Succession rate of listed company privatization amounted to 83.3% in the past five years
In recent years, many companies have announced privatization. According to existing records, since 2014, 30 companies have undergone privatization, among which 25 were successfully privatized and 5 failed, resulting in a success rate of 83.3%.
The prime reason for listed companies to undergo privatization is long-term low valuation, which leads to financing difficulties, and privatization offers a new opportunity of revaluation the company. In addition, privatization can also save the certain amount of fee spent on sustaining the list status. For companies that have not achieved breakthroughs or with not so satisfying business performance, privatization also spares companies from pressure from investors or shareholders.
In general, the privatization of listed companies can be done by means of acquisition or shared agreement. For acquisition, if the intended acquirer gets hold of no less than 90% of the shares, the major shareholders can compulsorily acquire the remaining shares. As for the method of shared agreement, it is necessary for the major shareholders to propose an agreement and pass it at the general meeting. The privatization arrangement shall be based on relevant company laws in the locality, and shall be passed if, after calculation of voting rights, 75% of independent shareholders vote for and no more than 10% of independent shareholders vote against it.
Among the many successful cases of privatization, the one with the largest premium is Hunan Nonferrous Metals, which was privatized by acquisition. The deal price per share was HK$ 4.2, which was 68.67% higher than the then current price of HK$ 2.49. The privatization proposal was finally approved by 99.85% of the independent shareholders after calculation of voting rights. The lowest premium is Bloomage Biotech, whose private price is HK$ 16.3 per share, only 13.99% premium, but still has a premium of 233.33% over the net asset value. Bloomage Biotech finally obtained 98.78% (voting rights calculated) of the independent shareholders in favor of the proposal with only 1.22% of the independent shareholders objected, leading to the successful privatization.
In terms of net asset value, the one with the most premium is the Aupu Group, whose privatization price is HK$ 2.71, a premium of 292.8% over the net asset value of HK$ 0.69. At the subsequent shareholder meeting, the privatization proposal was successfully approved by voting rights 99.52% of the independent shareholders in favor of the privatization versus 0.48% of opposing independent shareholders. The privatization price is the most discounted to the net asset value of Chinese capital. The privatization price is HK$ 6.8, which is a 53.8% discount to the net asset value of US$ 1.9. The scheme still has by voting rights 99.385% of independent shareholders to agree on though, since the privatization price is still 61.5% higher than the then stock price.
In the case of failure, for most companies the privatization price represents a discount of the net asset value. For example, though Guoco (53) proposed to privatize with HK$135 per share last year, a price 14.4% higher than the stock price, it is still a 32.7% discount on the net asset value. The final proposal was only approved by 64.78% of independent shareholders and 35.22% of shareholders voted against the decision.
However, the most surprising case of failure in recent years should be given to the privatization of New World China in 2014. At that time, New World Development (17) proposed to privatize New World China Land at a price of HK$6.8 per share, a positive 32.3 % premium compared with the previous day's closing price of HK$ 5.14, and also a 1.8% premium to the net asset value of HK$ 6.68 per share. At the shareholder meeting, with all voting rights considered, 99.84% of the independent shareholders agreed the privatization, and only 0.16% of the independent shareholders voted against the motion. However, as New World China Land is registered in the Cayman Islands, and according to the company law of Cayman Islands, the privatization proposal has to follow the rule known as "head-counts", i.e. it is only approved when agreed by more than half of the independent shareholders who attend the meeting. At the shareholders meeting, the proposal was approved by 255 independent shareholders and opposed by 494 independent shareholders. Therefore, the proposal was invalidated because it had not been approved by half of the attending independent shareholders.
When New World China Land re-privatized later in 2016, it switched to the acquisition method and raised the price to HK$ 7.8 per share, a premium of 25.6% over the previous day's closing price of HK$ 6.21, and a premium of 11.5% to the net asset value per share. As of the final cut-off date, the major shareholder holds a total of 98.65% of the shares, which is sufficient for compulsory acquisition and privatization.
At present, the “head-counting" requirement is only valid for companies registered in the Cayman Islands and Bermuda. For companies registered in Hong Kong, the rule was cancelled since 2014. Media reports during the failed privatization of PCCW (8) in 2009 revealed there had been allegedly arrangements of subdividing PCCW shares and adding a large number of persons to register and become shareholders so as to vote in favour of the privatization. Although the subsequent privatization proposal was passed at the shareholders' meeting, the SFC used the "Securities and Futures Ordinance" to apply to the court for a review of the privatization process of PCCW. The court initially approved the privatization, but the SFC appealed, and a final decision was by the court to reject the privatization.