Inside the rebellion at China's largest automotive website
As Autohome Inc. CEO James Qin rang the bell at the New York Stock Exchange in late 2013, Telstra Corp. officials looked on with good reason to cheer.
The initial public offering was a billion-dollar-plus windfall for the Australian company and the Chinese investment's future looked bright under its Harvard-educated CEO.
Today, that goodwill is gone. Qin, 43, is leading a revolt against his Australian benefactors over Telstra's plans to sell a 48 percent stake to Ping An Insurance Group Co. for $1.6 billion. Ever since last month's announcement, the former McKinsey & Co. consultant has been leading a campaign to derail the deal by making a rival bid and taking legal action.
Regardless of who wins, the dispute could influence how Chinese startups perceive the risk of taking in foreign investors and vice versa. The case, which pits the country's biggest car-information website against the Australian telecommunications giant and China's second-largest insurer, is also the latest in the growing number of contested management buyouts in the country.
Case study
"What is happening at Autohome can be an excellent case study for a lot of Chinese startups," said Qian Wenying, Shanghai-based head of research at Analysys International. "The lesson out of Autohome's case is that no matter how badly a startup company needs capital, they need to realize that investments can work as a double-edged sword and may jeopardize management's control over the company later on."
Qin and other minority shareholders representing almost 11 percent of Autohome's shares lodged a petition with the Grand Court of the Cayman Islands, where the company is registered, on May 23. The filing calls for the court to hold the sale on grounds that Telstra's representatives on Autohome's board allegedly acted in bad faith and breached rules. While Telstra said it will contest the petition, a copy of which was obtained by Bloomberg News, the document sheds light on the deep divisions within the board because of the deal.
Telstra, which owns about 55 percent of Autohome, declined to comment beyond saying it plans to contest the petition. Autohome, which has said it's reviewing both offers, declined to comment for this story, as did Ping An.
According to the petitioners, Telstra's talks with Ping An stretch back to at least Oct. 29, when both signed a confidentiality agreement. Concerned about the potential change in ownership, Qin teamed up with private equity firms -- Boyu Capital Advisory Co., Hillhouse TBC Holdings LP and Sequoia China Investment Management LLP -- to prepare a buyout bid, according to the document.
Snubbed proposal
On April 14, Qin made a concrete offer to buy the shares at $31 apiece, presenting a ready-to-sign purchase agreement and a bank's supporting letter for financing, which was rejected, he said in a text via a spokesman. Qin declined to comment further.
The next day, Telstra announced it would sell most of its shares to Ping An for $29.55 each. Within hours, Qin's group countered by offering to buy all outstanding shares for $31.50, sending Autohome shares up to as high as $32.15 in New York trading on speculation a bidding war would ensue.
While the bidding war never materialized, the stage was set for a battle in the boardroom that would climax almost a month later, according to the document.
In the weeks following the announcement, Telstra pushed Autohome's board to approve the sale, triggering a wave of protests from independent directors who said the deal required further review, the petitioners said. The directors questioned why Telstra wouldn't show the sale documents, why Ping An didn't speak with Autohome's board and whether proper procedures had been followed, according to the document.
Despite the objections, Telstra called for Autohome's board to convene in May for what it described to be the only vote needed for the sale to go through, according to the petition. Telstra could do so because it accounted for half of the Chinese company's 10-member board. The rest consisted of three independent directors, Qin and Li Xiang, who founded the company but left management last year.
The problem was, Telstra needed a majority to push through resolutions.
Friday the 13th
According to the petition, Telstra's five representatives went ahead with the board meeting on May 13 even though the remaining directors boycotted the gathering in protest. In the absence of a majority, Telstra appointed a sixth board member on the spot, giving the Australian company the quorum it needed.
Upon learning of Telstra's move, the directors who boycotted the meeting scrambled to dial into the meeting and a quarrel ensued, according to the document. The non-Telstra board members demanded a further review of the deal and questioned the new director's appointment but to no avail as Telstra's representatives approved their resolutions, it said.
Autohome has yet to issue a statement on what happened that day. Telstra has confirmed it added a board seat and a resolution on the Ping An deal passed.
Then came the petition, which calls for the Cayman court to hold the Ping An deal until Autohome's independent directors receive the share purchase agreement and get to review the proposal.
"The petitioners have lost all trust and confidence in the Telstra directors and Telstra and their ability to act in the best interests of the company," according to the court filing.
Today, that goodwill is gone. Qin, 43, is leading a revolt against his Australian benefactors over Telstra's plans to sell a 48 percent stake to Ping An Insurance Group Co. for $1.6 billion. Ever since last month's announcement, the former McKinsey & Co. consultant has been leading a campaign to derail the deal by making a rival bid and taking legal action.
Regardless of who wins, the dispute could influence how Chinese startups perceive the risk of taking in foreign investors and vice versa. The case, which pits the country's biggest car-information website against the Australian telecommunications giant and China's second-largest insurer, is also the latest in the growing number of contested management buyouts in the country.
Case study
"What is happening at Autohome can be an excellent case study for a lot of Chinese startups," said Qian Wenying, Shanghai-based head of research at Analysys International. "The lesson out of Autohome's case is that no matter how badly a startup company needs capital, they need to realize that investments can work as a double-edged sword and may jeopardize management's control over the company later on."
Qin and other minority shareholders representing almost 11 percent of Autohome's shares lodged a petition with the Grand Court of the Cayman Islands, where the company is registered, on May 23. The filing calls for the court to hold the sale on grounds that Telstra's representatives on Autohome's board allegedly acted in bad faith and breached rules. While Telstra said it will contest the petition, a copy of which was obtained by Bloomberg News, the document sheds light on the deep divisions within the board because of the deal.
Telstra, which owns about 55 percent of Autohome, declined to comment beyond saying it plans to contest the petition. Autohome, which has said it's reviewing both offers, declined to comment for this story, as did Ping An.
According to the petitioners, Telstra's talks with Ping An stretch back to at least Oct. 29, when both signed a confidentiality agreement. Concerned about the potential change in ownership, Qin teamed up with private equity firms -- Boyu Capital Advisory Co., Hillhouse TBC Holdings LP and Sequoia China Investment Management LLP -- to prepare a buyout bid, according to the document.
Snubbed proposal
On April 14, Qin made a concrete offer to buy the shares at $31 apiece, presenting a ready-to-sign purchase agreement and a bank's supporting letter for financing, which was rejected, he said in a text via a spokesman. Qin declined to comment further.
The next day, Telstra announced it would sell most of its shares to Ping An for $29.55 each. Within hours, Qin's group countered by offering to buy all outstanding shares for $31.50, sending Autohome shares up to as high as $32.15 in New York trading on speculation a bidding war would ensue.
While the bidding war never materialized, the stage was set for a battle in the boardroom that would climax almost a month later, according to the document.
In the weeks following the announcement, Telstra pushed Autohome's board to approve the sale, triggering a wave of protests from independent directors who said the deal required further review, the petitioners said. The directors questioned why Telstra wouldn't show the sale documents, why Ping An didn't speak with Autohome's board and whether proper procedures had been followed, according to the document.
Despite the objections, Telstra called for Autohome's board to convene in May for what it described to be the only vote needed for the sale to go through, according to the petition. Telstra could do so because it accounted for half of the Chinese company's 10-member board. The rest consisted of three independent directors, Qin and Li Xiang, who founded the company but left management last year.
The problem was, Telstra needed a majority to push through resolutions.
Friday the 13th
According to the petition, Telstra's five representatives went ahead with the board meeting on May 13 even though the remaining directors boycotted the gathering in protest. In the absence of a majority, Telstra appointed a sixth board member on the spot, giving the Australian company the quorum it needed.
Upon learning of Telstra's move, the directors who boycotted the meeting scrambled to dial into the meeting and a quarrel ensued, according to the document. The non-Telstra board members demanded a further review of the deal and questioned the new director's appointment but to no avail as Telstra's representatives approved their resolutions, it said.
Autohome has yet to issue a statement on what happened that day. Telstra has confirmed it added a board seat and a resolution on the Ping An deal passed.
Then came the petition, which calls for the Cayman court to hold the Ping An deal until Autohome's independent directors receive the share purchase agreement and get to review the proposal.
"The petitioners have lost all trust and confidence in the Telstra directors and Telstra and their ability to act in the best interests of the company," according to the court filing.
