October 15, 2021

Telstra faces misconduct allegations over $2.1 billion Autohome sale

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1464385709207By Max Mason From AFR Weekend

Telstra faces allegations of misconduct over its $2.1 billion sale of most it is majority stake in Autohome in an action brought in the Cayman Islands by the minority shareholders of the Chinese car classifieds business.

Telstra, which announced $1.5 billion was to be returned to shareholders with the forecast proceeds of the sale, is now set to lock horns in a Cayman Islands court action with minority shareholders, including Autohome chief executive James Qin, who has led a management consortium looking to buy the telco’s stake.

In a court petition, obtained by Fairfax Media, lodged in the Grand Court of the Cayman Islands, the minority shareholders, totalling a stake of 10.8 per cent, are attempting to halt Telstra’s sale of a 47.7 per cent stake in the Chinese company to China’s second largest insurer, Ping An, to give independent and management board members the time to conduct the a review of the transaction and related documents.

The court petition gives a detailed account of the minority shareholders’ version of events, the concerns of Autohome’s independent and management directors, and alleges misconduct by Telstra and the directors it has on Autohome’s board.

Telstra intends to fight the petition.

In April, Telstra announced it would sell down 47.7 per cent of Autohome to China’s second largest insurer Ping An at $US29.55 per share totalling $US1.6 billion ($2.1 billion), leaving the telco with a 6.5 per cent stake.

The problem is that a management consortium, led Mr Qin and backed by private equity firms Boyu Capital, Sequoia China and investment management firm Hillhouse Capital, want to buy the company for themselves and not Ping An.

The minority shareholders are alleging that Telstra and its directors on the Autohome board have attempted to push the Ping An deal through, bypassing the company’s audit committee, which they believe should scrutinise the deal.

“The conduct of Telstra and the Telstra directors constitutes an exercise of the powers conferred on the Telstra directors for an improper purpose, namely to obtain a benefit for one shareholder to the detriment and prejudice of the minority shareholders without any property scrutiny or due consideration,” the documents said.

“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. The conduct of Telstra in using its majority power to pursue its own agenda with disregard to the interests of the company and the minority shareholders is unfairly prejudicial to the interest of the minority shareholders.”

The documents allege that Telstra directors have a conflict of interest and are disregarding legal advice from Autohome’s US, China and Cayman Islands lawyers.

The management consortium has made three varying offers, including taking Autohome private at $31.50 a share. Telstra has rebuffed the consortium’s offers.

The court document alleges that Autohome management received advice from its US legal counsel Skadden that the registration rights agreement was a related-party transaction and would therefore need to be approved by the company’s audit committee before going to a board meeting for discussion, and that this was communicated to Telstra. A complaint to the US Securities Exchange Commission has been made in relation to this matter.

The petition alleges that the Autohome management directors and independent directors did not attend the start of a board meeting on May 13 to approve the deal because they were concerned that they had not been given enough detail about the registration rights agreement (RRA) and the Ping An share sale.

As revealed by Fairfax Media, there are concerns about the validity of the sixth director, appointed by Telstra and therefore whether a quorum was reached for approving the sale of Telstra’s Autohome stake in Ping An.

In order to officially elect its sixth director, which it had the right to do, the petition alleges Telstra needed to send the notice to a Cayman Islands office and only sent it to an office of Codan, Autohome’s registered agent, in Hong Kong.

Once the independent and management directors became aware of Telstra’s appointment of a sixth director, at 11:58am, Beijing time, they dialled into the meeting, questioned the validity of the appointment, expressed opposition to the board’s approval of the RRA and suggested a new meeting be scheduled to discuss following an audit committee review, the documents allege.

Autohome’s Cayman Islands lawyers, who joined the meeting at 12.05pm, recommended a rescheduling the meeting in light of the questions around the sixth-director appointment and concerns with the Ping An deal, according to the court documents.

However, the petition alleges that, despite this, Autohome’s Telstra directors moved to approve the sale and instruct the company to put it into action.

The independent and management directors of Autohome, according to the petition, “are concerned that Telstra directors are not acting in the best interests of [Autohome] in relation to their conduct of the RRA and the Ping An share sale”

“The independent directors and management directors had not been provided with necessary documentation, including in particular the Ping An SPA (share purchase agreement), to enable them to properly consider whether execution of the RRA by the company and other steps taken in respect to of the proposed Ping An Share Sale are in the best interest of the company,” the document said.

“There is no justification for withholding a copy of the Ping An SPA for reasons of confidentiality. The Ping An SPA should permit disclosure to an affiliate, which the company is, and if it does not then Telstra has failed to negotiate the RRA and Ping An SPA in a way that would enable the Telstra directors to comply with their duties to the company by securing the authority to provide the company all necessary documentation in respect of the sale of a major shareholding in the company.”

Telstra originally bought a 55 per cent stake in Autohome for $US76 million in 2008 and gradually increased its stake to 71.5 per cent until the company was listed in the New York Stock Exchange in December 2013. Following the listing a further sell down in 2014 gradually brought Telstra down to the smaller stake.

For more on this story go to: http://www.afr.com/business/telecommunications/telstra-faces-misconduct-allegations-over-21-billion-autohome-sale-20160527-gp5jn2#ixzz49xTCGz42

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