On September 11, local time in the United States, 2021 US Tennis Open women's singles final, Pan Shiyi and his wife Zhang Xin did not show their past signature smile. Just the day before, Blackstone announced the termination of the acquisition of SOHO China transaction.
Hello everyone, I am a narrow-door hero. Today we will talk about why Blackstone terminated its transaction with SOHO China, and what should Pan Shiyi go in the context of anti-monopoly and common prosperity.
1. Why did Blackstone terminate the transaction with SOHO China?
On September 10, SOHO China issued an announcement stating that Blackstone Group decided not to make an offer to acquire all the company's shares. This means that the acquisition worth nearly HK$25.7 billion ended in failure. The news of
quickly responded to the capital market. On September 13, SOHO China's stock price opened sharply lower and continued to decline. As of the closing of the day, it fell by 34.57%, with a share price of HK$2.29 per share, with a total market value of HK$11.91 billion, a shrinkage of nearly HK$6.3 billion from the previous trading day.
It took less than three months from SOHO China's announcement on June 16 that Blackstone would acquire it until the two parties announced the termination of the acquisition.
What exactly happened in the middle of this, why did Blackstone terminate the transaction with SOHO China?
According to an announcement issued by SOHO China on August 6, its acquisition transaction with Blackstone Group was formally filed and reviewed by the State Administration for Market Regulation in accordance with the Anti-Monopoly Law.
This means that this merger and acquisition case meets the standards for reporting operator concentration stipulated in the Anti-Monopoly Law and the national regulatory authorities file a case for review, which is a normal procedure. According to previous acquisition cases, most acquisition cases will be approved after review, and a few will be subject to restrictive conditions. Blackstone's acquisition of SOHO China does not theoretically constitute the effect of excluding or restricting competition, so it is likely to be terminated from a legal perspective. In this regard, the centralized review of operators is not the decisive factor in the success of this merger.
So what is the main reason why Blackstone gave up the acquisition?
According to the announcement issued by SOHO China on September 10, no prerequisites for making an offer have been met as of that day. In view of the insufficient progress in meeting the prerequisites, the offeror, the promised shareholder, the commitment shareholder and SOHO China jointly assessed the ongoing assessment procedures required to meet the prerequisites and the possibility of completing the procedure within the offer timetable. All parties agreed that the prerequisites cannot be met on or before the final deadline. All parties also agreed that the final deadline would not be postponed. The keyword here is "prerequisite", so what are the prerequisites proposed in the acquisition offer? SOHO China and Blackstone issued a joint announcement on the acquisition transaction on June 16, which mentioned that the acquisition offer was a prerequisite for the actual (effectiveness). These include: (1) The State Administration for Market Regulation approves the offer in accordance with the Anti-Monopoly Law; (2) There is no litigation, investigation, unfinished law in any jurisdiction that will invalidate, illegal, unenforceable, prohibited from being implemented or attached to any conditions, restrictions, and obligations; (3) SOHO China has not undergone any major adverse changes on the latest date.
According to Article 1 of the Prerequisite, Blackstone and SOHO China can complete this merger and acquisition only after the State Administration for Market Regulation agrees to its acquisition in accordance with the Anti-Monopoly Law. Now, Blackstone finally made the decision to terminate the merger and acquisition transaction, which finally made the merger and acquisition case vain. At this time, the review results of the State Administration for Market Regulation have not been published publicly.
It is worth mentioning that on September 6, SOHO China also issued an announcement stating that further documents and materials have been provided in response to regulatory authorities' requests to supplement additional information, and the review work is still continuing. However, four days later, SOHO China announced the news that Blackstone had terminated the acquisition.
Through the above information, it is not difficult to see that Blackstone terminates its transaction with SOHO China, which is most likely due to judgments on China's current macroeconomic situation and the trend of economic policies. Of course, there are more complex factors behind this. A more intuitive view is that under the background of anti-monopoly and common prosperity, Blackstone Group retreated.
2. Can SOHO still be sold in China?
Currently, SOHO China's core assets are mainly 8 commercial projects located in Beijing and Shanghai, and are also the "Eight Great Kings" mentioned by Pan Shiyi, Wangjing SOHO, Guanghua Road SOHO Phase 2, Qianmen Street , Lize SOHO, Shanghai's Bund SOHO, SOHO Fuxing Square, Gubei SOHO and SOHO Tianshan Square. According to SOHO China in a June announcement, it now holds and manages 1.3 million square meters of commercial properties.
Since its listing in Hong Kong in 2007, SOHO China has gradually grown into one of the top Grade A office developers in China. After 2014, SOHO China began to sell off its non-core assets to maintain the company's profits. At the same time, Pan Shiyi began to acquire assets in the United States and the United Kingdom, and the rumors that "Pan Shiyi is about to run away" were also rampant.
After the outbreak of the epidemic in 2020, the vacancy rate of office buildings in China hit a new high, SOHO China was also hit, and its property occupancy rate dropped sharply, and its net profit fell by nearly 60% year-on-year, facing great market pressure. With the continued high pressure of the macro-control trend of real estate and various unfavorable situations, selling may be the primary way out for SOHO China.
After Blackstone announced the termination of the acquisition, Pan Shiyi is likely to look for new buyers, but who dares to take over the hot potato?
3. Where should Pan Shiyi go?
Black Stone's exit made Pan Shiyi feel sad.
Next faces how to continue to operate the eight major kings of "increase income but not profit".
According to the previously released SOHO China semi-annual report, in the first half of this year, SOHO China achieved operating income of 805 million yuan, a decrease of 44.6% from 1.453 billion yuan in the same period last year.
In the first half of the year, SOHO China recorded a gross profit of 659 million yuan, a year-on-year decrease of 17.52%; net profit of 343 million yuan, and net profit attributable to shareholders of 340 million yuan, a year-on-year increase of 67.49%. In terms of
liabilities, as of the end of June this year, SOHO China's net asset-liability ratio was about 43%, with an average borrowing cost of about 4.7%; cash and cash equivalents were about 1.492 billion yuan, a year-on-year increase of 276%; total assets were 71.109 billion yuan, and total liabilities were about 33.246 billion yuan.
SOHO China's main business is office rental, and rental income is the largest revenue. Since 2020, affected by the COVID-19 epidemic, the office market has entered a "freezing" state overnight, and the vacancy rate of office buildings in Beijing once approached 20%, setting a new high in the past 10 years.
According to GL International data, by the end of 2020, the rent level of office buildings in Beijing had dropped to 351 yuan/month/square meter. In the same period in 2019, this value could reach 383 yuan/month/square meter. Previously, when Lize SOHO entered the market, Pan Shiyi bluntly confided to the media: "The rent level is too low, and the rental return rate of is embarrassed to say ."
I believe Pan Shiyi knew very well that SOHO China is likely to not find a buyer, and the choice it faces is to continue to operate on its own or sell properties indiscriminately. In this way, operating performance will be difficult to maintain the low level of listed companies. Who will be optimistic about investors? Delisting is also a high probability event.
What do you think and opinions about the case of Blackstone's termination of the acquisition of SOHO China? Welcome to leave a message to discuss.
