Caymans gives Hong Kong tycoons a head start

Pccw

11/08/2022 04:06

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Jennifer Hughes
    HONG KONG, Aug 11 (Reuters Breakingviews) - A tweak to an
archaic takeover rule in the Caribbean will help Thomas Lau to
succeed where his sibling did not. The Hong Kong billionaire is
offering $240 million to buy out minority shareholders in
Caymans-registered Lifestyle International  1212.HK , his
department store chain. His timing means the deal won’t have to
pass the so-called headcount test that ended a similar tilt at
developer Chinese Estates  0127.HK  by the family of his brother
Joseph. Dropping the rule makes governance sense, although it
removes one means for small shareholders to scupper poor offers.
    Several Hong Kong tycoons have fallen foul of the notorious
tests, which the Cayman Islands will scrap at the end of this
month. The rule stipulates that a deal needs to be approved by a
majority of voting shareholders present, as well as by
ownership. Joseph Lau’s family failed to buy the 25% it didn’t
own in developer Chinese Estates, valuing it at $979 million,
after a majority in the room blocked the deal despite holding
just $8.4 million worth of shares.  urn:newsml:reuters.com:*:nL1N2TM02A
    It's a rule open to abuse. Richard Li’s 2008 privatisation
offer for his telecoms operator, PCCW  0008.HK , passed the test
but he dropped the bid after it was revealed shareholdings had
been split to boost headcount support.
    The tests – and failures – have been common in Hong Kong
because of the number of tycoon-controlled companies and their
use of schemes of arrangement, a court-supervised process where
disinterested shareholders, but not the bidders, vote. Hong Kong
dropped the rule in 2014, but is home to just 8% of the city’s
listed companies. The Caymans hosts 59% of them while Bermuda,
domicile of Chinese Estates and around a fifth of Hong
Kong-listed companies, still requires the test.
    Many tycoon buyouts come at notably weak moments for the
shares. The Chinese Estates offer was a 38% premium to the
undisturbed price, but a massive 69% discount to the net value
of the company’s prime properties. Lifestyle shares last week
hit their lowest in at least a decade when Thomas Lau made his
offer for the 25% he does not already own. 
    Hong Kong replaced its headcount test with a rule allowing
10% of minority shareholders by ownership to block a scheme of
arrangement, regardless of domicile. Resistance under that rule
is perhaps harder to organise than mobbing a meeting, but it’s
fairer on fellow shareholders. 
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Twitter
    
    CONTEXT NEWS
    Hong Kong-based Lifestyle International said on Aug. 7 that
Chairman and 75% shareholder Thomas Lau has offered to take the
department store operator private in a deal valuing the company
at HK$7.5 billion ($957 million), or HK$5 a share.
    The price, which Lau declared is final, represents a 62%
premium to the shares’ undisturbed level.
    Lifestyle is domiciled in the Cayman Islands, which at the
end of August will drop a requirement for the so-called
headcount test. This stipulates that deals such as taking a
company private require approval both from the majority of
shareholders participating in the vote by number as well as by
voting power.
    Almost 60% of primary-listed Hong Kong companies are
domiciled in the Caribbean tax haven. 

 (Editing by Antony Currie and Katrina Hamlin)
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