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Bad habits

7 July 2020 By Robyn Mak

Sina shareholders are feeling the full effect of terrible corporate governance. Less than three years after the Chinese web outfit inexplicably handed control to boss Charles Chao, he wants to take it private. His $2.7 billion offer is at a hefty discount to Sina’s stake in microblog operator Weibo. Supervoting stock and a weak board put minority owners in a tight spot.

In late 2017, Chao narrowly thwarted activist investor Aristeia Capital’s attempt to install two directors on Sina’s board. The hedge fund also had called for sale of the company or a reverse merger with Weibo, China’s answer to Twitter, in which Sina holds nearly 45%. Days after seeing off the insurgence, Sina issued a new class of preference shares to Chao. As of March, he controlled some 59% of the vote while owning just a 13.5% economic stake.

Since then, Sina’s market value has suffered a dramatic decline, plummeting by three-quarters to less than $2.5 billion. Chao’s non-binding cash offer, at $41 a share, is a mere 12% premium to the undisturbed price on July 3, and a far cry from the 2018 peak of more than $122.

Some of the fall is beyond Sina’s control. Routine censorship crackdowns in China have weighed on the shares. Competition for smartphone users has intensified, including from Tencent and new challenger ByteDance. The impact of Covid-19 on advertising budgets also has taken its toll.

At the same time, Chao neglected to tackle the persistent discount at which Sina trades relative to its stake in Weibo, which was worth $3.4 billion on Thursday.

A backlash against U.S.-listed Chinese stocks provides a convenient opening for Chao. Disgruntled outsiders also will struggle to push back. Rules in the Cayman Islands, where Sina and other Chinese tech companies are domiciled, allow deals to go through with a simple two-thirds majority of votes cast.

Sina’s board, which granted Chao supervoting stock in the first place, is an unlikely champion of minority rights. And four out of its five independent directors have been around for more than a decade. Investors in other badly structured companies can look forward to similar mistreatment.

 

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