Dazheng Group Reaffirms Commitment to Acquire Hollysys Automation Technologies at US$29.50 per share and Urges Shareholders to Vote Against the Lower Priced Ascendent Transaction
- None.
- The potential Chinese national security review and outbound investment approval for the transaction with Ascendent puts shareholders at risk of closing uncertainty.
Insights
The public letter from the Buyer Consortium to Hollysys Automation Technologies Ltd. shareholders represents a significant event in the context of a potential acquisition. The Consortium's claim of providing a higher offer than that of Ascendent indicates a competitive bidding situation which could have material implications for shareholder value. The emphasis on 'good faith' negotiations and 'above industry standards' financing suggests the Consortium is aiming to position itself favorably among shareholders and the broader market.
However, the mention of potential Chinese national security review and outbound investment approval introduces an element of regulatory uncertainty. This could impact the transaction timeline and bring additional risks for shareholders. The Consortium's call to action for shareholders to vote against the Ascendent transaction and the commitment to continue its acquisition efforts indicates a protracted takeover battle that could influence Hollysys' stock volatility in the short-term. Shareholders and potential investors should closely monitor the developments as they could lead to significant share price movements.
The reference to potential Chinese national security review and outbound investment approval is a critical legal aspect of the proposed transaction. Such reviews are part of the regulatory landscape for cross-border transactions involving Chinese companies and can significantly affect the likelihood of a deal's completion. The Buyer Consortium's warning about the risks of closing uncertainty due to these regulatory hurdles is a strategic move to sway shareholders' opinion towards their offer.
It is essential to understand that the legal implications of such reviews can extend beyond mere approval or rejection. They may result in conditions being imposed on the transaction that could affect the operational strategy of Hollysys post-acquisition. Stakeholders should be aware that regulatory scrutiny could also lead to a longer than expected transaction timeframe, potentially affecting the company's strategic planning and operations during the interim period.
The competitive dynamics highlighted by the Buyer Consortium's public letter suggests an intense interest in the control of Hollysys. This situation can be indicative of underlying value within Hollysys' operations or market position that the Consortium is keen to capitalize on. The fact that the Consortium is urging shareholders to reject another transaction in favor of their proposal implies confidence in their ability to provide superior value.
From a market perspective, the unfolding events should be closely analyzed for their impact on the industrial automation sector, particularly within the Chinese market. The outcome of this acquisition battle could have strategic implications for the sector, potentially reshaping market competition and influencing future consolidation trends. Moreover, the actions of the Consortium may set a precedent for how similar transactions are approached in the future, especially in terms of shareholder engagement and public appeals in contested acquisitions.
Buyer Consortium has acted in good faith in attempts to negotiate a transaction with Hollysys and has demonstrated financing above industry standards
Hollysys’ claims against the Buyer Consortium demonstrate prejudice against the Buyer Consortium and wrongly prevent shareholders from considering the Buyer Consortium’s higher offer
Contemplated transaction with Ascendent is subject to potential Chinese national security review and outbound investment approval and puts shareholders at risk of closing uncertainty
Buyer Consortium urges shareholders to vote AGAINST the Ascendent transaction and call upon the Hollysys Board of Directors to convene a shareholder meeting to present the Buyer Consortium’s proposal to shareholders for their consideration
Buyer Consortium will continue its effort to acquire Hollysys, will continue soliciting AGAINST the Ascendent transaction
The full text of the Consortium’s letter is as follows:
Hollysys Shareholders,
You have a critical decision to make on February 8, 2024, about the future of Hollysys.
We urge you to vote AGAINST the Ascendent Capital transaction and urge the Board of Directors (“Board”) of Hollysys to comply with its fiduciary duty and convene a shareholder meeting to allow shareholders to consider the offer from the Consortium which realizes greater value for Hollysys shareholders. The Special Committee of the Board (“Special Committee”) has engaged in a disingenuous sales process for Hollysys, which has resulted in the Board only allowing shareholders to consider the Ascendent transaction and the Board recommending shareholders accept Ascendent’s
Institutional Shareholder Services (“ISS")and Glass Lewis have both recommended shareholders vote against the Ascendent transaction and it is not surprising that multiple shareholders have voiced their disdain for the proposed Ascendent transaction.
In a press release issued on January 29, 2024, and another press release issued on January 31, 2024, the Special Committee makes several claims against the credibility of the Consortium, led by the Dazheng Group, and the engagement process over the last several weeks. These claims are misguided and lack proper supporting evidence, further casting doubt on the transparency and integrity of the sales process and evidencing a failure to uphold the Board’s fiduciary duty to maximize shareholder value. The Board has no justification for refusing to allow shareholders to receive
FACT: The Board has been deliberately understating the growth potential of Hollysys in order to maintain long-term control over the Company. Although nearly one third of the shareholders validly requisitioned a shareholders meeting to gain control of the Board so that a buyout offer from the Consortium could be put to the shareholders, the Board refused to convene a timely shareholders meeting, forcing a shareholder to go to court to seek a court order requiring a meeting to be convened and an injunction to prevent the Board entering into the Ascendent transaction. The day before the court hearing, the Board hastily entered into a merger agreement with Ascendent to take Hollysys private, failing to maximize shareholder value by running an opaque sales process, and guaranteeing continued control of Hollysys for the Board. Since the beginning of the sales process (which was only started as a result of the efforts of the Consortium), the Consortium, led by the Dazheng Group, has constituted a threat to the Board’s control and as a result, the Special Committee has continually demonstrated prejudice and has unjustly acted to thwart the Consortium throughout the sales process.
FACT: The core members of our Consortium have always consisted of the Dazheng Group and TF International. As is common market practice for investment companies, Dazheng Group solicited equity investors who were willing to participate in a transaction. Ascendent Capital participated in the same practice, and its financing contributions are also made by various equity partners. The Dazheng Group previously submitted three major equity partners to the Special Committee, all with well-executed equity commitment letters and sufficient proof of funding.
FACT: The changes in the funding structure are the result of the Special Committee’s demands and unfavorable treatment against the Consortium during the negotiation process. Demands from the Special Committee have gone beyond industry standards in financing commitments. The behavior displayed has included:
- Demanding a full “ring-fencing” arrangement of our equity participants, which is not a common market practice, and not something the Special Committee demanded of Ascendent Capital;
- At least one of the investors in the Consortium was approached by and made subject to intimidation tactics based on false legal foundations by Ascendent Capital, who was not supposed to be privy to the identity of the investor because it had only been disclosed to the Special Committee and its advisors;
- There have been constant pushbacks on due diligence requirements, delaying the process of confirming certain investors’ participation in the transaction due to their significant concerns about scarce diligence access;
- The Special Committee hired advisors who have a potential conflict of interest, despite being authorized to hire its own independent advisors – as noted by proxy advisor ISS; and
- Repetitive delay tactics of the Special Committee in negotiating fair acquisition terms.
These deliberate tactics used by the Special Committee have forced the Consortium to overcome inappropriate challenges in a take private deal, evidencing the Special Committee’s disingenuous efforts in this sale process, and the Consortium’s resilience in attempting to comply with these off-market and unreasonable conditions.
Furthermore, the criticism of Tony Chen, a Director at the Dazheng Group, and the leader of the Consortium, is inaccurate. Mr. Chen is a former investment banker and entrepreneur who co-founded one of the largest electric vehicle battery start-ups in
The Consortium has an in-depth knowledge of Hollysys, having first announced its bid to acquire Hollysys on December 3, 2021, after undergoing a comprehensive analysis of the business and coming to the conclusion that Hollysys has not fully realized its potential. The Consortium was astonished by the poor corporate governance structure Hollysys possessed, which has resulted in the undervaluation of the equity.
FACT: Hollysys has a notorious history of poor corporate governance which all stakeholders have witnessed. Recently, both leading proxy advisors ISS and Glass Lewis came out AGAINST the transaction with Ascendent Capital. The proxy advisors raised several concerns regarding the process conducted by the Special Committee and the Board’s governance approach, particularly in relation to respecting shareholder rights. Issues with the corporate governance displayed by the Board include:
- The Board of Directors has never been subject to a shareholder election since 2010 and there has not been a shareholder meeting since;
- The poison pill has been in place since 2010 and was renewed without shareholder approval in 2020; and
- There is an extremely high threshold, and unduly onerous process, for shareholders to request the Board to convene a shareholder meeting.
The Board has a history of disenfranchising their shareholders which includes their behavior thus far in this opaque sales process. However, the Board has an opportunity to right its wrongs by putting the Consortium’s proposal to a shareholder vote.
The shareholders of Hollysys deserve a fair and independent sales process that truly seeks to maximize shareholder value. Unfortunately, the process adopted by the Special Committee is neither fair nor independent and demonstrably fails to maximize shareholder value. Leading proxy advisors ISS and Glass Lewis stated the following regarding the sales process and the Special Committee’s actions:
- “Given the questionable effort to maximize price, the unreasonably high standard to which Ascendent’s main competitor has been held, and the inexplicably truncated process, votes against the proposed transaction are warranted.”
- “When placed in full context, we believe there is vanishingly small cause for shareholders to endorse an arrangement derived from what we consider to be a flawed, low accountability process seemingly engineered in its later stages to blunt the shareholder franchise and trade potentially materially greater value for deference to a deal with Ascendent on an accelerated basis.”
- “The Special Committee was authorized to hire its own independent advisors, but chose to use the advisors that the Board had already hired. In light of the potential conflict of interest created by CEO Changli Wang’s membership on the Board and his participation in a 2021 buyout effort, the Special Committee’s decision to use the same advisors is concerning.”
The Consortium reminds shareholders there is a better alternative to the proposed Ascendent deal. The Consortium’s most recent proposal is
If the Ascendent transaction is not approved by shareholders and the Board fails to convene a timely shareholder meeting to put the Consortium’s proposal to shareholders, we will continue with the proceedings in the BVI court, which are still under foot, to obtain a court order requiring the Board to convene a shareholders meeting.
Yours sincerely,
DAZHENG GROUP ACQUISITION LIMITED
By: /s/ Xiaogang (Tony) CHEN
Name: Xiaogang (Tony) CHEN
Title: Director
About Dazheng Group
Dazheng Group Acquisition Limited is a BVI-incorporated financial investor founded by sophisticated entrepreneurs and investment banking professionals.
About TFI
TFI Asset Management Limited is a
Cautionary Statement Regarding Forward-looking Statements
This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are statements that are not historical facts. These statements include projections and estimates and their underlying assumptions, statements regarding plans, objectives, intentions and expectations with respect to future financial results, events, operations, services, product development and potential, and statements regarding future performance. Forward-looking statements are generally identified by the words “believe,” “envision,” “will,” “expect,” “anticipate,” “intend,” “estimate,” “plan” and similar expressions. Although the management of Dazheng Group, TFI and GA Technologies Limited believe that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of any of Dazheng Group, TFI and GA Technologies Limited, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Other than as required by applicable law, none of Dazheng Group, TFI and GA Technologies Limited undertakes any obligation to update or revise any forward-looking information or statements. The information and opinions contained herein do not take into account the particular investment objectives, financial situation, or needs of any recipient and should not be construed as an offer to buy or sell or the solicitation of an offer to buy or sell the securities mentioned or an invitation to the public. Under no circumstances shall the information contained herein or the opinions expressed herein constitute a personal recommendation to anyone.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240131337953/en/
Mr. Tony CHEN
tc@dzgp.cn
Investor Contact
Okapi Partners LLC
Chuck Garske / Bruce Goldfarb
+1 (212) 297-0720
info@okapipartners.com
Media Contact
FTI Consulting
dazheng.consortium@fticonsulting.com
Source: Dazheng Group Acquisition Limited
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