Board Spat Holds up Biggest U.S. Takeover in China in Decade

Stymied by an extended boardroom battle at Yingde Gases Group Co and as it attempts the largest U.S. takeover of a Chinese firm in more than a decade, Air Products & Chemicals Inc. has hit a bump.

Yingde said in a statement to the Hong Kong stock exchange that a divided board of the Hong Kong-listed firm has asked Air Products to proceed with due diligence to avoid further delays and has failed to agree on a panel needed to review the offer. Valuing Yingde’s equity at about $1.3 billion, at least HK$5.50 a share was offered to be paid by the world’s biggest producer of hydrogen.

On the back of the prolonged boardroom struggle, the speed at which Yingde proceeds with further talks is now the deciding factor of the success of the bid. Ffighting to regain management control of Yingde is a former chief executive officer and chief operating officer, who were stripped of their executive powers. The former CEO is however are still on the board.

“Yingde’s current management seems united against the two dissident directors,” said Justin Tang, a director of global special situations at Religare Capital Markets in Singapore. “Air Products’ possible bid may be delayed by the board fighting.”

Ending 14 percent below Air Products’ offer, Yingde’s stock closed at HK$4.72 on Friday in Hong Kong reflecting shareholder anxiety over the situation.

Chief Executive Officer Seifi Ghasemi said on a conference call that after it completed the $3.8 billion sale of a materials unit to Evonik Industries AG this month, Air Products has $3 billion in cash to spend on acquisitions. He said in a Jan. 8 letterthe U.S. company may make a voluntary general offer for the company if Yingde won’t negotiate.

“We seek to engage in a friendly transaction with the company,” Ghasemi said on the call, which was held to discuss earnings for the latest quarter.

He said that as 85 percent of Yingde’s sales fit the category of on-site business, in which gases such as hydrogen are produced at customers’ production locations, the deal would help Air Products increase its on-site business.

Yingde said that because two directors challenged the capability of the proposed individuals, there was failure to form an independent committee to review the offer. The statement said that to resolve the setting up of the panel another “urgent” board meeting to be held immediately after the Lunar New Year holidays. According to the statement, the two directors are “fully supportive” of the Air Products offer despite the sparring over control.

“Maybe the composition will change,” said Glenn Ko, head of Asia desk trading strategy at HSBC Holdings Plc in Hong Kong. “But this does not change the attractiveness of the offer.”

Dennis Cassidy, head of corporate finance at The Anglo Chinese Group, the financial adviser for Sun Zhongguo, the former CEO, and Trevor Raymond Strutt, the former COO said that the way forward for Yingde is to be taken over by someone else because the current management is so fractured. Cassidy said, speaking on behalf of them that the Air Products proposal is the best offer at the moment, both directors support the proposal.

(Adapted from Bloomberg)

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