Battle for Control of Leading Industrial Gases Firm Ends

(Beijing) — Two co-founders of one of China’s largest industrial gas suppliers kicked out the company’s chairman on Wednesday, ending an unusual four-month battle for control that had stopped new investors from entering the debt-heavy firm.

Shareholders of Yingde Gases Group Co. Ltd. attended two separate meetings in the seaside city of Zhuhai to vote on two plans to determine the company’s future. One would have consolidated Chairman Zhao Xiangti’s position as company leader, while the other would have helped bring back Sun Zhongguo and Trevor Strutt, co-founders who have served as directors since being ousted from their executive positions last winter.

Shareholders ultimately elected to keep Sun and Strutt as directors, while removing Zhao as chairman.

Tensions over control of the company erupted in November when Zhao ousted Sun as chairman and Strutt as chief operations officer at a board meeting at which Sun and Strutt weren’t present. Zhao named another executive to take over in Sun’s other role as Yingde’s CEO.

Such conflicts aren’t uncommon in Chinese companies, where co-founders often retain top executive positions well into the company’s development. By comparison, co-founders at major Western firms often cede management responsibilities to professional top executives early on in a company’s development, reducing the possibility of such clashes.

Zhao’s power play left Sun and Strutt as non-executive directors, ending their tenure of more than a decade as executives at the company they co-founded with Zhao. Over that period, Yingde’s debt climbed by 18 times to 13 billion yuan ($1.9 billion) as of June due to China’s economic slowdown, a load that Zhao had protested was too heavy.

Part of Zhao’s coup also saw Yingde propose a plan to issue shares to a company backed by new CEO He Yuanping, a move some saw as aimed at diluting Sun’s and Strutt’s combined 29% of the company. Yingde said in a statement at that time the placement was meant to raise funds to repay bank loans and lower financing costs.

But the share issuance was blocked a month later, with Yingde blaming “disgruntled directors (who) continued to try to frustrate the proposed placing.”

As the internal bickering raged, a white knight stepped in when U.S. gas services company Air Products and Chemicals Inc. made a buyout offer for Yingde, proposing to pay HK$5.50 (71 U.S. cents) per share. The American company is still doing due diligence as part of that process.

The situation became more complicated last week when Zhao, Sun and Strutt all agreed to sell the 42% of the shares they collectively held to another buyer, private equity firm PAG Asia Capital, for not less than HK$6 per share.

Later PAG offered to buy all of Yingde’s remaining shares for HK$6.

Amid all the jockeying, Yingde shares have more than doubled since November. The stock closed at HK$6.40 on Wednesday after the two special shareholder meetings took place, but before the results of the votes were announced.

The current price shows that shareholders believe a final acquisition could carry an even higher price tag than the two figures previously suggested by the Air Products and PAG bids, said Vincent Ji, an analyst at China Merchants Securities.

Contact reporter Coco Feng (renkefeng@caixin.com)