The New Situation Of Privatization Of China Capital Stock Hollysys: Fierce Battle Between The Founder And The Former Chairman Of The Board Of Directors

Hollysys privatization fell into the "Three Kingdoms killing".

Not long ago, Zhejiang Longsheng, the leading dyestuff company, announced that it plans to establish SPV company with royal Valley innovation capital (HK) limited or its related parties, and jointly submit a non binding initial offer proposal for privatization transaction to the board of directors of Hollysys, a US listed company, with a capital contribution of no more than 8 billion yuan. The proposed transaction price is US $24 per common share.

Wang Changli, founder of Hollysys, previously offered a bid price of $23 per common stock in July 2021. Now Zhejiang Longsheng has offered a price of $1 higher than Wang Changli. Zhejiang Longsheng, as a leading provider of automation and information technology solutions for domestic dyestuff tender offer, has a huge cross-border range.

Earlier, Shao Baiqing, the former chairman of Hollysys, formed a consortium with ACE lead (Shao Baiqing holding) in December 2020 to purchase all the remaining issued common shares of Hollysys at a price of US $15.47 per share.

At present, Shao Baiqing, the former chairman of the board of directors, and Wang Changli, the founder of Hollysys, are in a state of stalemate. Zhejiang Longsheng's half way invasion and offer a higher tender offer price make the privatization of Hollysys more complicated and subtle. Who will eventually take over Hollysys' privatization is full of variables.

The war of privatization

The 21st century economic reporter learned that in July 2020, Hollysys suddenly removed all the posts of Shao Baiqing, one of the founders of Hollysys, the former chairman and CEO of Hollysys. Qiao Li, the former director of the company, became the chairman of the board of directors, and Colin song, the former independent director and chairman of the audit committee, became the CEO of the company.

In December 2020, the company further removed Shao Baiqing from the position of chairman of Ningbo subsidiary, and declared that any industry conference, academic conference, business conference and business activities attended by Shao Baiqing after his removal from office has no relationship with the member enterprises of Hollysys, and Hollysys will not bear any legal liability arising from his personal activities.

Shao Baiqing, who was dismissed by Hollysys, was not willing to quit. He once publicly said that "he was removed without proper reasons". Then in December 2020, Shao Baiqing and ACE lead (Shao Baiqing holding) formed a consortium to purchase all the remaining issued common shares of Hollysys at a price of US $15.47 per share.

Shao Baiqing and ACE lea currently own 4.1 million and 4.3 million common shares of Hollysys respectively, accounting for 14% of Hollysys' shares. According to the agreement, the consortium is expected to spend $870 million to buy all the remaining outstanding shares of Hollysys.

However, in January 2021, Hollysys board of directors rejected Shao Baiqing's non binding preliminary acquisition proposal, saying that the proposal seriously underestimated the company's value and was not in the best interests of shareholders.

In February 2021, Shao Baiqing's buyer group will increase the proposed acquisition price of the company by 11% to $17.1/share. However, the acquisition proposal was still strongly resisted by Hollysys' management and could not be pushed forward. Both sides have initiated legal proceedings on this issue.

In July 2021, Wang Changli, the founder and former chairman of Hollysys, who announced his resignation from all positions of Hollysys and retired in July 2021, joined with ascendant capital partners to submit Hollysys privatization offer, raising the purchase price to 23 US dollars per share.

On the evening of September 12, 2021, the dyestuff leader Zhejiang Longsheng announced that it intends to form a consortium with related parties to jointly issue a non binding privatization offer to Hollysys with a capital contribution of no more than 8 billion yuan. The transaction price is 24 US dollars per share.

The subtle interests behind the killing of the Three Kingdoms

According to the 21st century economic report, there are three capital forces participating in the privatization of Hollysys.

First, the CPE funds management behind Shao Baiqing. The fund is an industrial fund with state-owned assets background in China. It focuses on providing innovative investment solutions for leading enterprises in four key fields, namely, health care and health, consumption and Internet, science and technology and industry, software and enterprise services. At present, CPE funds under management have won the trust and support of more than 200 institutional investors at home and abroad, and the accumulated asset management scale has exceeded 100 billion yuan.

Second, ascendant Capital Partners behind Wang Changli. Shangda capital is a venture capital enterprise headquartered in Beijing. It manages and operates a number of venture capital funds. The investors are senior entrepreneurs, philanthropists and investors, with a total capital of 1 billion yuan. It focuses on and invests in innovative growth enterprises in the fields of TMT and o2o.

The third is zhengxingu capital controlled by Zhejiang Longsheng. Zhengxingu was founded in 2015. Its founder, Lin Lijun, is the founder of huitianfu fund. Its investment scope covers new consumption, medical and health, science and technology manufacturing, modern finance and other directions. At the same time, it is the investor of DCS leading central control technology.

Wang Changli is one of the founders of Hollysys. He has successively served as chairman and CEO of Hollysys. It is worth noting that in 2016, Wang Changli transferred the shares of Hollysys indirectly held in the trust contract to Shao Baiqing, the CEO who replaced him, at a total price of US $1.

Shao Baiqing, a student of Wang Changli, joined Hollysys when he was founded. He started from the bottom and served for nearly 20 years at Hollysys until he was removed from the position of chairman.

Zhejiang Longsheng is a complete outsider and plans to invest no more than 8 billion yuan to participate in Hollysys privatization. Zhejiang Longsheng said that the purpose of its participation in the privatization is to cooperate with the long-term strategic arrangement of the company's long-term development. It can take this opportunity to strengthen cooperation with Hollysys in technology, business and other fields, accelerate the development of the company's industrial automation level, and share the value brought by Hollysys business growth.

People in the industry believe that Zhejiang Longsheng, which is mainly engaged in dye business, should pay attention to the return of Hollysys to a shares, which has a large arbitrage space. Compared with the market value of central control technology, Hollysys' market value is seriously underestimated after personnel changes. If Zhejiang Longsheng can enter the Bureau to lead its privatization and return to a shares, it will obtain considerable capital premium.

At present, Zhejiang Longsheng's offer price is 24 US dollars per share, which is the highest among the three consortia, which will have a certain competitive advantage. However, 21st century economic reporter noted that Hollysys management and Wang Changli consortium signed a limited exclusive period agreement in August 2021 to better assess whether further implementation of its tender offer is in the best interests of the company and its shareholders.

At present, there are three buyers' groups and three PE organizations in Hollysys' privatization battle. The former CEO and founder have joined the board at the same time. The state-owned, foreign-funded and private-owned PE are competing on the same platform. Who will ultimately spend is still a variable.

Currently, 80% of the directors are foreign or have permanent residency abroad

According to public information, Hollysys' core business is DCS. The company, central control technology and Shanghai Xinhua are known as the "three heroes" in the field of industrial automation control in China. Rui industrial research, which focuses on Market Research in the industrial field, said that in terms of domestic DCS market, according to Rui industrial statistics, in 2019, central control technology ranked first in China with a market share of 27%, while Hollysys ranked third with a share of 15.2%.

At present, Hollysys business has covered process manufacturing, discrete manufacturing, rail transit, medical health, urban infrastructure and other important fields, but its core business is still DCS. Compared with central control technology, Hollysys is actually a company with important strategic value in intelligent manufacturing and industry 4.0.

It is understood that there are three major suppliers of control system for China's high-speed rail, namely Hollysys, China Academy of Railway Sciences and China National Communications Corporation. The control system of China's nuclear power is mainly provided by Hollysys.

According to public reports, in July 2020, Hollysys dismissed Shao Baiqing from his post. Hollysys experienced a personnel "clean-up". Qiao Li, the former director, became the chairman of the board of directors, and Nim Colin sun, the former independent director and chairman of the audit committee, became the CEO of the company.

In August of that year, Jerry Zhang, an independent director, member of the audit committee, member and chairman of the Remuneration Committee, and member and chairman of the corporate governance and Nomination Committee, resigned. On 1 September, Kok Peng teh was appointed as an independent director, a member of the audit committee, the compensation committee, the corporate governance and Nomination Committee, and the chairman of the compensation committee; Khiaw Ngoh Tan is appointed as an independent director, a member of the audit committee, the Remuneration Committee, the corporate governance and Nomination Committee and the chairman of the audit committee.

After the high-level turmoil, Hollysys has a situation that 80% of its directors are foreigners or permanent residents. Currently, of the five directors of Hollysys, two are Singaporeans, one is American (or has permanent residency in the United States) and one has permanent residency in Singapore.

In addition, the revised articles of association of Hollysys centralizes all substantive powers of Hollysys on the board of directors. The directors have an unlimited term of office, and shareholders have no right to remove directors without cause. In September 2020, Hollysys board of directors revised the poison pill plan (equity dilution anti takeover measures. When the company encountered a hostile takeover, the company issued a large number of new shares at low prices in order to maintain its controlling shares), and planned to further control the company.

According to 21st century economic report, in February 2021, Shao Baiqing and others filed a lawsuit against Hollysys in the Commercial Court of the Eastern Caribbean Supreme Court, seeking the court's judgment that Hollysys' amendment to the company's Memorandum and articles of association was invalid and overturned, And prohibit the company from restricting the rights or interests of shareholders in any way to amend the company's Memorandum and / or articles of association in accordance with the amendment, and seek to prohibit the company from amending the company's Memorandum and articles of association without the consent of the shareholders in the future, so as to restrict the rights or interests of shareholders.

According to Shao Baiqing, the relevant litigation has achieved preliminary victory. According to the preliminary judgment, Hollysys has made a number of commitments, including that until the final judgment of this lawsuit, the company shall not take any action in accordance with the amendments to the company's memorandum of association and articles of association which have been challenged by the plaintiff. The company shall not rely on the illegal amendment to the articles of association to prevent the shareholders from considering the takeover offer put forward by the buyer group.