UPDATE 1-China's Yingde in play as PAG buying co-founders' stake for $616 mln

Elzio Barreto

(Corrects 13th paragraph of March 1 story to say Shan is

chairman and CEO of PAG, not founder)

* Yingde shares up as much as 20 pct after PAG's bid for


* Offer may entice higher takeover bid-Oasis

* Yingde shares more than doubled since December

HONG KONG, March 1 (Reuters) - Hong Kong-based private

equity firm PAG has agreed to buy the 42.1 percent stake of the

three co-founders of Yingde Gases for $616 million,

the latest twist in a months-long battle for control one of

China's largest industrial gases company.

PAG signed a deal with Zhao Xiangti, Sun Zhongguo and Trevor

Strutt to buy their combined stake at a price of HK$6 ($0.7729)

per share, Yingde said in a statement on Wednesday. The

agreement will be suspended if they receive a competing offer at

least 5 percent higher than PAG's, or equivalent to HK$6.3 per

share, it said.

Shares of Yingde jumped as much as 20 percent to HK$6.40, a

21-month high, after they resumed trading on Wednesday,

following news of PAG's bid for the shares. The stock has more

than doubled since late December, when U.S. industrial gas maker

Air Products made a takeover approach of as much as $1.5

billion in cash for Yingde.

The shares later trimmed the gains to close up 17.5 percent.

"We believe that this is a positive development for

shareholders because it potentially sets a higher price for a

takeover – equal to or higher than HK$6.30 - whether that

ultimately is by PAG, Air Products or another bidder," Seth

Fischer, chief investment officer of Hong Kong-based activist

hedge fund Oasis Management Company, said in a statement.

Oasis had said on Monday it would seek a seat on Yingde's


Yingde's main products include oxygen, nitrogen, argon and

some specialty gases which it sells primarily to companies in

the steel, iron ore, chemicals and electronics industries. It is

an established leader in China in on-site industrial gas

production, with 69 gas facilities in 19 provinces, according to

November 2016 report by Macquarie Capital.


Over the past few months, the company has seen high drama.

Sun and Strutt, previously the Chairman/CEO and COO of

Yingde, respectively, were relieved from their posts during a

November board meeting that named Zhao chairman of the company

and have since been in a legal fight to get reinstated.

Yingde in January disclosed details of Air Products'

December offer after an inquiry from Hong Kong's Securities and

Futures Commission. It revealed that Air Products' initial

non-binding bid was for HK$5.5 per share, but it could raise it

to HK$6 if allowed to conduct due diligence on Yingde.

Yingde would help Air Products expand into emerging markets

and diversify its revenue mix, with a combination also helping

with synergies, according to a Jefferies report in January that

estimated the U.S. company could raise its bid as high as HK$8.8

per share "before the return outlook deteriorates below


PAG declined to comment, while Air Products didn't

immediately reply to a Reuters request for comment.

PAG, whose chairman and CEO Weijian Shan was previously at

TPG Capital LP, manages about $16 billion of capital, with

recent investments including the $3.6 billion purchase of

printer maker Lexmark International Inc last year. The firm

raised $3.6 billion for its second Asian buyout fund in January


While Yingde's shares have surged, its bonds have also

rallied in 2017, with hedge fund Oasis's board seat push viewed

positively by Yingde's bondholders.

Its bonds due 2020 have rallied over 25

cents since the start of the year and the bonds trade at 101/102

cents on the dollar now, significantly higher than the lows of

64 cents struck in March 2016. On Wednesday, these bonds rose 3


"The firm, with its activist bent, would be helpful to

provide checks and balances," independent research firm Lucror

Analytics said in a note, referring to hedge fund Oasis.

($1 = 7.7625 Hong Kong dollars)

(Additional reporting by Umesh Desai; Editing by Muralikumar