen and Hong Kong, said in a filing to the Hong Kong stock exchange on Tuesday it intended to acquire a company via a share and cash deal which might include the issue of new A shares or H shares.

It said it had signed a letter of intent on December 25 and was actively pursuing the arrangement, although it did not identify the company involved.

Vanke said it was also discussing a potential tie up with other vendors.

“The ultimate consideration of the transaction, the structure of the transaction and the actual scope of the target assets will be determined in accordance with the results of due diligence and valuation, and will be decided by the company and the potential vendor through negotiation,” it said.

Market sources said Vanke chairman Wang Shi would issue new shares to a friendly party supportive of existing management to block Baoneng Group, which has become Vanke’s largest shareholder, from taking control of the company.

The defender can try to dilute the acquirer by issuing new shares, but this is hard to do on short notice unless he can line up a sizable new buyer
Roy Smith, Stern School of Business

One source said Citic – which also owns a property portfolio on the mainland – was a potential ally sought by Wang, who had established a close relationship with the conglomerate.

Citic was unavailable for comment.

Roy Smith, a finance professor at New York University’s Stern School of Business, said the “defender” in a takeover battle had to line up the support of existing shareholders, which might mean some trade-offs, such as increase dividends.

“The defender can try to dilute the acquirer by issuing new shares, but this is hard to do on short notice unless he can line up a sizable new buyer, which may be the case here, who will have terms and requirements of his own,” Smith said.

The new share issuance would have to be approved by two thirds of the votes cast at an extraordinary shareholders’ meeting

As Baoneng’s stake already amounts to 24. 26 per cent, analysts said it would be a tough task for Wang to persuade other shareholders one by one to get support.

“The plan seems very hard to be approved considering the current share structure, and you cannot make sure all your supporters will attend the meeting,” an analyst said. “Wang may just use this proposal to buy time to negotiate with Baoneng.”

The chief financial officer at a mainland developer said shareholders would look at the issue price and the quality of the target company when deciding whether to support the acquisition. Meanwhile, it would take at least a month to hold a shareholders’ meeting.

Credit Suisse, which hosted two investor presentations by Vanke’s chairman on December 23, said Wang had pledged there would be no poison pill and that all shareholders’ interests would be protected.

Vanke requested a suspension of share trading in Hong Kong and Shenzhen on December 18, saying it planned to restructure its assets.

The takeover battle has heated up since December 4, when property and insurance conglomerate Baoneng, controlled by Yao Zhenhua, became Vanke’s biggest shareholder after its subsidiary Shenzhen Jushenghua and affiliate Foresea Life Insurance bought a combined 20 per cent stake in the country’s biggest homebuilder, which has since been raised to 24.26 per cent.

Anbang Insurance Group, a significant shareholder of Vanke, on Thursday expressed its support for Wang and his management team to run Vanke and fend off Baoneng’s hostile takeover bid.

The support of Anbang took the percentage of shares backing Wang to about 30 per cent. Wang has rebuffed Baoneng’s interest in Vanke, citing differences in corporate culture.

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