On 19 September, Fullshare Holding Ltd. (0607.HK, not covered) announced aconditional share exchange offer to the shareholders of CHSTE at a fixed ratioof 5 newly-issued Fullshare shares for every 2 CHSTE shares. The deal, basedon the last closing price of Fullshare before trade suspension (HK$4.38), waspriced at HK$10.95/shr, or c.46.6% premium to last closing price of CHSTE(HK$7.47/shr).
The deal is subject to certain conditions including a minimum acceptance byover 50% of CHSTE’s shareholders. Given Fullshare has already had 9.08%stake in CHSTE and CHSTE’ controlling shareholder (Fortune Apex, with28.01% stake) has irrevocably accepted the offer, it requires acceptance from afurther 12.9% shareholders for the deal to go through.
Deutsche Bank view:
This deal, if completed, would be a significant ownership change forCHSTE. Under Chairman Hu and other senior management (alsoshareholders via Fortune Apex holding 28.01% stake), CHSTE has madegreat success in developing into the world’s largest wind gearbox maker,from a small industrial gearbox factory in Nanjing.
The offeror – Fullshare Holdings, is also a Nanjing-based company andholds a 9.08% stake in CHSTE as the second largest shareholder since2014. But we understand Fullshare is primarily focusing on propertydevelopment and provision of green building, investment and healthcareservices, with little business overlap with CHSTE, Thus, we do not see anyobvious synergy from the proposed offer.
Although management of CHSTE is likely to stay after the takeover,Fullshare will nominate new directors into the board. The change in theboard members may result in uncertainty to CHSTE’s strategic directionand long-standing relationship with its key customers.
After the share exchange offer, Chairman Hu and other shareholders ofFortune Apex should have indirect ownership of CHSTE. However, we arenot sure how long they will hold these newly issued shares of Fullshare,given the absence of lock-up clauses.
Although we do see CHSTE’ fundamentals will remain largely intact in thenear term, the likely less control of current management team(shareholders) represents some business uncertainties in the medium term.