Wednesday, 11 May 2016

Unfair delistings

I often complained about minority shareholders in Malaysia being treated badly: relatively high IPO prices, low delisting prices, and in quite a few cases a high IPO price again at relisting.

I call it the "listing-delisting-relisting game", and some local tycoons are very good in playing it.

The main problem is the low delisting price, major shareholders wait until the price has dropped considerably, and then, under the threat of minority shareholders owning shares in an unlisted company, offer a low exit price.

In other countries things are not much better though, so it seems.

Article from Bloomberg:

"In $39 Billion China Buyout Spree, Latest Offer Angers Investors"

Some snippets (emphasis mine):

When Leo Ou Chen took his Chinese online beauty products retailer public in the U.S., investors clamored to pay $22 a share. Less than two years later, he’s offering a third of that price to buy them back.

The going-private offer for Jumei International Holding Ltd., the latest in a string of Chinese companies seeking to exit the U.S. stock market, is angering minority shareholders who say the low price benefits management to the detriment of equity owners. Chen and his partners have made a non-binding offer of $7 per American depositary share in cash, the company said on Feb. 17. They own 54 percent of the shares and have 90 percent of the voting power.

If the management-led buyout group is able to buy Jumei at such a steep discount, it will expose loopholes in the rules that are supposed to protect small investors and at the same time undermine confidence in other overseas-listed mainland companies, the minority shareholders say.

“I am angry, disappointed and disgusted,” said Ricky Zhong, an investment director at iMeigu Fund in Beijing. His firm specializes in investing in U.S.-traded Chinese companies and owns Jumei shares. “I’ve never seen so much backlash from investors for a go-private deal. Investors are hurt.”

While the offer from Chen, his co-Founder Yusen Dai and Sequoia funds is 27 percent above the average closing price over the previous 10 trading days, it is 68 percent below its initial public offering price of $22, which was above the high-end of the targeted range. Compared with its average trading during the past 90 days, the proposal is 11 percent cheaper, the second-lowest among 42 proposed going-private deals of U.S.-listed Chinese companies since January 2015, according to data compiled by Bloomberg. Only E-Commerce China Dangdang Inc. has a bigger discount of 16 percent.

Jumei held $402 million in cash or equivalent as of September, according to the latest filing. That is almost equivalent to the $467 million needed for the buyout group to acquire the remaining outstanding shares, according to data compiled by Bloomberg.

While minority shareholders are treated unfairly, they have very little influence in the going-private process, iMeigu’s Zhong said. Under the current law governing companies incorporated in the Cayman Islands, management-led buyout groups are allowed to vote on the deals. Management tends to hold controlling stakes, putting minority shareholders at disadvantage, Zhong said.

“Some people are greedy,” he said. “But it’s the flaws in the regulations that set the ugly side of human desire lose.”

Time to correct the flaws, it is long overdue.

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