Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Hello, is anybody home? Embroiled in a management tussle, it's perhaps understandable that Yingde Gases Group Co. isn't responding to a month-long $1.34 billion approach by Air Products & Chemicals Inc. But shareholders of China's biggest industrial-gas producer should find that silence hard to forgive.

Allentown, Pennsylvania-based Air Products has indicated it may up its HK$5.50 a share ($0.71) offer to HK$6.00, subject to satisfactory due diligence. (Yingde was also the target of a competing bid from a company called StellarS Capital that originally offered HK$3.20 to HK$4.80 per share, and then HK$4.50 a share, before having its advances rejected by the board earlier this month.) Air Products' first volley was a 41 percent premium to Yingde's shares at the time, and at Thursday's closing price of HK$4.71, still represents a 17 percent uplift.

Distant Memory
Shares in Yingde Gases haven't been anywhere near HK$6 in years
Source: Bloomberg

Yingde's response to all this has been muted. The company acknowledges it needs to settle its internal issues and has said it will consider setting up an independent board committee to look into Air Products' bid.

Resolving the executive scuffle won't be easy. Yingde's former chairman and another director, who together control about 29 percent of the stock, were removed from the board and made non-executive directors in early November. Yingde appointed replacements and, in a move that would have diluted the duo, announced plans to sell shares to Originwater Hong Kong Environmental Protection Co. The two men took the matter to court in the Cayman Islands, where Yingde is incorporated, and the planned placement was scrapped.

Meanwhile, shareholders in Yingde have been left hanging, making a joke of the stipulation in Hong Kong's takeover code that an independent board be formed to assess any deal "as soon as practicable."

Yingde should show its corporate-governance chops and start some meaningful dialogue, both with investors and with Air Products. Time is of the essence, considering Yingde's worsening financial position. The company's net debt-to-equity has soared and its 8.125 percent 2018 U.S. currency bonds traded as low as 77.8 cents on the dollar last month.

Debt Deepening
Yingde Gases' net debt-to-Ebitda has risen over the past eight years
Source: Bloomberg

Snagging Yingde would be a coup for Air Products, whose global competitors have been busy merging. If it does succeed, the U.S. firm will get a market leader with a slew of long-term customer contracts, some stretching to 30 years. Yingde would also complement Air Products, which has operations in Europe, the Middle East, Asia and Africa.

Fresh from striking a $3.8 billion deal to sell its chemicals unit, Air Products should have no problem stumping up the cash. It's just a shame for Yingde shareholders that their company doesn't appear to sense any urgency.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net