BOARDROOM BATTLE
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Industrials

Yingde shareholders end board battle, paving the way for sale to PAG

Shareholders voted to retain Mark Sun Zhongguo and Trevor Strutt in Yingde, paving the way for a sale of China’s third-largest industrial gases supplier to Hong Kong buyout fund PAG Asia Capital.

PUBLISHED : Wednesday, 08 March, 2017, 6:32pm
UPDATED : Thursday, 09 March, 2017, 10:03am

Yingde Gases Group’s shareholders voted on Wednesday to end a four-month long boardroom tussle at China’s third-largest industrial gases supplier, ejecting their chairman and retaining two co-founders to the company to pave the way for a sale to a Hong Kong buyout fund.

Shareholders voted to restore Mark Sun Zhongguo and Trevor Strutt to Yingde’s board, ejecting chairman Zhao Xiangti, according to several directors familiar with the results of two back-to-back meetings at the Ocean Spring Grand Metropark Hotel in Zhuhai.

“They won, and I need to resign from the board,” Zhao said by phone, in response to the South China Morning Post. “I have tried my best to make the company better to benefit our employees, shareholders and clients. It’s time to step aside now.”

Asked if he’s disappointed by the outcome, he said that “results are results.”

The outcome ends an acrimonious tussle since November last year, when Zhao staged a boardroom coup to strip Sun and Strutt of their executive roles, in a rift over management style, communication miscues, strategies and a plan to sell control of the company to the highest bidder.

Sun and Strutt have a one-in-four chance of prevailing at this week’s showdown, but through a series of lawsuits and complaints to regulators, they outmanoeuvred Zhao to secure a takeover bid from a buyout fund that eventually persuaded Yingde’s shareholders to get on their side .

“I‘m happy that the shareholders have faith in Sun and myself,” Strutt told the Post after the results. “We will endeavour to achieve maximum value for all the shareholders.”

The outcome puts Hong Kong-based buyout fund PAG Asia Capital in pole position to take control of Yingde. The fund had made an offer to buy the Chinese company at HK$6 per share, valuing it at US$1.45 billion.

PAG’s offer is the sole bid on the table. Air Products & Chemicals Inc., based in Allentown, Pennsylvania, had expressed interest in December to bid between HK$5.5 to HK$6 per share for Yingde. The bid, still subject to due diligence and shareholders’ approval, had not been formally submitted.

Shares of Yinde rose 2.6 per cent to a 21-month high of HK$6.38 in Hong Kong before the vote results were announced. The stock had more than doubled since the boardroom coup last November that brought the fight into the open.

As many as 39 million shares changed hands Wednesday, 13 times the daily average turnover for the whole of 2016, as event-driven funds -- traders attracted to companies by significant events such as boardroom fights or management changes -- entered the fray. An estimated 15 per cent of the company’s shares are owned by such funds, Zhao said in an earlier interview.

Air Products has been conducting due diligence on Yingde for the past two weeks, as it seeks to combine its business with the Chinese company to supply oxygen and other industrial gases to steel mills and chemical plants.

Combined, Yingde and Air Products will have an estimated 22 per cent of China’s market share, making such a takeover the largest American acquisition of a Chinese business in a decade.

The combined entity’s market share would trail the 24 per cent share by the merger between Linde of Germany and Praxair of the US, according 2015 data by London-based consultancy Gasworld Business Intelligence.

PAG has US$16 billion of capital under management. The fund’s chief executive Shan Weijian declined to comment.

“We do this to win,” Shan said in a March 7 emailed statement quoted by Bloomberg. “We have spent millions of US dollars and a huge amount of resources between ourselves and our advisers for more than three months only because we plan and will win.”

PAG’s cash offer will stick as long as it and the parties acting in concert with it together own voting rights in more than 50 per cent of Yingde’s shares by the time the offer closes. To trump PAG, any fresh bid will need to be at least 5 per cent higher within the time limit, a tall order for companies who must

fulfil their fiduciary duties to shareholders with their due diligence, and have a reasonable confidence in clearing China’s antitrust and regulatory hurdles.

Zhao, Sun and Strutt late last month agreed to accept PAG’s offer to buy their combined 41.9 per cent stake. PAG currently owns 0.69 per cent, according to its statement.

Wednesday’s meeting was delayed by several hours, after a last-minute move by management to relocate it to a hotel from Yingde’s Zhuhai factory, citing security concerns by local authorities.

Additional reporting by Daniel Ren

This story has been corrected to amend the name of PAG in the 13th paragraph.

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