Do the three founders of the company at the heart of the biggest U.S. takeover in China for a decade know something no one else does?
The three, split between two factions that have been at each other's throats since November, said Wednesday they will sell their combined 42 percent stake in Yingde Gases Group Co. to PAG Asia Capital, a private equity fund.
The terms of the sale are especially curious: At HK$6 a share, the top end of the current informal approach by Air Products & Chemicals Inc., the binding PAG memorandum of undertaking is a done deal unless Air Products or another bidder comes up with a similarly binding bid at least 5 percent higher, or HK$6.30. A PAG deal would value Yingde at HK$11.34 billion ($1.46 billion), and the sale of the founders' stake would trigger a general offer because the transaction exceeds 30 percent of the equity.
For years, Yingde was a shadow of its old self as the commodity downturn hit earnings at the supplier of gases to steelmakers, and debt ballooned.
Then in November, Yingde Chairman Zhongguo Sun and Chief Executive Officer Trevor Strutt were kicked off the executive board. Zhao Xiangti, a third founder, took over as chairman and installed an executive of a Beijing wastewater firm as CEO.
Since then, it's been drama after drama. Air Products said in January it would bid HK$5.50, and as much as HK$6 depending on due diligence, while Yingde hired Morgan Stanley to sell itself. All of that revived Yingde's stock, which had struggled to breach HK$4.
Last week, the proxy adviser Institutional Shareholder Services concluded that neither of the brawling factions should be running Yingde, and the company needed a "fully independent board that could evaluate bids."
With the founders looking like they'll be out of the ownership picture, two extraordinary general meetings scheduled for March 8, to decide whether Sun/Strutt or Zhao should run the company, are fading into insignificance.
The bet smaller investors are making on Yingde now hinges on Air Products making a binding bid at HK$6.30 because it really wants Yingde, or taking PAG's HK$6.
Given that Yingde rose 90 cents to close at HK$6.23 Wednesday, shareholders seem to be holding out for more. But not only is a new bidder uncertain, there is the chance that Air Products will decide it doesn't want China's biggest producer of industrial gases after all, and refuse to commit to a binding bid. Or an even worse scenario: Air Products beats PAG with a higher offer, then gets rejected by Beijing.
Small shareholders may yet come out ahead, but they have every right to feel they've been mistreated as this saga unfolded.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
A binding offer or undertaking is one where the bidder commits to cash and terms, rather than just announcing its interest, as Air Products has.
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