Web Analytics
Register Login Subscribe
  • English
    • 中文 (Chinese (Simplified))
Resources
A-List lawyers Law firm directory
Law.asia home
Archive
.TV
Events
Jobs
About us
Contact us
Follow Law.asia
Our publications:
  • ABLJ
  • CBLJ
  • IBLJ
  • Menu
    • Sections
      • Business law digest
      • Cityscape
      • Deal digest
      • Dispute digest
      • Features
      • Lexicon
      • Market pulse
      • Practitioners’ perspectives
      • Prologue
    • Correspondents
  • Archive
  • .tv
  • Events
    • Our events
      • CBLJ Forum · Shanghai 2019
      • CBLJ Forum Beijing 2019
    • Other events
  • JOBS
  • GC Club
  • Subscribe
  • icon
    • Login
    • Register
English
  • 中文
Our publications
  • ABLJ
  • CBLJ
  • IBLJ
Home What's the deal? The homecoming
  • What's the deal?

The homecoming

30 June 2020
1279
0

A wave of Chinese stocks is poised to exit the US and seek capital back in Shanghai or Hong Kong, following recent fraud allegations of Nasdaq-listed Luckin Coffee and intensifying political tensions. Senior practitioners provide insights into the transactions that are fuelling their return

Navigation


Cayman Islands

Shanghai

Hong Kong

Cayman privatizations back in vogue

Privatizations of public companies incorporated in the Cayman Islands and listed on a major stock exchange are in vogue again for a variety of reasons, financial and regulatory. In the US, for example, the Holding Foreign Companies Accountable Act will prohibit trading in the shares of a company if the Public Company Accounting Oversight Board is unable to conduct an inspection of the audit papers of the company’s foreign auditor for three consecutive years. Chinese companies are a particular target.

stocks
David Lamb
Consultant
Conyers Dill & Pearman

Privatizations can be effected by: (1) a general offer and compulsory acquisition; (2) a scheme of arrangement; or (3) a long-form or short-form merger.

Long-form mergers have been the predominant method of taking a company private in US markets since the merger provisions were introduced in 2009. But a long-form merger, at least a cash squeeze-out merger, carries a high risk of dissentient shareholders applying to the Grand Court to have the fair value of their shares assessed by the court.

A short-form merger can be undertaken by the buying consortium forming a bid vehicle (Bidco), and the Bidco acquiring shares carrying at least 90% of the voting rights exercisable in general meetings of the target company. The Bidco will then become the parent of the target company and can effect a short-form merger, with the target company being the surviving company in the merger.

Under section 238(1) of the Companies Law, shareholders of the target are entitled to payment of the fair value of their shares, but only upon dissenting from a merger.

The advantage of the short-form merger is that shareholder approval is specifically not required (section 233(7) of the Companies Law), and so is not sought, and the statutory procedural requirements are very different from a long-form merger. There is no vote or decision from which shareholders can “dissent”, and none of the antecedent conditions that are required to be met to exercise appraisal rights in a long-form merger can be satisfied in the case of a short-form merger.

Appraisal rights do not stand in isolation and cannot be crafted out of thin air. Only a member – i.e., a person who is a shareholder entered in the register of members of the company pursuant to section 38 of the Companies Law – of a constituent company in a merger is entitled to an appraisal right. It does not include the holders of American Depositary Shares (ADS) or the holders of depositary instruments.

The exercise of a statutory right to effect a short-form merger, without appraisal rights, at a 90% threshold (albeit voting rights) is consistent with a compulsory acquisition following a general offer (90% acceptances) and to a scheme of arrangement (majority in number of members holding 75% in nominal value of the scheme shares), neither of which carry appraisal rights.

In a retreat from the dizzy days of an appraisal award being made at 235% of the merger consideration (in the matter of Shanda Games FSD 14 of 2016, 25 April 2017), perhaps some semblance of reality has crept into recent appraisal awards where, in one case, the fair value was found to be a mere 1.2% over the merger consideration (in the matter of Qunar, 2019) and a minority discount might be found to apply (Maso Capital Investments Ltd & ors v Shanda Games Ltd [2020]).

However, as the author perpetually stresses, each determination of fair value is highly dependent on its own facts, and upon agreement or disagreement of the valuation models or their components by the valuation experts in each case. Valuation cases do not necessarily form transferable precedents.

From a buy-side perspective, short-form mergers are therefore highly attractive, since they may eliminate the tail-end price risk associated with buying out dissentient minority shareholders at a price which, if applied to the buy-side generally, would potentially make the pricing for the privatization unrealistic.

One example of a short-form merger is the privatization of Jumei International Holding, which was listed on the New York Stock Exchange (NYSE). There have been other public company short-form mergers, but the Jumei transaction is the first two-step merger in the Cayman Islands.

Jumei had a dual-class share structure with the buying consortium holding class B shares (10 votes per share) representing approximately 44.6% of the issued shares and carrying 88.9% of the votes exercisable in general meetings.

The buying consortium had to acquire further shares so that it held at least 90% of the total voting rights to effect the short-form merger. A general offer (the first step) was therefore made for all the issued class A shares (one vote per share) of Jumei, with an acceptance condition that required the tender of sufficient class A shares to enable the buying consortium to hold at least 90% of the total voting rights exercisable in general meetings.

The offer price represented a premium of 14.7% to the closing price of Jumei’s ADS on the NYSE on the last trading day prior to the announcement of the going-private proposal, and a premium of 29.3% to the closing price of Jumei’s ADS on the last trading day prior to the execution of the merger agreement.

After completion of the offer, the remainder of the shares not tendered to the offer were cancelled in a short-form merger (the second step) for the same price as the offer price. Appraisal rights did not apply. Two-step short-form mergers are here to stay.

David Lamb is a consultant at Conyers Dill & Pearman, and acted as the leading Cayman counsel for the buying consortium in Jumei’s privatization. He can be contacted on +852 6469 3377 or by email at david.lamb@conyers.com


Return of red chips and qualification of VIEs

Recently, issues related to the removal of the variable interest entity (VIE) structure, which was very popular five years ago, have received renewed attention. On the one hand, the attraction of the domestic capital market to enterprises has increased. With the good wealth effect of the Shanghai Stock Exchange Science and Technology Innovation Board (Star Market), the promotion of a Growth Enterprise Market (GEM) registration system, and resilient valuations under the COVID-19 pandemic, the domestic A-share market has become a safe harbour as a capital market of global funds.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.

你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章,欢迎成为我们的订阅会员成为我们的订阅会员。

已有集团订阅,可点击此处继续浏览。
如对集团订阅感兴趣,请联络我们。

Username:
Password:
Lost your password?
  • TAGS
  • AnJie Law Firm
  • Cai Hang
  • Companies law
  • Conyers Dill & Pearman
  • COVID-19
  • David Lamb
  • M&A
  • Star Market
  • Stock market
Previous articleOver the peak?
Next articleManaging a crisis
Putro

RELATED ARTICLESMORE FROM AUTHOR

Haidilao restaurant spin-off Super Hi lists on HKEX
Market pulse

Haidilao restaurant spin-off Super Hi lists on HKEX

Zhong Lun hires trio to strengthen Beijing and Chengdu teams, Ricky Zhou, Wang Feng, Lu Qunwei
Market pulse

Zhong Lun hires trio to strengthen Beijing and Chengdu teams

Saudi Arabia new Companies Law
Zhong Lun Law Firm

Saudi Arabia promotes investment with new Companies Law

By Wang Jihong and Zhao Huiqi, Zhong Lun Law Firm 

MOST POPULAR

CFOTY-featured-img-1

China Business Law Awards 2022

China Business Law Journal reveals the law firms that have excelled in the past year

15 June 2022
Artboard 1 copy 2video

What does it take to be a top lawyer?

We asked some of our elite A-list lawyers to provide us with keywords that others might use to rise to the top of their game

7 June 2022

In-house Counsel Awards revealed

After months of intensive market surveys and research, China Business Law Journal's editorial team unveils our In-house Counsel Award winners

6 June 2022
China Business Law Journal reveals the law firms that have excelled in the past year
A-List lawyers share strategies for success
After months of intensive surveys, we reveal the winners of our In-house Counsel Awards 2021-22

CORRESPONDENTS

Commissioned authentication before patent litigation

Commissioned authentication before patent litigation

By Chen Jian, Wan Rui Law Firm
6 February 2023
compulsory liquidation procedures of funds

Procedure for compulsory liquidation of partnership PE funds

By Zhu Rui and Qin Yu, Grandway Law Offices
31 January 2023
Game changer for trade secret infringers

Article 32 a game changer for trade secret infringers

By Chen Zhixing and Lan Manfeng, AnJie Broad Law Firm
23 January 2023

FEATURES

Cross-border guarantee disputes

Rules of judgment determining cross-border guarantee disputes

3 February 2023
Judgment assesses nature of PPP agreements

Judgment assesses nature of PPP agreements

25 January 2023
Hong Kong arbitration case based on defective clause

Hong Kong arbitration case based on defective clause

25 January 2023

PRACTITIONERS' PERSPECTIVES

Which lawsuit to remedy land use rights disputes?

By Chen Zhuo and Qin Zhuan, Tian Yuan Law Firm
30 January 2023

Listed company reorganisations and frontier legal issues

By Xu Shengfeng, Zhong Lun Law Firm
23 January 2023
Using disposal of non-performing assets method to resolve problems in claims recourse

Using disposal of non-performing assets method to resolve problems in claims recourse

By Chen Zhuo and Wang Hao, Tian Yuan Law Firm
9 January 2023

Lexicon

Lexicon

Judges and retirement

31 January 2023
LAW.ASIA

Asia’s leader in legal intelligence

Law.asia is the digital home of Asia Business Law Journal, China Business Law Journal and India Business Law Journal and a wealth of other resources for Asia-focused in-house counsel and lawyers in private practice. It is produced by Vantage Asia Publishing Limited, an independent media company based in Hong Kong.
Follow Law.asia
Law firm directory A-List lawyers Events Legal jobs • Post a job
About us Archive Archive Archive Archive Subscribe Contact us
Please send any press releases, deal announcements, details of new hires, newsletters and any other news items to: news@law.asia
  • Policy on advertising & sponsorship
  • Terms & conditions of use
  • Privacy Policy
© Copyright © 2022 Vantage Asia Publishing Limited. All rights reserved.
Imagined by DOOD Website Design

Join our mailing list for legal news and alerts

Sign up