The Hong Kong’s Securities & Futures Commission (SFC) said that Alibaba Group Holding Ltd breached the takeover rules in its acquisition of CITIC 21CN Company Ltd. by entering another deal during the acquisition process. CITIC 21CN, in which the e-commerce company bought a stake in 2014, is now known as Alibaba Health Information Technology Limited.
How Alibaba Group Broke Takeover Rules?
The e-commerce firm agreed to pay $170 million to acquire a stake in CITIC 21CN in 2014. At the same time, the Chinese e-commerce giant signed an agreement with a shareholder of CITIC 21CN, namely Mr. Chen Wen Xin, to buy his solely-owned Hebei Huiyan Medical Technology Co. Ltd.
The Takeovers and Mergers Panel, which is part of the SFC, found that the signing of the deal, during the acquisition process of CITIC 21CN, was a breach of the takeovers code. Mr. Chen is the younger brother of Ms. Chen Xiao Ying, an executive director and vice chairman of CITIC 21CN.
The Panel ruled that the agreement between the e-commerce firm and Mr. Chen “constituted a special deal with favorable conditions which were not extended to all shareholders and was a clear breach of the Takeovers Code.”
The Takeovers Panel also found “that in consequence the whitewash waiver granted to Alibaba Group Holding Ltd was invalidated and therefore a mandatory general offer obligation has been triggered unless waived.”
Ms. Chen held an approximately 21% stake in CITIC 21CN before completion of the whitewash transaction.
“However, in light of the difficulties in placing a precise value on the favorable conditions received by Mr Chen, and the prevailing market price CITIC 21CN’s shares since the whitewash transaction was announced, the Takeovers Panel noted that any additional value to the subscription price Alibaba Group paid to acquire a majority interest in CITIC 21CN was most unlikely to be material in the context, and therefore waived the mandatory general offer obligation,” according to a statement.
Alibaba Group May Appeal The Takeovers Panel’s Decision
Alibaba Health, in which the company owns a 38% stake, is engaged in the development of product identification, authentication and tracking system for the healthcare and other industries. It is listed on the Stock Exchange of Hong Kong. Last year, Alibaba merged an online pharmacy business into healthcare firm. Once that transaction is approved, Alibaba will become an owner of a 53% stake in the healthcare firm, Reuters reported.
The e-commerce giant said it may appeal the panel’s decision. It told Reuters on Wednesday that it is reviewing the panel’s ruling and believes it has complied with the takeover code. Shareholders benefited by a 533% surge in Alibaba Health shares since its takeover, according to the company. “Therefore, we believe that no Alibaba Health shareholder has been unfairly affected,” it said.
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