HONG KONG – The China Minzhong Food Corporation, whose Singapore-traded shares lost half their value last week after it came under attack from a California short-seller, said on Monday that it had received a timely takeover offer from its biggest shareholder, an Indonesian food company.
In a deal that values Minzhong at 734 million Singapore dollars ($ 576 million), Indofood Sukses Makmur, which is controlled by the Indonesian billionaire Anthoni Salim, offered on Monday to pay 1.12 Singapore dollars in cash for each Minzhong share it does not already own. The offer price was more than twice the previous closing price of Minzhong’s shares.
Shares in Minzhong resumed trading for the last 90 minutes of the afternoon session in Singapore, and promptly surged 112 percent, to close at 1.125 dollars apiece, slightly higher than the offer price. The rapid increase was probably also related to frantic buying activity by short-sellers seeking to unwind their bets that the stock would fall further, a so-called short squeeze.
Indofood is a conglomerate with businesses as varied as instant noodle factories and palm oil plantations. It already owned 29.3 percent of Minzhong, and said it had acquired more shares on Monday, lifting its total stake to 33.5 percent. Minzhong’s chairman, Lin Guorong, and other senior executives have already pledged to accept Indofood’s offer.
Before Monday, Minzhong’s shares last changed hands around noon on Aug. 26 at 53 Singapore cents apiece, having plunged 48 percent in morning trading after the Glaucus Research Group, a short-selling firm based in California, released a report accusing Minzhong of fabricating sales, doctoring its historical financial filings and overstating its capital outlays.
Minzhong “has so significantly deceived regulators and investors about the scale of its business and its financial performance that we expect trading in its shares to be halted and its shares to be worthless,” the Glaucus report said.
Minzhong’s shares had been suspended from trading since Aug. 26. On Sunday, the company issued a formal response to the allegations that rejected the “reckless opinions” expressed by Glaucus, saying the firm showed a “complete lack of understanding of the way we conduct our business as well as the operating environment in the People’s Republic of China.”
Indofood’s stock exchange filings announcing the takeover bid made no mention of the claims by Glaucus, or of Minzhong’s response to them.
But because the offer by Indofood represented such a huge premium to Minzhong’s current valuation — the offer was 111 percent higher than Minzhong’s last share price and almost 7 percent higher than its average stock price over the last six months — it probably also contributed to the short squeeze.
A short squeeze takes place when short-sellers, who make bets that a company’s share price will fall, are forced by an unexpected rally to stop selling and start buying those shares. The buying is an effort to unwind their short positions, to lock in gains or limit losses, but it further drives up the share price.
The offer by Indofood is the latest in a series of deals where the major shareholders of Chinese companies that are listed on overseas stock exchanges have responded to attacks by Western short-sellers by beginning takeover bids.
Shareholders of Focus Media, an advertising display company based in Shanghai that had come under attack by the short-selling firm Muddy Waters Research, approved a $ 3.7 billion buyout this year by a group of investors led by management and private equity groups, in the biggest such Chinese privatization to date.
It was unclear on Monday whether a successful bid by Indofood, which is listed in Jakarta, would result in the delisting of Minzhong’s shares from the Singapore exchange. The Indonesian company is set to release more details in a formal offer document in the next two to three weeks.
The Singaporean bank UOB Kay Hian is handling the offer on behalf of Indofood.