Jumei International, China’s fashion and lifestyle e-commerce platform, has delisted from the New York Stock Exchange following the completion of its privatization.
This is the first Chinese company delisted from the US markets this year. The lawyer who handled this deal says for some Chinese companies listed in the US, it may make more sense to be closer to the home market.
“I think from the investors’ perspective, the A-share market would be perceived as more attractive, in terms of investment or return of investment, etc., if they can get into the playing field of A-shares,” Stephanie Tang, head of private equity in Greater China at Hogan Lovells, told China Business Law Journal.
Tang said that most Chinese companies listed in the US are China businesses, with only a handful of big ones having international operations. Given China’s strong internal sufficiency capability during the pandemic, “close to the home market” is the mindset that many PRC investors have at the moment.
Apart from the trade war and pandemic, the scandal of Luckin coffee having faked its sales figures is another factor that has triggered the departure of Chinese companies from the US stock market, followed by US securities regulators’ warning to investors over Chinese company disclosures a few weeks later.
“Many Chinese companies listed in the US are suffering, from a public image perspective, because of Luckin,” said Tang. “It is hard to tell how long this negative impact on Chinese companies will last.”
Despite the turmoil, Tang said stock prices have dropped tremendously, offering a good window for buyout transactions. And US investors will still invest heavily in promising Chinese TMT companies. “The US will stay as an attractive venue for many companies that are currently listed, and a pipeline of companies with capital markets access plans,” she said.
Jumei is the first Chinese company in recent years to utilize the two-step merger structure to complete the privatization, in which the purchaser launched a tender offer followed by a short-form merger. It took three months from the announcement of the proposal by the purchaser until completion of the deal.
Hogan Lovells served as US counsel and Harneys as Cayman Islands counsel to the special committee of Jumei. Skadden served as US counsel and Conyers Dill & Pearman as Cayman Islands counsel to the buyer group.
Structure privatizations in Hong Kong
The cheap valuation of stocks in the US presents an opportunity for potential buyers, and the same is also occurring in Hong Kong, another hot venue for Chinese companies to list.
In Hong Kong, a privatization is effected by either a general offer (by the controlling or substantial shareholder, or by a third party), or a scheme of arrangement. Springland International, a Chinese retail company, recently announced its HK$4.5 billion (US$580,000) privatization by Octopus (China) by way of a scheme of arrangement under section 86 of the Companies Law of the Cayman Islands.
Kingsley Ong, a partner at Eversheds Sutherland who advised DBS Bank in the deal, says schemes of arrangement have been more popular than general offers in the past few years, and the success rate of schemes is marginally better than for general offers, although the suitability of each approach varies from case to case.
“Privatizations are highly price-sensitive, and it is essential that they are carefully planned and synchronized before any party goes public with any information,” said Ong. He stressed the importance of comply with the Code on Takeovers and Mergers in Hong Kong.