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.

Here's the plot: Investors realize there's little joy in buying a Chinese company, even if it is best in field. As usual, regulators seem to have vanished into thin air. 

Players: people who run Yingde Gases Group Co., but don't own much of it; people who used to run Yingde, but still hold an interest in it; the Americans looking to buy Yingde in a $1.3 billion deal that would be China's biggest takeover in a decade.

Act 1: early November -- An audacious takeover, but not the conventional kind: In which the two men who founded Yingde in 2001 and turned it into China's biggest industrial gases firm, albeit one with lots of debt, are stripped of their executive powers. Sun Zhongguo, the former chairman and CEO of Yingde, and Trevor Raymond Strutt, the company's ex-chief operating officer, can only look on helplessly as they are both sidelined, despite their combined 29 percent stake. The pair agitate for their reinstatement, but new Chairman Zhou Xiangti has plans of his own. He unveils a share placement that would see a Chinese waste-water firm, Shenzhen-listed Beijing Originwater Technology Co., own the bulk of the stock, along with himself of course. 

Act 2: late December, early January -- Enter the suitors: In the midst of the boardroom turmoil, a mysterious bidder, known as StellarS Capital, comes into the fray, only to be superseded by Air Products & Chemicals Inc. The Allentown, Pennsylvania-based firm is offering HK$5.50 a share and has indicated it may go as high as HK$6.00 subject to satisfactory due diligence. Air Products' first volley is a 41 percent premium to Yingde's shares at the time. Yingde scraps the Originwater placement, so as to end any unnecessary speculation.

So Much Hot Air
A surge in Yingde's stock price since Air Products made its approach is beginning to taper off
Source: Bloomberg

Act 3: mid-February -- Yingde's on the block: In which the board says it hired Morgan Stanley as its financial adviser to evaluate possible offers, and will allow Air Products to conduct due diligence. Yingde also requests a standstill agreement from Air Products, preventing the U.S. company from buying Yingde's stock in the open market and putting off other prospective buyers.

Act 4: still mid-February -- You lied!: Air Products says that while it has indeed spoken with Yingde's existing board, it hasn't done any due diligence. So there's no way it's going to agree to a standstill. Yingde is quick to fire back. What about something more palatable, a three-month stop? According to Yingde, it's talked to Air Products three times since December but can only agree on letting them into the data room with a standstill. Air Products' offer, at 6.8 times the Chinese company's 12-month Ebitda, is "on the cheap," it says.

Big Deal
Air Products' offer for Yingde Gases would be the second-largest U.S. takeover of a Chinese company... if it happens
Source: Bloomberg
Note: Data does not include take-private transactions. Figures are for enterprise value.

Act 5: March 8 -- D-day: In which Yingde is scheduled to hold two extraordinary general meetings to decide who's in control: Zhou & Co., or Sun and Strutt. Stock in Yingde is dropping, but it's anyone's guess whether China's Ministry of Commerce would approve a takeover by an American company of a Chinese firm that's big in China and has onsite operations in the plants of many state-owned steel enterprises. The absence of Hong Kong's regulators in this corporate mess is also alarming.

Act 6: Wait, stop. For the sake of everyone, this comedy-drama has gone on long enough.

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