The First Proxy Fight against a U.S.-Listed Chinese Company: Hedge Fund Lost the Proxy Fight Against Sina

Posted on by Weiya Mu

Sina, a NASDAQ-listed corporation and one of the largest telecom companies in China, was recently faced with a proxy contest. This proxy fight was initiated by Aristeia Capital LLC, a Connecticut-based hedge fund which owns 3.19% of Sina’s shares and is one of the biggest Sina shareholders.1 As the campaign between Sina and Aristeia is the first proxy fight between a Chinese company listed on American exchange and a U.S. hedge fund, it is regarded as a test case for potential campaigns against other American-listed Chinese companies.2

Sina’s most valuable asset is its 46% controlling stake in Weibo, which is known as the Chinese Twitter and is one of the biggest social networks in China.3 Aristeia has been unsatisfied with Sina’s accomplishments in recent years. While Weibo, also a U.S.-listed company, has doubled its share value this year,4 While Sina’s stock didn’t achieve the colossal returns seen by Weibo, it still saw appreciation of around 65%.5 This increase is impressive, but it is still far below the expectations of investors given Sina’s controlling position in Weibo. Aristeia tried to compel Sina to sell or merge with Weibo, but its efforts were unsuccessful.6 Aristeia’s partner, Robert H. Lynch Jr., commented that “shareholders have sent a strong message to the company that change is needed and that the status quo is unsustainable and unacceptable.”7

Therefore, in September, Aristeia initiated a proxy fight seeking to replace two of Sina’s five board members. Currently, Sina’s board is under a “V.I.E.” structure.8 The chairman, Charles Zhang, has a permanent term, and the other four members serve a four-year term.9 Both of Aristeia’s nominees, Brett Krause and Thomas Manning, have significant experience in the financial industry and in investment in China. Krause is the Managing Partner of PurpleSky Capital and has over twenty years of experience in Asian banking.10 According to Manning’s profile, he has worked in Hong Kong for seventeen years, and served as the board director, corporate advisor and CEO for several prominent companies in the financial sector in Hong Kong.11 Aristeia believed that Krause and Manning will be able to help Sina improve its corporate governance and thus bring more returns to investors.12

Sina defended itself against Aristeia’s criticism. It claimed that its strategy to buyback $1.5 billion shares of Weibo was successful and brought $ 1.8 billion returns to Sina’s shareholders since 2014.13 Additionally, Sina’s board rejected Aristeria’s two nominees for the new board, arguing that Krause and Manning did not have the level of experience and expertise possessed by the current board members. Overall, Sina strongly opposed Ariteia’s proposal, and regarded it as being self-serving and shortsighted.14

On November 3, Sina announced that Kraus and Manning were not elected to the board.15 More than half of shareholders voted against the two nominees. Instead, more than three quarters of them voted for Yichen Zhang, who is a current board member and sought for reelection.16

The proxy fight between Sina and Aristeia has profound implications. U.S.-listed Chinese companies are frequently criticized for giving relatively little power to their shareholders.17 Shareholders are concerned that these companies are run mostly for the interests of the executives, rather than for the overall interests of their shareholders. Aristeia’s proxy fight is regarded as the first attempt to test U.S. shareholders’ power in U.S.-listed Chinese companies. Though Aristeia’s attempt had failed this time, there may be more proxy wars to come.

  1. Reuters, U.S. Hedge Fund Aristeia Capital Is Seeking Seats on the Board of China’s Sina Corp, Fortune (Sept. 19, 2017), http://fortune.com/2017/09/19/aristeia-capital-sina-china-weibo/. ↩

  2. Id. ↩

  3. Alexandra Stevenson, Sina, an Internet Pioneer in China, Wards off U.S. Activist, N.Y. Times (Nov. 3, 2017), https://www.nytimes.com/2017/11/03/business/dealbook/sina-activist-proxy-fight.html. ↩

  4. Id. ↩

  5. Id. ↩

  6. See supra note 1. ↩

  7. See Stevenson, supra note 3. ↩

  8. Alexandra Stevenson, U.S. Investor Tries to Shake Up Sina, a Pillar of China’s Internet, N.Y. Times (Oct. 31, 2017), https://www.nytimes.com/2017/10/31/business/dealbook/china-sina-aristeia-proxy-fight.html. ↩

  9. Id. ↩

  10. Brett H. Krause, Executive Profile, Bloomberg, https://www.bloomberg.com/research/stocks/people/person.asp?personId=215664500&privcapId=658776. ↩

  11. Thomas J. Manning, Lecturer in Law, University of Chicago Law School, https://www.law.uchicago.edu/faculty/manning (last visited Nov. 9, 2017). ↩

  12. See Reuters, supra note 1. ↩

  13. Id. ↩

  14. See Stevenson, supra note 3. ↩

  15. See Reuters supra note 1. ↩

  16. Id. ↩

  17. Amie Tsang, Sina Doubles Down to Ward Off Activists After Proxy Fight, N.Y. Times (Nov. 7, 2017) https://www.nytimes.com/2017/11/07/business/dealbook/sina-proxy-activists.html. ↩

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