| HONG KONG, March 24
HONG KONG, March 24 The messy battle to control
China's largest producer of industrial gases has turned into a
serendipitous victory for minority investors that could
encourage more shareholder activism in Asia.
Though far less common than in the United States, open
campaigns seeking better returns or a change in business
strategy have risen sharply in Asia, with the number of targeted
companies rising to 77 in 2016 from 55 the previous year,
according to data from research firm Activist Insight.
That is still well short of the 456 cases in the United
States, underscoring the room for further growth as investors
feel more emboldened and markets in the region expand.
The decision by Yingde Gases Group's shareholders
earlier in March to oust five directors ended a four-month
battle for control of the $1.6 billion company's board in a
clash over how to improve its finances and business. It is
expected to speed up a strategic review that could include an
outright sale of the company.
The increase in public activist campaigns also highlights
how investors including Elliott Management Corp, BlackRock Inc
and Hong Kong-based hedge fund Oasis Management are
becoming more public as they try to rally other minority
shareholders to boost returns from laggard stocks.
"This case with Yingde had the potential of disenfranchising
shareholders, but people went and they voted. It only happened
because the insiders split and that gave a real voice to
minority shareholders here," said Seth Fischer, chief investment
officer at Oasis, which holds a 4.5 percent stake in Yingde. "It
was a bit of an accidental win."
As Yingde co-founders Sun Zhongguo and Trevor Strutt, who
prevailed in the vote, battled with Zhao Xiangti, another
co-founder and major shareholder, the company received takeover
approaches from asset manager StellarS Capital (Hong Kong) Ltd
and U.S. industrial gas maker Air Products and Chemicals Inc
worth $1.1 billion and as much as $1.5 billion in cash,
respectively. If successful, the Air Products purchase would be
the biggest takeover by a U.S. company in China.
The takeover battle took another twist when Hong Kong-based
private equity firm PAG agreed to buy the combined 42.1 percent
stakes of Zhao, Sun and Strutt for $616 million. The offer's
only condition was that PAG and parties acting in concert with
the fund hold more than 50 percent of Yingde.
Institutional Shareholder Services (ISS), which advises
pension plans and mutual funds, had called in the beginning of
March for a fully independent board, as that would give "the
most objective assessment of any offers to acquire" Yingde. The
call for more independence was also voiced by Oasis.
Speaking to Reuters last week, Strutt and Sun said they
believed Zhao had destroyed value for shareholders and were now
focusing on trying to secure a higher bid for the company. They
said they were also trying to bring in another board member with
expertise in the gas sector to help the process go smoothly.
While one UK fund manager described the Yingde case as a
"somewhat unique situation, rather than the dawn of a brave new
world of activism in Hong Kong," since it depended on a split
among the top shareholders, there is nevertheless at least a
noticeable whiff of change.
In a region with many family-owned businesses and listed
companies with few people holding the vast majority of shares,
investors are increasingly asking boards to act in the interest
of all shareholders, not just majority owners.
In a rare public campaign last year, ultimately
unsuccessful, BlackRock, the world's largest asset manager,
called on the board of Hong Kong-listed G-Resources Group Ltd
to "honour its obligations to all shareholders".
While the number of companies targeted by activist investors
was unchanged at 14 in 2016 from 2015 in Hong Kong, it rose to
15 from nine in Japan and to 11 from eight in China, while also
rising in South Korea, Singapore and Malaysia, according to
Asia has seen vast improvement in corporate governance over
the past two years as regulators and securities exchanges
tighten rules to boost company performance, raise investor
confidence and guard their reputations.
Markets including Hong Kong, Japan, Singapore, South Korea,
Taiwan and Thailand have been getting tough on rogue firms and
introduced stewardship codes to encourage engagement between
companies and investors.
Hong Kong and Singapore, two of the region's largest
financial centres, have tightened listing and takeover
requirements, and stepped up enforcement after instances of
erratic price movements sparked fear of
(Additional reporting by Michelle Price in Hong Kong and
Anshuman Daga in Singapore; Editing by Will Waterman)