Sina Accused of Inaccurate Claims as Proxy Fight Heats UpBy
Aristeia Capital fires back at company in shareholder letter
Investor nominating two for Sina board at Nov. 3 meeting
“We are deeply disappointed that many of our constructive ideas and suggestions to maximize shareholder value at Sina have been disingenuously distorted by the company,” Aristeia partner Robert Lynch wrote to Sina shareholders Thursday in a letter obtained by Bloomberg. Sina owns a controlling stake in the Chinese Twitter-like service Weibo Corp.
Aristeia said last month that it had acquired a 4.2 percent interest in Sina and will nominate two board candidates at the company’s Nov. 3 annual general meeting. Aristeia contends Sina needs outside voices to address what the activist investor calls poor corporate governance and the gap between its share price and the valuation of its underlying assets.
Sina’s letter to shareholders earlier this week was further proof of its unwillingness to engage productively with shareholders, Lynch alleged in Aristeia’s letter.
“It is quite telling that despite all of Sina’s misleading commentary, it has not offered any specific rebuttal of our criticisms of its corporate governance weaknesses,” Lynch wrote. “This simply underscores the dire need to improve governance practices at Sina.”
A representative for Sina declined to comment.
Aristeia says its nominees would help break the company’s insular culture and unlock value at Sina, which it says trades at a $6 billion discount to its net assets. The investor notes that the company’s 46 percent stake in Weibo alone is worth more than Sina’s total market value. It’s urging Sina to explore options for all or some of that stake, as well as other ways to unlock value.
In its letter to shareholders Tuesday, Sina said its nominees for the board have the necessary experience to navigate the complicated Chinese market. The Beijing-based firm argued Aristeia was looking for “financial engineering maneuvers” that would introduce substantial risk. It also said ownership regulations in China and other negative tax issues would hamper many of the suggestions put forth by Aristeia to unlock value, and that the investment firm’s nominees lacked experience.
Aristeia countered that both nominees, Tom Manning and Brett Krause, have extensive experience in Asia including a “deep understanding” of Chinese culture, its markets and the technology industry in particular.
“Sina’s attempts to characterize Aristeia’s nominees as lacking understanding of the Chinese market smack of xenophobia and are inconsistent with the necessary values of a U.S.-listed company,” Lynch wrote.
Bank of America analyst Eddie Leung, without speculating on the outcome of the proxy fight, said it could be a positive development for Sina.
“The recent debate on the valuation gap between Sina and Weibo might also provide an extra driver for Sina to improve its non-Weibo businesses,” he said in a note to clients.
Leung took issue with Sina’s suggestion that the distribution of Weibo shares would have overly negative tax implications for investors.
“Our suggested distribution is identical to Sina’s previous actions –- it would have the same exact tax consequences as the Weibo distributions that the company has voluntarily enacted twice in the past -- and in which U.S. investors participated,” he said.
Sina is Aristeia’s first proxy fight. The investment firm, based in Greenwich, Connecticut, took the rare step of targeting a major Chinese company after several months of trying to engage it in discussions.
Aristeia was founded in 1997 by Lynch, Anthony Frascella and Kevin Toner. In addition to its founders, William Techar is also a senior partner at the firm. Its investors include pension plans, endowments, foundations and other institutions and private clients. Aristeia invests in public and private companies across a wide variety of sectors and securities and typically works constructively with companies to maximize returns for shareholders.