Yingde Gases shares surge on takeover approach by American rival Air Products

The second potential takeover bid for Shanghai-based Yingde comes amid a bitter dispute between two groups of current and ousted directors

PUBLISHED : Monday, 09 January, 2017, 3:24pm
UPDATED : Monday, 09 January, 2017, 11:22pm

Shares of Yingde Gases Group, one of China’s largest suppliers of industrial gases to the steel and chemical sectors, have risen as much as 22 per cent to their highest in a month, after the company said American rival Air Products had expressed an interest in taking it over.

It is the second potential takeover bid Shanghai-based Yingde has received recently and comes amid a bitter dispute between two groups of current and ousted directors over the introduction of a Shenzhen-based firm in an unrelated business as a shareholder to help it repay debt.

Pennsylvania-based Air Products sent each of Ying’s board directors a letter expressing an interest in buying the company with a cash offer just over a week ago, Yingde said in a filing to Hong Kong’s bourse on Monday, adding the interest is “non-legally-binding.”

“The majority board [excluding ousted chief executive Sun Zhongguo and former chief operating officer Trevor Strutt] considers that while it is not appropriate to disclose further details at this stage, it would be prudent to hold a board meeting on [Tuesday] to consider the same,” Yingde said.

Air Products also issued a statement saying the expression of interest is “preliminary” and is “subject to the satisfaction of certain conditions described in the proposal letter” without elaborating on the conditions.

Yingde in early November re-designated Sun and Strutt from executive to non-executive directors, citing their “unsatisfactory performance”. Sun’s chief executive position was taken up by He Yuanping, chief financial officer of Shenzhen-listed waste-water treatment firm Beijing OriginWater Technology.

Yingde’s board in November proposed selling new shares to OriginWater that could raise its stake from 4.21 per cent to 20.17 per cent, making it Yingde’s largest shareholder.

The idea was opposed by Sun and Strutt, who proposed convening an extraordinary shareholders’ meeting to remove Zhao and He from the board and to reinstate their own executive roles.

They claimed their removal had been approved at a board meeting held deliberately in their absence.

Yingde’s spokesman said the board’s legal advisor had confirmed the “legality and fairness” of the board meeting in question.

The proposed shares sale to OriginWater was subsequently scaled back so that the latter would only have a 12.9 per cent stake in Yingde, compared to 17.9 per cent by Sun, Zhao’s 11.2 per cent and Strutts’ 8.86 per cent.

The Securities and Futures Commission has taken a “preliminary view” that OriginWater and Zhao are parties “acting in concert.”

This means their stakes will be added together when securities regulators consider whether their combined stake exceeds the 30 per cent threshold for a mandatory offer to buy shares they do not already own. Under the scaled-back shares sale to OriginWater, the threshold will not be reached.

In the meantime, Stellars Capital (Hong Kong) expressed via two letters to Yingde’s board an interest in making a “possible general offer [to buy all of the firm’s shares]” late last month.

The Yingde board - excluding Sun and Strutts - claimed the offer was not bona fide, since Stellars was only incorporated on December 21, a day before the first letter was sent, and its registered office was occupied by an accountancy firm that provides company secretarial services.

Details of Stellars’ background are scant. Its sole director is Zhang Mao who owns 50 per cent, with the other half owned by FreeS Partners, Yingde said.

A board meeting will be held at 9am Tuesday to consider the proposed shares sale to OriginWater and the takeover approaches from Stellars and Air Products. Sun and Strutts earlier won a court order banning the board from holding meetings without giving them seven days’ notice, and from issuing additional shares.

According to Yingde’s interim report, it sourced 83.7 per cent of its revenue in the first half of last year from on-site sales of gases such as oxygen, nitrogen, and hydrogen, while 9.7 per cent came from so-called “merchant gas” sold in containers and delivered by trailers.

Air Products entered the mainland China market in 1987 with a plant to supply Anshan Iron and Steel, one of the nation’s largest steel makers, according to its web site.

It has since invested over 8.2 billion yuan and set up more than 48 joint venture and wholly-owned companies in the nation, it said.

Yingde shares traded as high as HK$3.50 Monday morning and changed hands at HK$3.33 at 2:48pm. Trading resumed on Monday after a prolonged suspension on December 23.