M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Wednesday, April 18, 2012

Is China's love affair with US capital markets over?

Not two years ago, reverse mergers with little known Chinese firms was all the rage.  The reverse merger was a cheap way to get a private Chinese (or any other) company public.  Chinese firms took a liking to this backdoor to the US capital markets more than anyone else.  So much so that it caused the SEC to investigate the practice and toughen up some of the listing standards in this area.

Now, we are seeing more and more of the following:

Shengtai Pharmaceutical, Inc. (OTC Bulletin Board: SGTI) ("Shengtai" or "the Company" or "We" or "Us"), a manufacturer and distributor in China of glucose and starch as pharmaceutical raw materials and other starch and glucose products, today announced that its Board of Directors has received a preliminary, non-binding proposal from its Chairman and Chief Executive Officer, Mr. Qingtai Liu ("Mr. Liu"), which stated that Mr. Liu intends to acquire all of the outstanding shares of the Company's common stock not currently owned by him and his affiliates in a going private transaction at a proposed price of $1.65 per share in cash.

Of course, Shengtai wasn't always Shengtai Pharmaceuticals.  In 2007, it was known as West Coast Car Company.  Control was transferred to Shengtai when Chinese investors bought the majority of shares in West Coast Car in 2007.

In recent months there has been a growing string of Chinese firms listed in the US going private.  Apparently, the US capital markets aren't laid with gold.  Listing and disclosures standards make it expensive for a low quality company to stay public, so they go private.  That should be a good thing.  Of course, we now have the JOBS Act that will reduce the costs of staying public for so-called "emerging companies" so perhaps there will be an incentive for these Chinese rever merger companies to stay public if they can get themselves categorized as "emerging companies."  

-bjmq

http://lawprofessors.typepad.com/mergers/2012/04/is-chinas-love-affair-with-us-capital-markets-over.html

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