Yongye filed two interesting 8-Ks on June 23 (last week) and 30 (today). The latest press release states that “the parties are still working on the logistics to complete the amended going private transaction”. What does the press release mean by “working on the logistics”?
The press release talks about the escrow agreement being amended. Presumably, there are problems with the escrow. Legal problems with the contract seems unlikely to me, given that all of the legal issues should have been resolved beforehand. It seems unlikely that the escrow agent has not performed its services correctly. My guess is that one of the parties to the escrow agreement hasn’t yet wired money into the escrow agent’s account. Such a problem could be construed as a ‘logistical’ problem.
The parties involved in the escrow agreement are:
- MSPEA Agriculture Holding Limited (“MSPEA”)
- Lead Rich International Limited (“Lead Rich”)
- The Hongkong and Shanghai Banking Corporation Limited (the “Escrow Agent”)
If you do your homework, you can probably make your own educated guess as to which party is having problems.
Will the merger close?
The press release seems optimistic about the going private transaction closing as planned (emphasis mine):
The parties to the Amended Merger Agreement are currently still working on the logistics to complete the Merger and expect to be able to complete the Merger by the end of June 2014.
The press release also raises the possibility that the merger may fail:
While the parties are working collectively to complete the Merger as soon as possible, there is no assurance that the Merger will be completed on the above timeline or at all.
You should do your own work as to what the probabilities of each scenario are.
*Disclosure: Shorting YONG via puts. No position in the common. Following the release of the two 8-Ks, I increased my position slightly. Yongye is my largest short position.
EDIT (Sept 1, 2014): I may be wrong here about the escrow.
EDIT (Sept 2, 2014): I am pretty sure I screwed up. Lead Rich put $50M into the escrow account in September 2013 and I think that the money is still there. I think that MSPEA’s money is in there too.
On an unrelated note, the latest DEFM 14A filing states the the Parent or Merger Sub can choose not to complete the merger despite the availability of financing:
the possibility that Parent and Merger Sub may be unable or unwilling to complete the merger, including if the financing as described above cannot be obtained despite Parent and Merger Sub’s compliance with their financing obligations set forth in the amended merger agreement or if Parent or Merger Sub choose not to complete despite the availability of financing. Under certain circumstances, the Company is entitled to an injunction, specific performance or other equitable remedies to cause Holdco, Parent and Merger Sub to cause Mr. Zishen Wu and Lead Rich to fund the equity financing under the amended merger agreement.
EDIT (Sept 3, 2014): Unfortunately for me, the deal closed.