NEW YORK, August 17, 2015 - Long-term investors of E-Commerce China Dangdang (NYSE: DANG) (“Dangdang”) aren’t ready to surrender their shares to a potentially forced management buyoutand are calling for SEC to investigate. “Shareholders are outraged by the act of Dangdang’s CEO and Chairwoman on July 9th, 2015. The management’s tactics to take unfair advantage of investors should be thoroughly investigated by the SEC.” said investor Susan Reiter of Seattle, Washington. She has been an investor of Dangdang since 2011.
The recent go-private proposal for Dangdang at $7.81/share from Ms. Peggy Yu Yu, Chairwoman of the Board, and Mr. Guoqing Li, CEO of the Company ("Buyer Group") on July 9th, 2015, has raisedquestions on what fiduciary duty means to management teams of some Chinese companies.
Buyer Group made the go-private proposal on the morning of July 9th, before the opening of NYSE, a day after Dangdang’s share price just hit a multi-year low after weeks ofselling caused by the drastic 35% summer cascade of Shanghai stock market. The buyout offer at $7.81 per ADS shareis not only less than half of its $16 IPO price from 2010, but also substantially lower than 52 weeks average price at $10.6 and 30 days average price at $9.55.
In 2014, Dangdang’s CEO Li told Economic weekly magazine that multiple parties were interested in acquiring Dangdang and he chose not to sell the company at $16/share. Li has also publicly stated, both in August of 2014 and January of 2015, that Dangdang’s share price was massively undervalued while it was traded between $12 and $15.
Dangdang’s proposal is in sharp contrast to another recentChinese go-private transaction on NYSE in July — Xueda Education Group (NYSE: XUE). Xueda’s go-private share pricewas finalized at72% premium to its 30 days average share price. Mr. Jingbao Yao, CEO and Chairman of 58.com (NYSE: WUBA), openly called for other U.S.-listed Chinese companies to use Xueda’s transaction as reference when seeking to go private.
Kevin Lu, an entrepreneur of San Francisco and long-term investor of Dangdang, has created a website challenging Buyer Group’s opportunistic tactics (www.dangdangfacts.com) with a public open letter to Dangdang’s Board of Directors. The website has quickly gained tractions among minority shareholders and been featured in six China-based media outlets. Dangdang’s buyout proposal has also triggered online debates on what fiduciary responsibilities really mean to the management team.
The timing of Dangdang’s management buyout proposal onJuly 9, 2015 was “particularly opportunistic”, said Lu. Since mid-June, the 35% drop of Shanghai stock market in three weeks had also dragged down most of U.S.-listed shares of Chinese companies. At the closing of July 8th, Dangdang’s share price just tanked 45% over a period of 3 weeks, without any company news.
On the night of July 8th in New York and morning of July 9th in Shanghai, Chinese stock market finally reversed the recent downtrend and rallied up 7% by noon as government announced new stimulus plans.
Recognizing that Dangdang’s stock will move up substantially higher when NYSE opens in just hours, the Buyer Group, apparently decided to take advantage of the time zone difference between Shanghai and New York, submitting the buyout proposal at 6AM EST, after closing of Shanghai market but before the opening of NYSE on July 9th. The proposal specified the $7.81/share buyout price was calculated with 20% premium based on the previous July 8th closing price of $6.51.
“This is bigger than one company event as over 100 Chinese companies are currently listed here.” said Lu.“Allowing management teams of foreign companies to take advantage of time zone difference, at the expense of shareholders, would greatly undermine the fairness of U.S. markets.”
The Buyer Groupcollectively controls 83% of the shareholder voting power, despite only owning 36% of the company. Dangdang Board of Directors has moved swiftly by appointing a special committee, comprised by the independent directors of the company - RubyLu, Ke Zhang, and Xiaolong Li - to evaluate the proposal. The special committee has retained Duff & Phelps LLC as the financial advisor.
“We remain confident that the special committee members will act in the best interest of shareholders, as required by SEC law.” said Lu, “By comparing to other recent Chinese go-private deals such as Xueda, they should be able to conclude the existing proposal undervalues the company to the detriment of shareholders.”
www.dangdangfacts.com is a website that is dedicated to raising shareholder awareness of the ongoing privatization of Dangdang (NYSE: DANG) launched by its management team. For more information, please contact Kevin Lu, Principal of dangdangfacts.com at 925-519-3764 or www.dangdangfacts.com.
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