Migao Corp CEO, already company’s largest shareholder, makes bid to privatize

June 7, 2016

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TORONTO — A survivor from the long-dead China equity boom is finally poised to exit the Toronto Stock Exchange.

Migao Corp., a Beijing-based fertilizer producer with all its assets in China, announced a deal Tuesday to be acquired by Liu Guocai, its chief executive and largest shareholder. Guocai is offering 75 cents a share in cash for the company, which is nearly double the closing price on Monday. The deal, which includes a financing condition, values Migao at about $39 million.

Migao went public in 2006 and used to be a massive market darling. When potash prices were soaring in early 2008, the company was worth more than $11 a share. It traded at more than $8 as recently as 2011.

But like other Chinese companies trading on North American exchanges, Migao got caught up in an event outside its control: the collapse of Sino-Forest Corp. in the summer of 2011.

As Sino melted down and short sellers lobbed accusations of fraud at many other Chinese firms, investor interest in these companies evaporated.

Migao became a penny stock with minimal trading liquidity, and it never recovered. It didn’t help the company’s cause when Hanfeng Evergreen Inc., a separate Chinese fertilizer firm, got delisted from the TSX in 2014 after a messy board battle and failed takeover bid.

A source familiar with the Migao privatization offer said there is no reason for this company to remain public. Migao is illiquid, has not accessed the North American capital markets in several years, and is dealing with unnecessary compliance costs just to maintain a listing.

Migao reported earnings of $53.8 million last year on revenues of $444.5 million. On that basis, a valuation on the company of $39 million seems low to some observers. However, experts think a rival bid is highly unlikely. Guocai controls 34.2 per cent of the shares, and China’s fertilizer sector would be very tricky to navigate for potential bidders outside the country.

“The stock should never have got this low,” analyst Chris Damas of BCMI Research said in a note.

Shareholders could vote to block the deal, but given that Guocai is offering a premium of almost 100 per cent, there could be major downside risk if he refuses to boost his offer and walks away. Migao plans to hold a shareholder vote on the transaction in late July.

Helen Lu, Migao’s chief financial officer, did not return calls requesting comment.

Financial Post



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