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China Vanke Agrees to 6.9 Billion dollars Deal to Avoid Potential Hostile Takeover
Developer’s deal with Shenzhen Metro aimed at warding off a potential hostile takeover by Baoneng Group
Updated June 18, 2016 2:56 a.m. ET
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Property developer China Vanke Co. plans to issue new shares in an asset swap deal valued at 45.6 billion yuan (6.9 billion dollars) that would make subway operator Shenzhen Metro Group its largest shareholder, part of efforts to ward off a potential hostile takeover.
Under the deal, Vanke said late Friday it would acquire a unit of Shenzhen Metro Group that will give the developer access to premium properties atop transportation facilities in prime locations in the southern Chinese city.
The developer’s asset swap will give Shenzhen Metro a 20.65% stake of the enlarged share capital. The long-anticipated deal would knock Baoneng Group from its perch as Vanke’s biggest shareholder. Shenzhen-based Baoneng Group, a privately owned property developer and financial-services group, would have a roughly 19% stake in Vanke after the dilution, down from its current 24% stake.
There had been speculation that Baoneng, which had amassed large amounts of Vanke shares in mere months, could launch a hostile takeover attempt for Vanke, whose Shenzhen-listed A shares have been halted since December 2015.
Vanke said it would issue 2.9 billion A shares at 15.88 yuan each, representing a 35% discount from its last traded price at 24.43 yuan on Dec. 18, when it requested the trading halt.
“The cooperation with (Shenzhen Metro Group) not only enables Vanke to find the best foothold for its new business, but also provides assurance for the rapid development of Vanke’s new business,” said Zhu Xu, secretary to the board of Vanke, adding that providing services surrounding metro facilities “will become the most important development direction for Vanke.”
Vanke’s restructuring strategy wasn’t fully embraced by the company’s board, with three out of 10 members voting against the deal at a shareholder meeting Friday, according to the statement. The three are executives of China Resources Group, which had been Vanke’s largest shareholder for years before being supplanted by Baoneng last year.
They said that an increase of Vanke’s land bank in the red-hot property market of Shenzhen would raise risks and put pressure on profit margins, according to Vanke’s statement. They also said there would be more government intervention in subway-related development that would impede the speed of project development and raise costs, according to the statement.
Vanke’s restructuring deal highlights the challenges faced by listed companies and regulators as China seeks to liberalize its financial markets. Such an overhaul increases the possibility of hostile takeovers and other unexpected hurdles for business decisions in an environment accustomed to a more predictable process.
Also, Vanke’s prolonged suspension of its A shares came as arbitrary trading halts in mainland Chinese shares have made investors wary. This past week, New York-based stock-index provider MSCI Inc. declined to include mainland China’s A shares in its influential Emerging Market Index, citing a need for “further improvements in the accessibility of the China A-shares market.”
Vanke said Friday that its A shares would resume trading Monday, and analysts expect a sharp price drop after the six-month hiatus. Vanke’s Hong Kong-listed shares, which resumed trading in January, closed Friday up 3.4% at 17.52 Hong Kong dollars (2.26 US dollars). The shares have fallen more than 23% year to date.
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