By Rick Carew
After a year when Chinese companies bought record numbers of
American firms, a U.S. company is getting a rare shot at a big
takeover in China.
Allentown, Penn.-based Air Products & Chemicals Inc., a
maker of industrial gases, is looking for a bigger foothold in the
Chinese market. In December, it got an unexpected opening , after a
boardroom battle at China's biggest industrial-gas maker, Yingde
Gases Group Co., effectively put the company on the block.
Air Products is offering up to $1.5 billion for Hong Kong-listed
Yingde, a price that would make the deal the largest takeover of a
Chinese firm by an American buyer. People familiar with Air
Products' bid say it could raise that offer to fend off a rival bid
formalized Tuesday by a Hong Kong-based private-equity firm PAG
Asia Capital.
An important twist would come Wednesday, when shareholders vote
which of the warring board factions get to run the company, and
thus handle the sale. The leadership is being contested between
Yingde's chairman -- under whom Yingde has been slow to open its
books, according to Air Products -- and a pair of ousted former
executives who say they want to speed up a sale.
A spokesman for Yingde said the company is "focused on the
auction process," but declined to comment further. It has said in
the past that it is working to provide prospective bidders with
access to financial data.
Air Products has said it is open to working with either party to
strike a deal. "We believe that the combination of Yingde and Air
Products makes significant strategic and financial sense," the
company said Tuesday in a statement, adding that it continues to
participate in the sale process.
The fight over Yingde, which accounts for around 14% of China's
industrial-gas market by revenue, presents an unusual opportunity
for a U.S. buyer to buy a big Chinese company. Chinese regulators
restrict foreign investment in many sensitive industries, and have
nixed high-profile bids for prominent local companies in the past,
including Coca-Cola Co.'s $2.4 billion attempted takeover of China
Huiyuan Juice Group Ltd. in 2009 on antitrust grounds. That has
discouraged other U.S. firms from trying splashy acquisitions.
The biggest U.S. acquisition of a Chinese company was Joy Global
Inc.'s $1.4 billion purchase of International Mining Machinery
Holdings Ltd. in 2011, according to Dealogic data. U.S.
politicians, including President Donald Trump, have lambasted China
for not giving U.S. firms equal access to Chinese markets, even as
Chinese investors cut a record $69 billion worth of deals last year
for American firms.
Lawyers in China say regulators there may allow a takeover of
Yingde, since it trades publicly and already has many foreign
investors. There are already many foreign participants in the
industrial-gas business, where companies create mixtures of gases
such as oxygen and nitrogen, which are used in manufacturing
products such as steel and semiconductors.
An Air Products deal would require approval from China's
Ministry of Commerce.
Air Products' pursuit of Yingde followed a split in the
company's management team in November, when Yingde Chairman Zhao
Xiangti called a hasty board meeting to remove then-Chief Executive
Sun Zhongguo and his chief operating officer, as well as the issue
of a big chunk of shares to a Beijing investor picked by Mr. Zhao.
Mr. Sun protested the share sale and asked for the entire company
be put up for sale. Yingde subsequently nixed the deal with the
Beijing investor after its share price rose significantly.
The U.S. company, which has a market value of about $30 billion,
made its initial offer in December. In February, Yingde hired
Morgan Stanley to shop the company to potential buyers.
Air Products' chief executive, Seifi Ghasemi, has taken a deep
personal interest in the deal, leading calls and peppering
executives and advisers with questions, according to participants.
Mr. Ghasemi flew to Shanghai to pitch Yingde executives on its
offer in February, and is scheduled to go again later this week to
learn more about the company's operations, according to people
familiar with the situation.
There are still plenty of obstacles to an Air Products takeover.
Last week, Yingde's feuding board members separately cut deals with
PAG to sell their combined 42% stake for HK$6 a share -- the same
price Air Products offered, but without requiring the due diligence
that the U.S. company has said it needs.
PAG is planning to make the same HK$6 offer to the rest of
Yingde's shareholders, and the deal would become effective if it is
accepted by more than half.
PAG declined to elaborate beyond its Tuesday official offer
statement. PAG says its offer isn't conditioned on Ministry of
Commerce approval.
Mr. Sun said in an interview he believes the PAG deal "puts a
floor" on the price bidders must pay to buy the company and that he
welcomes higher competing offers from Air Products and others.
Yingde suspended trading in its shares Monday, but closed at
HK$6.22 Friday after news of PAG deal, meaning investors are
betting the takeover battle will heat up and produce a higher
offer.
"We want a fair deal for all shareholders," says Seth Fischer,
who runs hedge fund Oasis Management Co., which owns a 4.5% stake
in Yingde. "Now is the time for buyers to finish sharpening their
pencils and put in their best offer."
Write to Rick Carew at rick.carew@wsj.com
(END) Dow Jones Newswires
March 07, 2017 10:12 ET (15:12 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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