Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Beijing Jingneng Clean Energy / Event-Driven

<p>I've analysed 14 Merger by Absorption deals over the last 16 years. These unique privatisation Offers address the peculiarities of acquiring PRC-incorporated companies listed in Hong Kong.</p>
<p>There are no rights under the laws of the PRC and the Articles of Association of a PRC-incorporated company to compulsorily acquire its H Shares that are not tendered for acceptance pursuant to any H Share Offer.</p>
<p>The only mechanism available to <em>fully</em> privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). A tendering condition of 90% <em>may</em> also be present.</p>
<p>Of these 14 transactions, 10 have been successfully privatised, three remain ongoing, plus we have one ignominious failure for <a href="https://www.smartkarma.com/entities/harbin-electric-co-ltd-h" target="_blank" data-smartkarma-citation="entities:11116:1" rel="noopener">Harbin Electric Co Ltd H (1133 HK)</a>.</p>
<p>As always, more below the fold. </p>

I've analysed 14 Merger by Absorption deals over the last 16 years. These unique privatisation Offers address the peculiarities of acquiring PRC-incorporated companies listed in Hong Kong.
There are no rights under the laws of the PRC and the Articles of Association of a PRC-incorporated company to compulsorily acquire its H Shares that are not tendered for acceptance pursuant to any H Share Offer.
The only mechanism available to fully privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). A tendering condition of 90% may also be present.
Of these 14 transactions, 10 have been successfully privatised, three remain ongoing, plus we have one ignominious failure for Harbin Electric Co Ltd H (1133 HK).
As always, more below the fold. 

Quiddity M&A : A Guide To Mergers By Absorption

Zhejiang New Century Hotel Management / Event-Driven

Zhejiang New Century Hotel Management (1158 HK)

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<p>After <a href="https://www.smartkarma.com/entities/zhejiang-new-century-hotel-management-group" target="_blank" data-smartkarma-citation="entities:27944:1" rel="noopener">Zhejiang New Century Hotel Management Group (1158 HK)</a>'s (ZNCH) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0119/2021011900019.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading on the 19 January "<em>pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company</em>", ZNCH has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0120/2021012000655.pdf" target="_blank" rel="noopener">announced</a> a pre-conditional Offer from a vehicle co-owned by Sequoia China and Ocean Link.</p>
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<p>The Offer price is HK$18.15/share, a 23.9% premium to last close, and a 20.8% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for ZNCH's domestic shares at RMB15.018066/share is also tabled.</p>
<p>ZNCH is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.</p>
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<p>ZNCH has 280mn shares out, comprising 70,000,000 H shares (25% of shares out), 159,659,640 domestic shares (57% of shares out), and 50,340,360 unlisted foreign shares (18% of shares out). Sequoia China/Ocean Link currently hold no shares. </p>
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<p>CTrip, a pre-IPO investor, with 14.83mn H shares, has given an irrevocable <em>supporting</em> the Offer, but will NOT tender. On account of a special shareholder arrangement, CTrip is deemed to be an Offeror Concert Party and therefore does not form part of the Independent H Shareholders. </p>
<p>GreenTree, a pre-IPO investor, with 13.87mn H shares has given an irrevocable supporting the Offer and will also tender. GreenTree forms part of the Independent H Shareholders. </p>
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<p>The pre-conditions, which cannot be waived, include approvals from an anti-trust review under the Anti-Monopoly Law of the PRC, and SAMR.</p>
<p>This appears an <em>okay</em> deal. The Pre-Conditional Long Stop date is the 31 May 2021, but these approvals should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.</p>
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<p>As always, more below the fold.</p>
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After Zhejiang New Century Hotel Management Group (1158 HK)'s (ZNCH) shares were suspended ahead of trading on the 19 January "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company", ZNCH has now announced a pre-conditional Offer from a vehicle co-owned by Sequoia China and Ocean Link.


The Offer price is HK$18.15/share, a 23.9% premium to last close, and a 20.8% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for ZNCH's domestic shares at RMB15.018066/share is also tabled.
ZNCH is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.


ZNCH has 280mn shares out, comprising 70,000,000 H shares (25% of shares out), 159,659,640 domestic shares (57% of shares out), and 50,340,360 unlisted foreign shares (18% of shares out). Sequoia China/Ocean Link currently hold no shares. 


CTrip, a pre-IPO investor, with 14.83mn H shares, has given an irrevocable supporting the Offer, but will NOT tender. On account of a special shareholder arrangement, CTrip is deemed to be an Offeror Concert Party and therefore does not form part of the Independent H Shareholders. 
GreenTree, a pre-IPO investor, with 13.87mn H shares has given an irrevocable supporting the Offer and will also tender. GreenTree forms part of the Independent H Shareholders. 


The pre-conditions, which cannot be waived, include approvals from an anti-trust review under the Anti-Monopoly Law of the PRC, and SAMR.
This appears an okay deal. The Pre-Conditional Long Stop date is the 31 May 2021, but these approvals should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.


As always, more below the fold.


Zhejiang New Century (1158 HK): Pre-Conditional Offer

China Machinery Engineering / Event-Driven

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<p>After <a href="https://www.smartkarma.com/entities/china-machinery-engineering-corp" target="_blank" data-smartkarma-citation="entities:10998:1" rel="noopener">China Machinery Engineering (1829 HK)</a>'s (CMEC) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0108/2021010701436.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading on the 8 January  "<em>pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company</em>", CMEC has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0113/2021011300422.pdf" target="_blank" rel="noopener">announced</a> a pre-conditional Offer from its controlling shareholder, state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH.</p>
<p>The Offer price is HK$3.70/share, a 45.10% premium to last close, and a 118.93% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for CMEC's domestic shares at RMB3.082692/share is also tabled.</p>
<p>CMEC has 4,125,700,000 shares out, comprising 908,270,000 H shares and 3,217,430,000 domestic shares.</p>
<p>SINOMACH holds 3.185bn domestic shares directly, and 32.174mn shares indirectly via China United. Together this totals 77.99% of the total voting interest in CNEC. </p>
<p>SINOMACH does not hold any H  shares.</p>
<p>The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, and SAFE.</p>
<p>As CMEC is PRC incorporated, this delisting proposal is by way of a Merger by Absorption, which involves a Scheme-like vote from disinterested shareholders. There is no tendering acceptance condition attached to this delisting.</p>
<p>This appears a relatively clean deal. The Long Stop date is the 13 January 2022, but this should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.</p>
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<p>More below the fold.</p>
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After China Machinery Engineering (1829 HK)'s (CMEC) shares were suspended ahead of trading on the 8 January  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company", CMEC has now announced a pre-conditional Offer from its controlling shareholder, state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH.
The Offer price is HK$3.70/share, a 45.10% premium to last close, and a 118.93% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for CMEC's domestic shares at RMB3.082692/share is also tabled.
CMEC has 4,125,700,000 shares out, comprising 908,270,000 H shares and 3,217,430,000 domestic shares.
SINOMACH holds 3.185bn domestic shares directly, and 32.174mn shares indirectly via China United. Together this totals 77.99% of the total voting interest in CNEC. 
SINOMACH does not hold any H  shares.
The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, and SAFE.
As CMEC is PRC incorporated, this delisting proposal is by way of a Merger by Absorption, which involves a Scheme-like vote from disinterested shareholders. There is no tendering acceptance condition attached to this delisting.
This appears a relatively clean deal. The Long Stop date is the 13 January 2022, but this should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.


More below the fold.


China Machinery Engineering (1829 HK): Delisting Offer From Parent

<p><a href="https://www.smartkarma.com/entities/china-machinery-engineering-corp" target="_blank" data-smartkarma-citation="entities:10998:1" rel="noopener">China Machinery Engineering (1829 HK)</a>'s (CMEC) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0108/2021010701436.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading this morning  "<em>pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company</em>".</p>
<p>CMEC is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against) for the H shares. Such an Offer may or may not require an additional tendering acceptance condition.</p>
<p>CMEC's ultimate controlling shareholder is state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH, which holds 77.99% of shares out, via CMEC's domestic shares. SINOMACH holds no H shares. </p>
<p>CMEC is up 56.4% since the 29 December, on larger-than-average volume.</p>
<p>Funny that.</p>
<p>The most interesting facet attached to CMEC is that it has (adjusted) net cash of HK$8.8bn as at 30 June 2020, compared to market cap of HK$10.5bn.  Should a firm offer unfold, it is doubtful it will fully reflect the underlying business in addition to that cash pile.</p>
<p>More below the fold.</p>

China Machinery Engineering (1829 HK)'s (CMEC) shares were suspended ahead of trading this morning  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company".
CMEC is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against) for the H shares. Such an Offer may or may not require an additional tendering acceptance condition.
CMEC's ultimate controlling shareholder is state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH, which holds 77.99% of shares out, via CMEC's domestic shares. SINOMACH holds no H shares. 
CMEC is up 56.4% since the 29 December, on larger-than-average volume.
Funny that.
The most interesting facet attached to CMEC is that it has (adjusted) net cash of HK$8.8bn as at 30 June 2020, compared to market cap of HK$10.5bn.  Should a firm offer unfold, it is doubtful it will fully reflect the underlying business in addition to that cash pile.
More below the fold.

China Machinery Engineering (1829 HK): Possible Offer

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<p>Following a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0703/2020070300108.pdf" target="_blank" rel="noopener">suspension</a> on the 3 July this year pursuant to the Code on Takeovers and Mergers, <a href="https://www.smartkarma.com/entities/beijing-jingneng-clean-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:16316:1" rel="noopener">Beijing Jingneng Clean Energy (579 HK)</a>, an SOE utility, subsequently <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0706/2020070602025.pdf" target="_blank" rel="noopener">announced</a> it had received a letter from Beijing Energy Holdings (BEH), its controlling shareholder, of an intention to make a Conditional General Offer.</p>
<p>Late last night, a voluntary conditional offer was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1117/2020111701054.pdf" target="_blank" rel="noopener">announced</a> at HK$2.70/share, a 70.89% premium to the undisturbed price. The Offer price is final. No dividends are expected during the Offer period.</p>
<p>Jingneng is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a <em>Merger by Absorption</em>, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.</p>
<p>This looks done. There is just a question mark over timing.</p>
<p>More below the fold.</p>
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Following a suspension on the 3 July this year pursuant to the Code on Takeovers and Mergers, Beijing Jingneng Clean Energy (579 HK), an SOE utility, subsequently announced it had received a letter from Beijing Energy Holdings (BEH), its controlling shareholder, of an intention to make a Conditional General Offer.
Late last night, a voluntary conditional offer was announced at HK$2.70/share, a 70.89% premium to the undisturbed price. The Offer price is final. No dividends are expected during the Offer period.
Jingneng is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.
This looks done. There is just a question mark over timing.
More below the fold.


Beijing Jingneng (579 HK): Privatisation Offer From Parent

China

Harbin Electric Company Limited is primarily engaged in the manufacturing and sales of power-generation equipment. Its core activities include manufacturing complete sets of large-scale thermal, hydro, and nuclear power generation equipment, providing turnkey engineering for power plant projects, and developing marine propulsion systems and electric drive units. The company was founded in October 1994 and is headquartered in Harbin, China.

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Harbin Electric (1133 HK)

Quiddity M&A : A Guide To Mergers By Absorption

Beijing Jingneng's effective tender rate is the highest of all Merger by Absorptions. However, bankers have lifted the tendering rate efficiency in...

David Blennerhassett

Zhejiang New Century (1158 HK): Pre-Conditional Offer

Assuming payment late-May, I would expect ZNCH to trade around $17/share, or a 6-7% gross spread, and a ~22% annualised spread. Buy around $17...

David Blennerhassett

China Machinery Engineering (1829 HK): Delisting Offer From Parent

Expect CMEC to trade around $3.45-3.50, or a 6-7% gross spread, and an 18-23% annualised. This is still being done too cheaply, given the large...

David Blennerhassett

China Machinery Engineering (1829 HK): Possible Offer

Shares are suspended so there is nothing to do here. I think the Offer needs to be pitched closer to $4/share to dislodge Cape Ann. It will still...

David Blennerhassett

Beijing Jingneng (579 HK): Privatisation Offer From Parent

Currently trading at a gross/annualised spread of 7.6%/18.9%, assuming the transaction takes five and a half months to complete. This appears a...

David Blennerhassett

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