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, Pa.-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 a U.S. 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
on 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 hasten 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 about 14% of China's
industrial-gas market by revenue, presents an unusual opportunity
for a U.S. buyer to purchase a big Chinese company. Chinese
regulators restrict foreign investment in many sensitive
industries, and have nixed high-profile bids for 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 pursing 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.
Some 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 U.S. firms.
Lawyers in China say regulators there may allow a takeover of
Yingde because it trades publicly and already has many foreign
investors.
There are 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 including
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% stakes 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, which declined to elaborate beyond its Tuesday official
offer statement, 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 they 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," said 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 08, 2017 02:48 ET (07:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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