China Vanke’s RMB 45.6 billion ($6.9 billion) bid to escape a ‘hostile takeover’ from its largest shareholder has been jeopardized after a recently signed agreement apparently failed to get enough votes from the Shenzhen-based developer’s board of directors.
In a statement issued Friday the Vanke had said that its board voted 7-to-3 in favor of the proposal. However, the developer’s second-largest shareholder, China Resources, issued a statement on its corporate WeChat account this week saying that the proposition needs approval from two-thirds of the board, or 8 of the 11 members, according to an account in Bloomberg.
Trading Shares for Security
Under the terms of a recent contract signed with Shenzhen Metro Group, which was outlined in a series of announcements to the Hong Kong stock exchange, Vanke’s management agreed to swap new shares in the company for sites located above the operator’s subway stations. The deal would give the mainland’s largest builder access to strategically located land in some of the megacity’s prime areas including the Qianhai area special economic zone across the border from Hong Kong.
When the agreement was put before the board, one director abstained citing a conflict of interest, while all three board members from China Resources voted against it.
Chairman Wang Shi and his team reportedly favor the deal as it would protect Vanke’s management team from the influence of its biggest current shareholder, Baoneng Group, by diluting the Shenzhen conglomerate’s recently acquired stake from 24 percent, down to just over 19 percent. Once the new shares are issued, Shenzhen Metro would hold over 20 percent of the real estate firm.
China Resources Unhappy With Share Sale Plan
State-owned China Resources has been a long-term major stakeholder in the real estate developer and contended that its opposition to the deal was to ensure the protection of all shareholders. China Resources said in a statement that Vanke’s low debt burden would enable the company to finance the deal through cash or debt and doesn’t need to issue new shares.
The proposed price of 15.88 yuan per A share would see Vanke trade at an implied 24 percent discount to its net assets. The SOE added the land being bought would not contribute to profit for the next several years and dilute earnings.
Vanke board secretary Zhu Xu defended the deal in a separate statement to Bloomberg News, indicating the agreement would bring “continuous quality project resources” in key Chinese cities at “reasonable” prices and the two projects being acquired were the “best two land sites in Shenzhen.” New home prices in the southern Chinese business hub rose 53 percent in the year to May.