(The author is a Reuters Breakingviews columnist.)

HONG KONG, Aug 27 (Reuters Breakingviews) – China Biologic Products makes a good case for why it should go private. Instead of accepting one of two takeover bids offering hefty premiums, the U.S.-listed manufacturer of plasma products opted for a dilutive share sale at a discount to both. Fuzzy math and poor corporate governance create nothing but bad blood.

China Biologic’s stock price tumbled 16 percent, settling near where it traded in early June. It’s hardly surprising shareholders are worried. At the least, they should have been given a chance to buy the new equity, too. What’s more, if neither $110 or $118 a share “reflects the intrinsic value” of the company, as China Biologic put it, neither can a stake sale at just over $100 or a decision that pushes the price down to $85. A better way for the investing group to express long-term confidence would be to buy shares at the highest price an outside suitor is willing to pay.

The company’s directors have questions to answer, too. In February, Gao was considered “instrumental”. In July, China Biologic said he had stepped down as CEO, but would stay on the board. Only a few weeks ago investors were told Gao had been terminated for cause, without further explanation.

Being based in the Cayman Islands allows China Biologic to dispense with best governance practices, and Nasdaq’s market overseers don’t seem to mind. Shareholders who stick around may one day see the company sold. Based on the latest infusion, though, they may become scarred in the process.

CONTEXT NEWS

– China Biologic Products said on Aug. 24 it had rejected a $3.9 billion takeover bid led by its former chief executive and instead will issue shares to a group of other investors including rival suitor CITIC Capital at a lower price.

– The U.S.-listed company’s stock price fell about 16 percent the same day, to close at $84.91.

– Centurium Capital, a fund linked to China Biologic Chairman David Li, CITIC, Hillhouse Capital and PW Medtech have agreed to buy 5.9 million shares, representing about 15 percent of the enlarged share capital, for $100.90 apiece. Following the transaction, the group will own a combined 37.3 percent of China Biologic.

– The group led by former CEO David Gao offered to buy the company for $118 a share, while CITIC had previously offered $110 a share.

China Biologic statement

Investor group statement

IMAGE: Shutterstock

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