Air Products has confirmed it has submitted a proposal letter to Yingde Gases Group outlining its interest in acquiring the Chinese industrial gas company. Yingde’s board will meet on 10 January to discuss the offer. Air Products says it does not intend to comment further at this time.
Yingde Gases says it is the largest industrial gas player in China, with 2015 revenue of 7.9 billion renminbi ($1.2 billion). Yingde’s current market cap is about $815 million with net debt of about $1.4 million, yielding an enterprise value of $2.2 billion, according to J.P.Morgan analysts. As of 30 June 2016, it had 69 gas supply facilities in operation and 11 facilities under development. Last year, Air Products’ revenue in China was about $1 billion, or about 11% market share, while Yingde’s China market share is approximately 14%.
Yingde’s board and management have been split by a dispute in recent months. The company last month revised a private placement deal with Beijing OriginWater Technology (Beijing), a water treatment firm, halving the number of shares involved in the placement. The revision came after allegations from former Yingde executives that OriginWater and Yingde chairman Zhao Xiangti were aiming to launch a hostile take over Yingde via upping OriginWater’s stake in the company.
Under the previous placement agreement, announced in November, Zhao and OriginWater together would have owned just over 30% of Yindge’s shares, triggering a mandatory offer to purchase all of the company’s shares under Hong Kong law. After the revised agreement closes, the two Zhao and OriginWater will own around 24% of Yindge’s shares.
Two former Yingde top executives, Zhongguo Sun, former chairman and CEO, and Trevor Strutt, former COO, raised concern about the share placement with Hong Kong regulators, alleging that Zhao and OriginWater were acting together to in an effort to obtain control of the company, an accusation that Yingde and Zhao have denied. Sun, Strutt, had proposed an special shareholder meeting to remove Zhao, OriginWater CFO He Yuanping, and three other directors from Yingde’s board. The two were suddenly ousted from Yindge last month due to “unsatisfactory performance,” in a move that Strutt described as “sinister or secretive” in local press reports. Strutt, Sun, and Zhao are all co-founders of Yingde.
Yingde said in a recent regulatory filing that the allegation is “groundless and does not have substance.” The company says the private placement is needed to raise capital repay a bank loan. In the filing, Yindge accused Sun and Strutt of attempting to “obtain a de facto control over the company” through the removal of Zhao, He and other directors at a special shareholder meeting. Yingde “is conducting an internal financial and business investigation” into Sun and Strutt’s performance in their roles at the company, it said.
Yingde will receive about HK$598 million ($77 million) under the revised private placement agreement, which carries a price of HK$3.20/share. The proceeds will be used to repay a bank loan, Yingde said.
By Jing Chen
Source: Chemical Week
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