While $466 Million in Market Value is Destroyed, iKang Shareholders Await "White Knight"

Published on August 31, 2017 7:00 AM

(SI Newswire) BOSTON, Massachusetts – Shareholders of iKang Healthcare Group (NASDAQ: KANG) who have endured two years of uncertainty about an unfulfilled buyout offer and suffered $466 million in market value destruction, demand its Board of Directors end this fiasco and correct major mistakes they have made at shareholders’ expense.

“An ordeal that began 24 months ago has endured at least seven major mistakes that have cost iKang shareholders $466 million dollars in market value, a debacle for a company with a stock market capitalization of $973 million,” stated Heng Ren Managing Partner Peter Halesworth in a letter on August 29, 2017. “This is unacceptable and has understandably destroyed investor confidence in iKang’s leadership.”

A so-called “white knight” to end this ordeal, Yunfeng Capital, which was co-founded by Alibaba Group (NYSE: BABA) Chairman Jack Ma, has instead resulted in $466 million in market value destruction.

Shareholders believed Yunfeng Chairman and co-founder Yu Feng, aka David Yu, when Yunfeng wrote to iKang shareholders on June 6, 2016 and bid $20.00-$25.00 per share that due diligence of iKang would be “efficient,” and financing to acquire China’s largest private preventive health care services provider was “well prepared.”

Yunfeng’s reassurances came 10 months after a battle between two bidders – a group led by iKang Chairman Ligang Zhang, and Meinian Onehealth Healthcare Group (SHENZHEN: 002044) – ended with Yunfeng’s bid.

However, since then Yunfeng, David Yu, and Jack Ma have failed iKang shareholders on four pledges made in their 2016 proposal:

1) “Efficient” due diligence - The average duration between the announcement and closing of a buyout of a U.S.-listed Chinese company is nine months. Yunfeng already has taken 14 months. The U.S. M&A average is considerably shorter.

2) Yunfeng’s “well prepared” financing plans are absent.

3) Yunfeng’s “attractive offer price” of $20.00-$25.00 per share is not attractive. iKang is worth more than $37 per share.

4) Yunfeng said its bid offered shareholders “a higher degree of certainty” – To the contrary, silence for 14 months from a white knight bidder creates uncertainty.

iKang’s stock then was at $21.12. Now iKang’s stock is at $14.20.* This failure to fulfill pledges to shareholders of a U.S.-listed public company comes at a delicate time for Mr. Ma.

The Alibaba Group is currently cooperating with an U.S. Securities and Exchange Commission (SEC) investigation regarding accounting, the Committee on Foreign Investment in the U.S. (CFIUS ) is reviewing Alibaba’s Ant Financial $1.2 billion bid for MoneyGram International (NASDAQ: MGI), and the U.S. Trade Representative (USTR) has identified Alibaba subsidiary Taobao.com for its “notorious markets list“ for alleged piracy and counterfeiting issues.

“Mr. Ma should by now understand that, unlike in China, public opinion in the U.S. is not one-sided and automatically fawning,” Halesworth stated in his letter. “Many before him have had their careers sink in our unpredictable river of public opinion. While behavior in the public spotlight in America is more freewheeling than in China, there are limits. The red lines are not always easy to see if the spotlight is too bright. Being brash is tolerated - until it is not. Mr. Ma should be careful to avoid overstepping.”

Halesworth added, “Just as Mr. Ma famously stated that Alibaba was the crocodile lurking in the Yangtze River to pounce on foreign rivals who challenged him in China, Mr. Ma should not be overconfident that the U.S. is free of its own crocodiles. And if Mr. Ma is going to swim with them in the river of public opinion, it is better to make friends.”

To repair the destruction of iKang’s market value for shareholders, and restore confidence in the integrity and credibility of Yunfeng’s public pledges, we urge Yunfeng to take these steps immediately:

• Announce a decision on the iKang buyout. • If executing the buyout, raise the bid to a minimum of $37 per share. • Close the transaction by the end of 2017.

If Yunfeng withdraws its bid, we urge iKang’s Board of Directors and Chairman Zhang to:

• Remove the poison pill. • Withdraw the anti-monopoly complaint against Meinian (if not already done). • Withdraw the legal complaint against Meinian (if not already done). • Renegotiate terms for a strategic investment or sale to Meinian Onehealth at a minimum of $37 per share.

Link to Chinese version of Heng Ren letter: http://hengreninvestment.com/images/documents/Heng_Ren_Partners_Letter_iKang_August_30_2017-Chinese.pdf

Link to English version of Heng Ren letter: http://hengreninvestment.com/images/documents/Heng_Ren_Partners_Letter_iKang_August_30_2017-English.pdf

* The closing stock price on August 25, 2017.

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Peter Halesworth Heng Ren Partners LLC phalesworth@hengreninvestment.com