The acquisition of Tongjitang Chinese Medicines Company by Tonsun International, and the delisting of its American depositary shares (ADSs) from the New York Stock Exchange on 21 April, was the first take-private transaction to be effected under new Cayman Islands merger provisions introduced in 2009.
Tongjitang specializes in the development, manufacture, marketing and sale of modernized traditional Chinese medicine in China. The company’s delisting followed its agreed acquisition by Tonsun, a Cayman Islands exempted company controlled by Hanmax Investment and Fosun Industrial.
Under the merger agreement, each ordinary share in Tongjitang issued and outstanding immediately prior to the merger (except for ordinary shares and ADSs owned by Tonsun, Hanmax and Fosun) was cancelled in exchange for the right to receive US$1.125 per ordinary share and US$4.50 per ADS. The merger agreement was approved by Tongjitang’s shareholders on 31 March.
Baker & McKenzie acted as US legal adviser to Tonsun, Hanmax and Fosun. “This transaction opens the door for Cayman-incorporated companies that may be seeking a more flexible procedure for US delisting and going private,” said Scott Clemens, co-head of Baker & McKenzie’s US securities practice and a partner in the firm’s Beijing office.
Hogan Lovells acted as Hong Kong and New York law counsel to the lender, CITIC Bank International, and provided input on PRC-related matters. The Hogan Lovells team was led by the head of the firm’s Hong Kong banking practice, Gary Hamp. Hamp commented: “There are a number of potential transactions out there involving structures of this nature, and I am pleased that this deal has shown that such transactions are bankable in the current market.”
Walkers acted as Cayman Islands counsel to CITIC Bank International in connection with the acquisition.
Sheppard Mullin represented the independent committee of Tongjitang’s board of directors on the delisting and related financing, with a deal team led by partner Louis Lehot.
Following on from the 2009 merger regime, the Cayman Islands has recently enacted a new set of amendments to its Companies Law. According to Timothy Bridges, a Hong Kong-based partner at Ogier, the Companies (Amendment) Law, 2011 is the first part of a comprehensive review of the Cayman Companies Law, and updates and enhances the law in a number of respects.
“The main issues addressed include provision for the use of dual names by Cayman companies; the recognition of the requirements of stock exchanges in relation to maintaining share registers and effecting the transfer of title to listed shares; the provision for a company to maintain treasury shares; as well as making modifications to various existing provisions of the Companies Law including the merger and consolidation law and the law dealing with segregated portfolio companies,” said Bridges.
The provision allowing companies to adopt dual names will be of particular interest to Chinese companies. Previously, Cayman law required company names to be in the Roman alphabet. The new amendment allows companies to adopt an additional name in another script, including Chinese, Japanese, Cyrillic and Arabic. The extra name is not required to be a direct translation of the Roman name.