Yingde Gases "accidental win" for minorities fans sparks of activism

Elzio Barreto

(Repeats with functioning link to Air Products story)

HONG KONG, March 24 (Reuters) - The messy battle to control

China's largest producer of industrial gases has turned into a

serendipitous victory for minority investors that could

encourage more shareholder activism in Asia.

Though far less common than in the United States, open

campaigns seeking better returns or a change in business

strategy have risen sharply in Asia, with the number of targeted

companies rising to 77 in 2016 from 55 the previous year,

according to data from research firm Activist Insight.

That is still well short of the 456 cases in the United

States, underscoring the room for further growth as investors

feel more emboldened and markets in the region expand.

The decision by Yingde Gases Group's shareholders

earlier in March to oust five directors ended a four-month

battle for control of the $1.6 billion company's board in a

clash over how to improve its finances and business. It is

expected to speed up a strategic review that could include an

outright sale of the company.

The increase in public activist campaigns also highlights

how investors including Elliott Management Corp, BlackRock Inc

and Hong Kong-based hedge fund Oasis Management are

becoming more public as they try to rally other minority

shareholders to boost returns from laggard stocks.

"This case with Yingde had the potential of disenfranchising

shareholders, but people went and they voted. It only happened

because the insiders split and that gave a real voice to

minority shareholders here," said Seth Fischer, chief investment

officer at Oasis, which holds a 4.5 percent stake in Yingde. "It

was a bit of an accidental win."

As Yingde co-founders Sun Zhongguo and Trevor Strutt, who

prevailed in the vote, battled with Zhao Xiangti, another

co-founder and major shareholder, the company received takeover

approaches from asset manager StellarS Capital (Hong Kong) Ltd

and U.S. industrial gas maker Air Products and Chemicals Inc

worth $1.1 billion and as much as $1.5 billion in cash,

respectively.

Air Products said on Friday it was dropping its takeover bid

because "it is not in the best interests" of its shareholders.

The takeover battle took another twist when Hong Kong-based

private equity firm PAG agreed to buy the combined 42.1 percent

stakes of Zhao, Sun and Strutt for $616 million. The offer's

only condition was that PAG and parties acting in concert with

the fund hold more than 50 percent of Yingde.

Institutional Shareholder Services (ISS), which advises

pension plans and mutual funds, had called in the beginning of

March for a fully independent board, as that would give "the

most objective assessment of any offers to acquire" Yingde. The

call for more independence was also voiced by Oasis.

Speaking to Reuters last week, Strutt and Sun said they

believed Zhao had destroyed value for shareholders and were now

focusing on trying to secure a higher bid for the company. They

said they were also trying to bring in another board member with

expertise in the gas sector to help the process go smoothly.

While one UK fund manager described the Yingde case as a

"somewhat unique situation, rather than the dawn of a brave new

world of activism in Hong Kong," since it depended on a split

among the top shareholders, there is nevertheless at least a

noticeable whiff of change.

In a region with many family-owned businesses and listed

companies with few people holding the vast majority of shares,

investors are increasingly asking boards to act in the interest

of all shareholders, not just majority owners.

In a rare public campaign last year, ultimately

unsuccessful, BlackRock, the world's largest asset manager,

called on the board of Hong Kong-listed G-Resources Group Ltd

to "honour its obligations to all shareholders".

While the number of companies targeted by activist investors

was unchanged at 14 in 2016 from 2015 in Hong Kong, it rose to

15 from nine in Japan and to 11 from eight in China, while also

rising in South Korea, Singapore and Malaysia, according to

Activist Insight.

Asia has seen vast improvement in corporate governance over

the past two years as regulators and securities exchanges

tighten rules to boost company performance, raise investor

confidence and guard their reputations.

Markets including Hong Kong, Japan, Singapore, South Korea,

Taiwan and Thailand have been getting tough on rogue firms and

introduced stewardship codes to encourage engagement between

companies and investors.

Hong Kong and Singapore, two of the region's largest

financial centres, have tightened listing and takeover

requirements, and stepped up enforcement after instances of

erratic price movements sparked fear of

manipulation.

(Additional reporting by Michelle Price in Hong Kong and

Anshuman Daga in Singapore; Editing by Will Waterman)