Yesterday, a board member I like and respect asked about the possibility of XIN being bought in a tender offer. The short answer is that no M&A deal of any kind can be done without the full support and backing of the CEO. He has multiple options for sinking unwanted offers.
I. What's a Tender Offer?
A tender offer is one of the choices on the "Ways to Buy a Company" menu. Like a going private deal, a buyer's group makes an above market offer to purchase all the shares of a corporation. The corporation votes on it. If a super-majority "yes" vote is achieved -- in XIN's case, 3/4 of the voting shares and 3/4 of its debt are required -- then the deal happens.
If that sounds a lot like a going private transaction, then you've been paying attention.
Tender offers differ from going private deals in a few ways:
1. The CEO (really, Management) isn't part of the buyer's group.
2. The Buyers Group is often a corporation + a bunch of lenders, rather than a VC firm.
3. Following the transaction, the Target isn't privatized, as it now makes up a component of the Buying Corporation.
4. Sometimes the Buying Corporation uses its own stock as part or all of the compensation paid to the Target's shareholders.
II. XIN's Tender Offer Provisions
Can be found at the SEC website, search "xinyuan", filing dated 12/7/07, Amended F-1, Pg 149. They are:
1. Approval required by 3/4 of the voting shares. Not 3/4 of all the shares outstanding, though, which is unusual.
2. Approval required by the holders representing 3/4 of each class of debt outstanding. This is a Caymans Islands specific statute not required by US law.
3. Here's the cover-all provision for the CEO to block an unwanted offer: XIN has authorized, but not yet issued 250 million ADR's, which it can issue to anyone it wants, on any terms it wants, without shareholder approval.
So, even if a Buyer somehow acquired 50 million ADR's, the CEO can just issue himself another 100 million shares, then say, "OK, let's vote".
No mention of takeover provisions is made in the Articles of Association (Cayman-speak for Articles of Incorporation), so nothing more is added to the above requirements.
This lack of anti-dilution provisions is something shareholders shouldn't love, but that's a topic for a different thread.
@casey, I did some research on your tender offer question.
I didn't mean to discover it, but it doesn't look like there's any anti-dilution provisions anywhere to protect each ADR's ownership interest. Unless they're in an unusual place, the only thing preventing the issuance of more shares is the Cayman Islands' version of the Business Judgment Rule, a hard thing for corporate officers to violate under US law.
Retail voters usually aren't sophisticated enough to care, but Institutional investors might not be thrilled with that situation. It's always been an open question as to exactly what buyers dislike so much about XIN that keeps its price under 2 P/E, maybe that's part of it.
I think you have done an outstanding job in research. You have articulated your case eloquently with perfect logic and execution. If your objective is to persuade me a tender offer is not possible at XIN, please discontinue your efforts. My prejudice, in this regard, is set, based on years of experience rather than a well reason legal position. My prejudice is given enough access to funding and a strong enough will, there is no company that cannot be tendered out regardless of the laws or by-laws.