Hollysys Automation Skyrockets on Conflicting Buyout Offer

It's now a war for ownership of Hollysys between the former and current leaders of the Chinese company.
Aug. 03, 2021 22:48
Hollysys Automation Skyrockets on Conflicting Buyout Offer

Hollysys Automation Technologies Ltd. (Nasdaq: HOLI) was the biggest gainer on Tuesday among Chinese stocks, skyrocketing 28% on news of another, premium buyout proposal.

Trading volume in HOLI stock exceeded 2.5 million shares today compared to the average of about 280,000 after the Chinese company, which provides automation and control technologies, said it has received another going-private offer. The proposal came from the retired founder of Hollysys, Changli Wang, and an affiliate of Ascendent Capital Partners, Superior Emerald (Cayman) Ltd.

The offer was to buy all outstanding shares in Hollysys at $23 per share – a 48% upside from Monday's closing price of $15.50. It sent HOLI shares to $19.87 per share on Tuesday.

In the report, released after markets closed on Monday, Hollysys said it is evaluating the new offer. An earlier, conflicting offer came from a consortium headed by the company's former chairman and CEO, Baiqing Shao. Together with CPE Funds Management Ltd. and Ace Lead Profits Ltd., Shao offered to take Hollysys private at $17.10 per share. The offer was a 21% upside from HOLI shares as of June 25, when a document addressing HOLI shareholders was made public.

The June 29 document was a letter from Shao urging shareholders to support the acquisition. Apparently, the group had initially proposed the deal in December 2020 and now expressed discontent with the company's "being badly mismanaged."

The letter stated: "Shareholders may be wondering how the Board can just 'sit on' the Acquisition Proposal for five months doing NOTHING, while misusing the Company's money and resources to its heart's content and why the Consortium cannot simply acquire control of the Company by purchasing shares from the open market or launching a tender offer."

To that, the company issued a response in mid-July, denying the allegations and saying Shao's offer undervalues Hollysys.

Indeed, Shao has been fighting the company he used to lead for quite some time. In March, Shao was granted preliminary victory in court against Hollysys' changes to the memorandum and articles, which he claimed "were made without the knowledge or consent of the shareholders" and therefore unlawful. According to the March disclosure, published by the Shao consortium, the changes occurred soon after Shao first proposed his buyout deal, and prevented shareholders from considering the offer.

The disclosure also argued that after "the sudden change to the Company's board and management compositions last July, the Company has suffered deteriorating financial performance for two consecutive reporting quarters."

For the past year, Hollysys has been headed by Chit Nim (Colin) Sung. Previously, Sung was the chairman of the audit committee at Hollysys from February 2008 until he overtook the chief role in July 2020.

Now, Shao will have to come up with a better offer than $17.10 per share. And thus, the war for the control of Hollysys continues.

On the news of a superior buyout offer, J.P. Morgan upgraded Hollysys to overweight from neutral and raised its target to $24 from $15 per share. As cited by Bloomberg, analyst Karen Li noted the "likelihood for privatization."