Zhongpin delays take-private deal, drops go-shop provision

The company's board accepted a bid from Xianfu Zhu, Zhongpin's chairman and CEO, in late November 2012. Two companies controlled by Zhu and his co-investors, Golden Bridge Holdings and its wholly-owned unit Golden Bridge Merger Sub, will pay $13.50 per share for the 74% of Zhongpin that they don't already own. The offer represents a 47% premium to the company's closing price on March 26, the day before the Zhu submitted his bid.

The investor group has secured $85 million in equity financing from a private equity vehicle called China Wealth Growth Fund I while China Development Bank (CDB) will provide a $320 million loan facility.

Zhongpin and dedicated acquisition vehicle Golden Bridge Merger Sub are incorporated in Delaware, but Golden Bridge Holdings is a Cayman Islands company. This suggests Zhu ultimately has his eye on re-listing in Hong Kong, which is easier to do from Cayman than Delaware.

The other issue presented by Delaware that can delay take-private deals is burdensome fiduciary duty. Within days of a take-private being announced, class-action law suits are filed on behalf of minority shareholders, claiming that the board has been acting in the interests of the chairman behind the bid and neglecting those of other investors.

There is additional pressure to seek out potential rival bidders, hence Zhongpin's decision to remove the "go-shop" provision so that the current offer is less likely to be challenged. According to a regulatory filing, the company's right to terminate the original agreement at any time for any reason has also been dropped from the deal while termination fees payable to the company in certain circumstances have been reduced.

Zhongpin is essentially a cold chain logistics company. It sources fresh and frozen meat and fruit and vegetables from local suppliers, processes the products, and transports them to the end distributors. Its network covers about 3,400 retail outlets in 20 provinces. Sales revenue reached $1.45 billion in 2011, up 54% year-on-year, while net income increased 10% to $64.2 million.

It is one of four PE-backed take-private deals for US-listed Chinese companies to have reached an agreement in the last three months. The others are ShangPharma, Focus Media and 3SBio. Once shareholder approval has been granted, the companies can be de-listed.

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