HK regulator says Alibaba broke takeover rules with 'special deal'

Wed May 18, 2016 10:27am EDT
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By Elzio Barreto

HONG KONG (Reuters) - Hong Kong's securities regulator said that Chinese e-commerce giant Alibaba Group Holding Ltd BABA.N breached takeover rules in the purchase of a healthcare firm in 2014 because it also bought a company owned by the brother of the healthcare firm's vice chairman on "favourable terms."

Alibaba agreed to buy a stake in CITIC 21CN, now known as Alibaba Health Information Technology Ltd 0241.HK, for $170 million two years ago.

During the acquisition process, Alibaba also agreed to buy Hebei Huiyan Medical Technology Co from Chen Wen Xin, who was also a shareholder of CITIC 21CN and is the younger brother of the company's vice chairman, Chen Xiao Ying.

Hong Kong's Takeovers and Mergers Panel, part of the Securities and Futures Commission (SFC), ruled that Alibaba's purchase of Hebei Huiyan "constituted a special deal with favourable conditions which were not extended to all shareholders and was a clear breach of the Takeovers Code," according to the decision published on Wednesday.

Alibaba has already said it may appeal the panel's decision, which was announced last month without the full details.

The company said on Wednesday it is reviewing the panel's ruling and that it believes it has complied with the takeover code.

In calling the purchase of Hebei Huiyan a "special deal" the SFC invoked a rule aimed at preventing unequal treatment of shareholders. Alibaba said a 533 percent surge in Alibaba Health shares since its takeover benefited shareholders of the health unit.

"Therefore, we believe that no Alibaba Health shareholder has been unfairly affected," Alibaba said in an emailed statement.   Continued...

A sign of Alibaba Group is seen at CES (Consumer Electronics Show) Asia 2016 in Shanghai, China, May 12, 2016. REUTERS/Aly Song