Publication Date: October 21, 2020
Hedge funds are noticing an uptick in the number of exits by Chinese companies from US exchanges, primarily through buyouts or Hong Kong re-listings. With multiple US-listed, Chinese privatisations announced or proposed, and following the successful completion of 58.com, event driven funds are focusing on potential back-end opportunities in the next three largest billion-dollar takeovers: Bitauto, Sina and DouYu. A prominent feature of these Cayman statutory mergers is that minority shareholders benefit from an appraisal rights system. To date there are five precedent cases that have received Cayman court rulings, and these contain details on courts’ and experts’ assumptions and approaches to calculating “fair value”. In this report, we explain and quantify opportunities presented to investors that exercise dissenters’ rights in US-listed, Cayman-incorporated statutory mergers. We define actions needed to trigger the rights, what to expect in Cayman courts and whether it is worthwhile to dissent. Finally, and perhaps most importantly, we stress the risks in solely assuming upside in these situations and warn of potential short-term trading pitfalls upon dissenters’ cap conditions being breached.
1. Cayman-Incorporated, US-Listed Chinese M&A 2. The Cayman Appraisal Rights Regime and Back-End Process 3. Examinations of Valuation Disagreements 4. DCF Valuations Using Precedent Expert and Court Assumptions - Bitauto (BITA US) / Tencent-led Consortium (700 HK) - Sina (SINA US) / New Wave MMXV (private) - DouYu Int’l Holdings (DOYU US) / Huya (HUYA US) - 58.com (WUBA US) / Founder and Private Equity Consortium (private) - Sogou (SOGO US) / Tencent-led Consortium (700 HK) 5. Profit-Threatening Risk: Judges’ Blended Weightings of Methodologies 6. Deal-Threatening Risk: Dissenters’ Cap Game Theory 7. Risk Arbitrage and Back-End Trading Recommendations Appendix A: Cayman Companies Law: Rights of Dissenters
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