The company disclosed in late September that it had agreed to be taken private for a little under $350 million by its CEO and a few private equity firms. Yongye’s Board has already approved the sale at a price of $6.69 a share, a 5.5% premium to the stock’s current price. Most analysts think the deal will close sometime in the first quarter of next year, but it still has to be approved by a shareholder majority. That’s where Glenhill comes in.
In its latest filing with the SEC (linked above), the hedge fund said it doesn’t agree with the outstanding merger proposal, with the reason being that “the Purchase Price is inadequate,” in Glenhill’s words. The fund mentions that Yongye traded near $12 per share in 2009, and that a fair purchase price “would be multiples” of the existing proposal, and recommends management to “terminate” the merger agreement. Glenhill also advises that Yongye should seek listing on the Hong Kong Stock Exchange (SEHK) instead of the Nasdaq, citing an evident premium that exists on peers who trade on the SEHK.
If the company’s merger does get approved, an appreciation of another 5% will take place in the coming months. On the other hand, if Glenhill gets what it wants and either Yongye management or its shareholders stop the merger, there’s potentially more upside but more risk.
The upside: a potential switchover to the SEHK could allow the stock to reach a better valuation. The risk: if a listing change does not occur, shareholders could flee the stock. It is possible that investors who were long for merger arbitrage purposes would flee the stock as well.
As you can probably expect, we’ll be watching Yongye very closely, and with Cal Dive, we’d recommend watching its international revenue growth going forward.