Sinovac to go private as bribery concerns hint at investor class-action lawsuits

Nasdaq
A new buyers' consortium offered to buy Sinovac for $8 per share, 14% higher than agreed upon in a previous definitive agreement.

To say that Sinovac Biotech’s take-private process is a hot mess might be an understatement. In a twist, a group of buyers is challenging a definitive amalgamation agreement the biotech reached on Monday with its chairman and CEO Weidong Yin, offering a higher bid and accusing the board of secretive operations. It was complicated by a Yin-involved bribery case that implicated the former vice-director of China FDA’s Center for Drug Evaluation (CDE), and potential investor class-action lawsuits emerged afterward.

Sinovac, the only Nasdaq-listed Chinese vaccine maker, first announced a buyout proposal in early 2016. At that time, Yin, together with investment firm SAIF Partners and others, offered to expand their all-together 30% stake in the company and take it private with $6.18 per share.

The buyout deal seemed certain when Sinovac announced on Monday that it had reached a definitive agreement with Yin’s buyer consortium. Under that agreement, the consortium will acquire Sinovac for $401.8 million at the price of $7 per share. But then, the deal took a turn on Wednesday with the emergence of another offer.

A buyer consortium led by Sinobioway announced that it has submitted a new proposal to Sinovac’s board, offering to raise the privatization to $8 per share. In a furiously worded release, Sinobioway accused a special committee appointed by the board of colluding with Yin’s consortium and not giving them the opportunity to raise the price. “The members of Special Committee have become tools to help [Yin’s consortium] erode the interests of minority shareholders,” the release reads.

Another Chinese biologics drugmaker affiliated with Peking University, Sinobioway entered the bid soon after Yin made his offer. In fact, it was Sinobioway that raised the offer to $7 a share in its first offering. The relationship between the two companies goes way back to 1994 when Sinobioway salvaged a failing biologics company that later became the Sinovac we see today. Sinobioway Group's chairman Aihua Pan, who played a key role in Sinovac's revival, is also Sinovac Beijing's chairman. According to Sinovac’s 2015 annual report filed to the SEC, Sinobioway Biomedicine owns a 26.91% interest in Sinovac Beijing, the company’s principal operating subsidiary and where Yin presides as GM.

The previous definitive agreement said the amalgamation was expected to close during the second half of 2017, but now a closing might be delayed as a determined Sinobioway said that it “vows to win this transaction.”

However, the bidding brouhaha is just the most recent episode of Sinovac’s drama. In late 2016, Hongzhang Yin, who used to serve as deputy director of CFDA’s CDE, was found guilty of accepting bribery worth 3.56 million Chinese yuan (about $525,000) from nine Chinese vaccine makers in exchange for smoother new drug application green lights, and Sinovac’s Yin was identified as one of them.

The news sent Sinovac’s stock south, and immediately after that, several U.S.-based law firms, including investor class-action specialists Rosen, Goldberg and Bronstein, Gewirtz & Grossman announced an investigation of Sinovac on certain violations of the Securities Exchange Act as they prepare for potential lawsuits. The law firms argue that Sinovac’s failure to disclose potentially damaging information (i.e., the bribery) infringed investors’ rights.

According to the court’s findings, since Hongzhang Yin became the biologics head of China CDE’s drug registration division in 2002, Sinovac has applied for approval of several vaccines, including for hepatitis A, SARS, avian flu, HFMD and H1N1 influenza. A higher court in Beijing upheld the 10-year-in-prison verdict imposed on Hongzhang Yin this March.

At least there’s no public accusations against the quality of these vaccines for now, and no criminal charges have been brought against Yin, but the bribery clearly puts serious doubts upon Yin’s leadership of Sinovac.

At the same time, Sinovac’s 2016 annual report has long passed its due date as the company carries out an internal investigation. The SEC has also stepped in, which could further complicate the privatization process. The vaccine maker acknowledged in May that it has received a subpoena from U.S. regulators that asks for documents related to the bribery scandal in China.

Sinovac’s stock has been ticking upward since early June as a potential buyout deal nears, resting at about $6.90 per share Thursday morning.