Vanke tussle points to China’s first hostile takeover battle
December 28, 2015 7:22 am
Tom Mitchell in Beijing and Ben Bland in Hong Kong

There are not many countries where, in a corporate showdown pitting new money against old, the old money was made in the 1990s.
Such a battle is brewing in China, where an obscure insurer — privately held Baoneng Group — has built up the largest single stake in one of the country’s biggest property companies, China Vanke.
Vanke is also one of China’s best known corporate brands with a celebrity chairman, Wang Shi. Baoneng and its low-key founder, Yao Zhenhua, were largely unheard Vanke tussle points to China’s first hostile takeover battle ©Bloomberg of until this year.
Adding to the intrigue surrounding what could become China’s first full-blown hostile takeover battle, Vanke has sought a potential white knight in the form of Anbang, another private insurance group but one with a “princeling” pedigree: Anbang founder Wu Xiaohui is married to a granddaughter of Deng Xiaoping, the late paramount leader and architect of China’s economic transformation.
Over recent months, Baoneng companies quietly amassed more than 20 per cent of Vanke’s Shenzhen- and Hong Kong-traded shares. Up to that point Vanke’s largest shareholder was stateowned conglomerate China Resources, with a 17 per cent stake.
Mr Wang, 64, decried the development as one that could “ruin” his company’s brand. Vanke put a temporary halt to Baoneng’s stakebuilding by suspending trading in its shares on December 18, pending a “restructuring” announcement expected next month.

But according to Credit Suisse, which hosted two investor presentations by Vanke’s chairman on December 23, Mr Wang said there would be no poison pill and that all shareholders’ interests would be protected. Any new equity placement would also require the approval of investors in more than two-thirds of the company.
Baoneng declined an interview request. Vanke did not respond to a request for comment.
Mr Wang is not used to playing defence. He has been a fixture of China Inc since the mid-1990s, when Vanke began building a name for itself in the southern boomtown of Shenzhen.
A former railway official and then foreign trade official in Guangdong province, Mr Wang abandoned the civil service and “jumped into the sea” of commerce just as Deng’s historic economic reforms were gathering pace in the 1980s.
After dabbling in foreign trade, he made a well-timed entry into the property sector and soon cemented Vanke’s reputation as a widely admired developer of quality residential housing in the country’s largest and richest urban centres.

Jeffrey Gao, a Hong Kong-based property analyst with Nomura, says Vanke’s financial performance has been impressive. The developer achieved an 18 per cent return on equity in 2014 compared with an average of 10 per cent for listed Chinese companies.
Unusually for his peer group, Mr Wang has cultivated a celebrity profile as an avid mountain climber, parachutist and environmentalist. He has taken sabbaticals to study at prestigious overseas universities such as Harvard and Cambridge, while gossip websites track his love life with enthusiasm.
He is also unusual among Chinese entrepreneurs in not having sought to retain a controlling stake in the company he founded, leaving him vulnerable to unwanted suitors.
“Wang is always on social media,” says Edward Tse, a veteran China consultant and author of a recent book on the country’s entrepreneurial “disrupters”. “Before, he seemed untouchable but he’s actually at very serious risk right now. That is what has drawn everyone’s attention.”

By contrast, Mr Wang’s nemesis at Baoneng was almost unheard of before Vanke’s criticism of his share purchases put him on the map. Mr Yao, 45, studied industrial management and food engineering at university. His first company was a grocery chain, from which he quietly expanded into logistics, property and, eventually, insurance.
Mr Yao now stands on the cusp of becoming Communist China’s first corporate raider.
Some analysts think Mr Yao spotted an opportunity that could herald a new corporate era in which Chinese companies with diversified ownership structures and attractive share prices will have to watch their backs.
“This is a natural evolution in China’s development into more of a market economy,” Mr Tse says. “You had a situation where Vanke’s share price was depressed for a long time and its ownership is quite diversified.”

Others say Mr Yao may not need to launch a bid for full control of Vanke to achieve his aims. Mr Gao at Nomura argues that it makes sense for Chinese insurance companies such as Baoneng and Anbang to invest in property developers with good portfolios for purely financial reasons.
Many have done exactly that as returns from equities and other investments shrink and the government eases restrictions that previously limited their property exposure. According to Mr Gao, the average dividend yield for China’s listed property developers is about 5 per cent, while insurance companies have averaged annual investment returns of 4.7 per cent over the past decade.
The dividend yield on Vanke’s Shenzhen-listed shares has fallen to 2 per cent because of the jump in the share price linked to Baoneng and Anbang’s recent stakebuilding. But the company has said it plans to increase its dividend payout.
An additional benefit for Baoneng is that, having acquired more than 20 per cent of Vanke, it can now classify the developer as an associate and therefore include its dividends in its own profit and loss statement.

If that were Mr Yao’s goal, however, he could have stopped his stakebuilding in Mr Wang’s company at 20.1 per cent. He did not. Unless a truce can be negotiated during Vanke’s trading suspension, hostilities will resume next month.

Additional reporting by Wan Li and Luna Lin