Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>Nearly a year after Chinese search-engine <a href="https://www.smartkarma.com/entities/sogou-inc" target="_blank" data-smartkarma-citation="entities:25996:1" rel="noopener">Sogou Inc (SOGO US)</a>  <a href="http://ir.sogou.com/2020-07-27-Sogou-Announces-Receipt-of-a-Preliminary-Non-Binding-Proposal-to-Acquire-the-Company" target="_blank" rel="noopener">announced</a> a preliminary non-binding proposal from <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, and around 9.5 months since <a href="http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&amp;ref=115257193&amp;type=PDF&amp;symbol=SOGO&amp;companyName=Sogou+Inc.+American+Depositary+Shares+each+representing+one+Class+A&amp;formType=6-K&amp;dateFiled=2020-09-29&amp;CK=1713947" target="_blank" rel="noopener">entering</a> into a definitive agreement for a Going-Private Transaction, the Offer has been granted unconditional approval by the State Administration for Market Regulation (SAMR). </p>
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<p>This Merger is in the form of a short-form merger as per section 233(7) of the <a href="https://www.cima.ky/upimages/commonfiles/CompaniesLaw2020Revision_1579811065.pdf" target="_blank" rel="noopener">Companies Law of the Cayman Islands</a> - there is no vote. With SAMR sign-off in the bag, this deal should become effective very shortly, and accordingly, is trading tight to terms.</p>
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<p>Separately, <a href="https://www.smartkarma.com/entities/sohu-com-ltd" target="_blank" data-smartkarma-citation="entities:22853:1" rel="noopener">Sohu.com Inc (SOHU US)</a> will pocket ~US$1.2bn from the merger via its 33.8% equity stake in Sogou, versus its current market cap of US$933mn. <em>And that is after yesterday's 28% jump in price.</em></p>
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<p>More below the fold.</p>
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Nearly a year after Chinese search-engine Sogou Inc (SOGO US)  announced a preliminary non-binding proposal from Tencent (700 HK), and around 9.5 months since entering into a definitive agreement for a Going-Private Transaction, the Offer has been granted unconditional approval by the State Administration for Market Regulation (SAMR). 


This Merger is in the form of a short-form merger as per section 233(7) of the Companies Law of the Cayman Islands - there is no vote. With SAMR sign-off in the bag, this deal should become effective very shortly, and accordingly, is trading tight to terms.


Separately, Sohu.com Inc (SOHU US) will pocket ~US$1.2bn from the merger via its 33.8% equity stake in Sogou, versus its current market cap of US$933mn. And that is after yesterday's 28% jump in price.



More below the fold.



Tencent/Sogou: And That's (Finally) A Wrap

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<p>Back on the 17 September 2020, IR solutions provider <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US)</a> announced it had received a preliminary non-binding <a href="https://sec.report/Document/0001104659-20-105912/" target="_blank" rel="noopener">Proposal</a> from DCP Capital Partners to acquire all of its shares for US$79.05/common share, a premium of 18.82% to 51job's 30-day VWAP, and a premium of 16.05% to 51job's last close.</p>
<p>The company <a href="https://ir.51job.com/ir/php/2020/PreReleaseq09212020.php" target="_blank" rel="noopener">formed</a> a special committee on the 21 September to evaluate the proposal and an independent financial advisor was appointed on the <a href="https://ir.51job.com/ir/php/2020/PreReleaseq09302020.php" target="_blank" rel="noopener">30 September</a>.</p>
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<p>Then crickets. Not even a mention in its <a href="https://ir.51job.com/ir/doc/2021/2020Form20FEDGARFINAL20210423.pdf" target="_blank" rel="noopener">2020 annual report</a> on the 23 April this year. One would have thought given the material nature of this proposal warranted at least a one-liner.</p>
<p>I reached out to the IR for clarification and was told:</p>
<blockquote>
<p>The evaluation is ongoing. When there is an update or development, a public press release will be issued.</p>
</blockquote>
<h3>The New News</h3>
<p>51job <a href="https://ir.51job.com/ir/php/2021/PreRelease20210504.php?0504" target="_blank" rel="noopener">announced</a> yesterday an updated non-binding proposal which sees Ocean Link and CEO Rick Yan joining DCP in the consortium to take the company private. The Offer price of US$79.05/common share remains the same.</p>
<p>More below the fold.</p>
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Back on the 17 September 2020, IR solutions provider 51 Job Inc Adr (JOBS US) announced it had received a preliminary non-binding Proposal from DCP Capital Partners to acquire all of its shares for US$79.05/common share, a premium of 18.82% to 51job's 30-day VWAP, and a premium of 16.05% to 51job's last close.
The company formed a special committee on the 21 September to evaluate the proposal and an independent financial advisor was appointed on the 30 September.


Then crickets. Not even a mention in its 2020 annual report on the 23 April this year. One would have thought given the material nature of this proposal warranted at least a one-liner.
I reached out to the IR for clarification and was told:

The evaluation is ongoing. When there is an update or development, a public press release will be issued.

The New News
51job announced yesterday an updated non-binding proposal which sees Ocean Link and CEO Rick Yan joining DCP in the consortium to take the company private. The Offer price of US$79.05/common share remains the same.
More below the fold.


51job's Buyout: Offer Price Unchanged In Updated Proposal

<p>As discussed in <em><a href="https://skr.ma/yN7Jw" target="_blank" rel="noopener">Jardine Matheson: Strategic Buyout Done</a></em>, after <a href="https://www.smartkarma.com/entities/jardine-strategic-holdings-ltd" target="_blank" data-smartkarma-citation="entities:15081:1" rel="noopener">Jardine Strategic Holdings (JS SP)</a> shareholders <a href="https://links.sgx.com/FileOpen/JSH.ashx?App=Announcement&amp;FileID=659247" target="_blank" rel="noopener">voted through</a>, as expected, the Offer from <a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a>, after the vote, Matheson said a number of shareholders in Strategic voted against the acquisition, but also that:</p>
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<p>a large number of shares voted against the resolution were held by investors who were not shareholders at the time of the announcement of the Acquisition on 8 March 2021. Some investors have indicated an intention to apply to the Court in Bermuda to appraise the fair value of their shares, in accordance with the process described in the shareholder circular issued by Jardine Strategic in connection with the Acquisition.</p>
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<p>I initially wrote "<em>Matheson appears to be suggesting that those who held shares before the announcement, and those who held after, potentially have different cases to argue</em>."</p>
<p>But after consulting with my colleague <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a>, I omitted this line, as it was effectively moot.</p>
<p>Matheson would have singled out these short-term investors - hedge funds - irrespectively. Yet, such a statement is irrelevant. All shareholders, as at the record date of the Special General Meeting, have the same rights to be treated fairly and rights to dissension.</p>
<p>I note some recent commentary in the media addressing Matheson's oblique reference to hedge funds, so I'll provide some commentary sourced from legal references.</p>
<p>Of greater importance is what these dissenters will cost Matheson at the end of the day.</p>
<p>More below the fold.</p>
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<p>I've extensively dealt with appraisal rights in the Cayman Islands in past insights, which can also provide guidance as to how dissension may be interpreted in Bermuda (where Strategic is incorporated):</p>
<p><em><a href="https://skr.ma/TDg1T" target="_blank" rel="noopener">Homecoming For Chinese Companies: Appraisal Rights &amp; Fair Value</a></em></p>
<p><em><a href="https://skr.ma/Hy3JW" target="_blank" rel="noopener">Trina Solar: Appraisal Rights Judgment Another Setback for Dissenters</a></em></p>
<p><em><a href="https://skr.ma/H7E1t" target="_blank" rel="noopener">Changyou (CYOU US): Short-Form Merger Dissent Now Permitted</a></em></p>

As discussed in Jardine Matheson: Strategic Buyout Done, after Jardine Strategic Holdings (JS SP) shareholders voted through, as expected, the Offer from Jardine Matheson Holdings (JM SP), after the vote, Matheson said a number of shareholders in Strategic voted against the acquisition, but also that:


a large number of shares voted against the resolution were held by investors who were not shareholders at the time of the announcement of the Acquisition on 8 March 2021. Some investors have indicated an intention to apply to the Court in Bermuda to appraise the fair value of their shares, in accordance with the process described in the shareholder circular issued by Jardine Strategic in connection with the Acquisition.


I initially wrote "Matheson appears to be suggesting that those who held shares before the announcement, and those who held after, potentially have different cases to argue."
But after consulting with my colleague Travis Lundy, I omitted this line, as it was effectively moot.
Matheson would have singled out these short-term investors - hedge funds - irrespectively. Yet, such a statement is irrelevant. All shareholders, as at the record date of the Special General Meeting, have the same rights to be treated fairly and rights to dissension.
I note some recent commentary in the media addressing Matheson's oblique reference to hedge funds, so I'll provide some commentary sourced from legal references.
Of greater importance is what these dissenters will cost Matheson at the end of the day.
More below the fold.

I've extensively dealt with appraisal rights in the Cayman Islands in past insights, which can also provide guidance as to how dissension may be interpreted in Bermuda (where Strategic is incorporated):
Homecoming For Chinese Companies: Appraisal Rights &amp; Fair Value
Trina Solar: Appraisal Rights Judgment Another Setback for Dissenters
Changyou (CYOU US): Short-Form Merger Dissent Now Permitted

<p>On the 24 January last year, <a href="https://www.smartkarma.com/entities/changyou-com-ltd-ads" target="_blank" data-smartkarma-citation="entities:19287:1" rel="noopener">Changyou.com (CYOU US)</a> <a href="http://ir.changyou.com/file/New-Comet-20200124.pdf" target="_blank" rel="noopener">entered</a> into a definitive agreement with <a href="https://www.smartkarma.com/entities/sohu-com-ltd" target="_blank" data-smartkarma-citation="entities:22853:1" rel="noopener">Sohu.com Inc (SOHU US)</a> at US$5.40/share, or US$10.80/ADS in cash. On the 14 April,  Sohu <a href="http://investors.sohu.com/static-files/4f6c805d-a81c-4799-a043-3d163d5702e7" target="_blank" rel="noopener">announced</a> the filing of the definitive plan of merger.</p>
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<p>Sohu held 67.4% of shares out in Changyou via its A and B shares and 95.3% of the voting rights given the disproportionate voting power of the B shares. As Sohu held &gt;90% of the votes, the Offer was in the form of a short-form statutory merger under Cayman Law - i.e. approval from Changyou's shareholders was not required. No vote, no dissent. Done deal.</p>
<p><em><strong>But wait ...</strong></em></p>
<p>In a ruling handed down on the 28 January, the Grand Court of the Cayman Islands concluded that shareholders of companies that undertake a 'short-form' merger <em>are</em> entitled to dissent. </p>
<blockquote>
<p>It would be absurd to exclude a dissentient member of a company subject to short-form merger from the protection of section 238 simply because, unlike in the case of a long-form merger, that member is not allowed to vote.</p>
</blockquote>
<p>The ruling has wide-ranging implications.</p>
<p>More below the fold.</p>
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On the 24 January last year, Changyou.com (CYOU US) entered into a definitive agreement with Sohu.com Inc (SOHU US) at US$5.40/share, or US$10.80/ADS in cash. On the 14 April,  Sohu announced the filing of the definitive plan of merger.

Sohu held 67.4% of shares out in Changyou via its A and B shares and 95.3% of the voting rights given the disproportionate voting power of the B shares. As Sohu held &gt;90% of the votes, the Offer was in the form of a short-form statutory merger under Cayman Law - i.e. approval from Changyou's shareholders was not required. No vote, no dissent. Done deal.
But wait ...
In a ruling handed down on the 28 January, the Grand Court of the Cayman Islands concluded that shareholders of companies that undertake a 'short-form' merger are entitled to dissent. 

It would be absurd to exclude a dissentient member of a company subject to short-form merger from the protection of section 238 simply because, unlike in the case of a long-form merger, that member is not allowed to vote.

The ruling has wide-ranging implications.
More below the fold.


Changyou (CYOU US): Short-Form Merger Dissent Now Permitted

<p>On the 30 September, <a href="https://www.smartkarma.com/entities/wanda-sports-group-co-ltd" target="_blank" data-smartkarma-citation="entities:28119:1" rel="noopener">Wanda Sports Group (WSG US)</a> announced Dalian Wanda Group (DWG) had submitted a preliminary non-binding <a href="https://investor.wsg.cn/news-releases/news-release-details/wanda-sports-group-company-limited-announces-receipt-preliminary" target="_blank" rel="noopener">proposal</a> at US$2.50/ADS, a 38.9% premium to last close.</p>
<p>DWG currently owns all the Class B ordinary shares of WSG, representing ~71.68% of all the issued shares, and  ~91.01% of the voting power of the Company. </p>
<p>At this juncture, one would assume a "<em>going private transaction</em>" would be done via a short-form merger - therefore there will be no shareholder vote and no dissenting.</p>
<p>But the twist here is that WSG is incorporated in Hong Kong (one of the very few  US-listed Chinese companies incorporated in HK), therefore a take-private transaction <em>must</em> adhere to the law of their jurisdiction of incorporation. That raises the bar on DWG taking WSG private.</p>
<p>As always, more below the fold.</p>

On the 30 September, Wanda Sports Group (WSG US) announced Dalian Wanda Group (DWG) had submitted a preliminary non-binding proposal at US$2.50/ADS, a 38.9% premium to last close.
DWG currently owns all the Class B ordinary shares of WSG, representing ~71.68% of all the issued shares, and  ~91.01% of the voting power of the Company. 
At this juncture, one would assume a "going private transaction" would be done via a short-form merger - therefore there will be no shareholder vote and no dissenting.
But the twist here is that WSG is incorporated in Hong Kong (one of the very few  US-listed Chinese companies incorporated in HK), therefore a take-private transaction must adhere to the law of their jurisdiction of incorporation. That raises the bar on DWG taking WSG private.
As always, more below the fold.

Wanda Sports (WSG US): Preliminary Proposal From Dalian Wanda

China

Changyou.com Ltd. develops online computer games.  The Company licenses its massively multi-player online role playing games.

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Changyou.com (CYOU US)

Tencent/Sogou: And That's (Finally) A Wrap

The gross spread to terms is only 1%, but this is a done deal. I think this can become effective in a matter of weeks. Sohu's NAV discount is at...

David Blennerhassett

51job's Buyout: Offer Price Unchanged In Updated Proposal

Trading at a gross spread of 15.9%. With a seasoned player such as Ocean Link now in the mix, plus the CEO, a definitive agreement looks more...

David Blennerhassett

Jardine Matheson: Lessons in Dissent

At a 13% discount to NAV, this not attractive for a complicated holding company structure. In all likelihood, near-term news may focus on these...

David Blennerhassett

Changyou (CYOU US): Short-Form Merger Dissent Now Permitted

The Court rightfully concluded s.238 provides the right of dissent in a short-form merger. Offerors will now face the prospect of dissension from...

David Blennerhassett

Wanda Sports (WSG US): Preliminary Proposal From Dalian Wanda

Preliminary Non-Binding Proposal at US$2.50/ADS. The Offeror has 91.01% of the voting power. If a firm Offer is tabled, this will be done via a...

David Blennerhassett

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