Breakingviews - China’s lengthening lowball list lures lawyers

A worker takes vaccine vials to inspect at the workshop of vaccine maker Wuhan Institute of Biological Products in Wuhan, Hubei province, China May 26, 2010. Picture taken May 26, 2010. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. - RC1304F25BA0

HONG KONG (Reuters Breakingviews) - A lengthening list of lowball offers for U.S.-listed Chinese companies could provoke a healthy legal feeding frenzy. China Biologic is the latest take-private target facing an underwhelming bid. Dockets in the Cayman Islands, where most of the entities are domiciled, are filling up with shareholder complaints about similar deals. Hopefully miring buyers in lawsuits will encourage future acquirers to pay more up front.

A group including Chinese private equity shops Centurium Capital and Hillhouse is buying the plasma producer for $120 a share, or $4.8 billion. The deal was first mooted in September 2019, and while the price hasn’t changed since then, the group’s shareholding has since exceeded the two-thirds needed to ram the deal through.

Minority shareholders are probably irate. The buyers argue weakness in plasma prices means China Biologic is better off held privately. That seems a stretch. Peers Boya Bio-pharmaceutical and Hualan Biological Engineering are trading in Shenzhen on 39 and 41 times forecast earnings, per Refinitiv. Strip out net cash, and China Biologic shareholders are being offered 19 times.

Should minorities sue, it will take about two years to reach trial. The three biggest recent Chinese cases that have gone before a Caymans judge each resulted in a higher payout for dissenting investors, although the size of the awards varied wildly. Not everyone is treated equally either: only the shareholders in the suit get any upside that’s awarded.

This year’s pipeline suggests Caymans lawyers will remain busy. The $9 billion delisting of classifieds site in June, for example, went ahead against the recommendation of proxy advisors ISS and Glass Lewis. In July, internet portal Sina agreed to a $2.7 billion take-private even though the value of its stake in Weibo, China’s Twitter equivalent, exceeds the offer price for the entire company.

Plaintiffs range from outraged long-term investors to greenmailers to merger specialists testing their knowledge of well-established U.S. law in the English law-based Caymans. They don’t usually have the greater good in mind but as a nuisance to the new owners, their lawsuits can hold up future plans like relisting. If that pushes buyers to pay more upfront, that would benefit everyone.


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