Boto sale ignores advice | South China Morning Post

Yesterday's vote, which saw 52.74 per cent of independent shareholders back the deal, clears the way for Boto to sell its profitable artificial Christmas tree and leisure furniture businesses to a vehicle 75 per cent-owned by the Carlyle Group, one of the world's biggest private equity investors. Boto will hold the other 25 per cent.

The sale will leave Boto as a computer animation start-up headed by chairman Michael Kao Cheung-chong's 25-year-old son, Francis Kao Wai-ho. The unit was established just over a year ago and made a loss of HK$8 million in the last financial year. By contrast, the businesses to be sold had recorded growth in net profit for seven straight years until last year.

The company has proposed paying shareholders a special dividend of HK$894.38 million, or 26 HK cents a share.

Boto shares last traded at 31 HK cents. They were suspended pending the shareholder meeting.

'The exchange does a very bad job in protecting investors . . . its listing committee ruled in favour [of the management by] allowing several management [shareholders] to vote on the transaction,' said shareholder rights advocate David Webb, who led a campaign against the deal.

Mr Kao Snr, whose family controls about 60.06 per cent of Boto shares, was barred from voting on the deal. But some senior managers, including Mr Kao Snr's nephew, Philip Kao, were allowed to vote.

Ricky Tam Siu-hing, chairman of the Hong Kong Institute of Investors, said the case would dampen investor confidence in corporate governance standards.

Boto, the world's biggest maker of artificial Christmas trees, proposed in April to sell its core business - which accounts for 99 per cent of its revenue - to a company owned 70:30 by United States-based Carlyle and Michael Kao.

The deal was revised following fierce opposition from minority shareholders, including Mr Webb and Templeton Emerging Markets Fund.

In a rare move, independent financial adviser Anglo Chinese Corporate Finance this month told shareholders to vote against the transaction, describing the price as inadequate.

Mr Webb claimed to have amassed investors holding 13 per cent of Boto shares who planned to vote against the deal.

However, he failed to gain the support of Shanghai Industrial Investment, the parent of red-chip Shanghai Industrial Holdings, which controls about 5.8 per cent of Boto. Shanghai Industrial abstained from yesterday's vote, according to sources, while independent shareholders representing a further 5 per cent did not turn up.

Mr Kao Snr, meanwhile, is believed to have gained the support of Boto co-founder Law Pun-leung's family, which through HSBC International Trustee holds about 4 per cent of the shares.

'We have always had a good relationship with each other,' Mr Kao Snr said after winning the vote.

Philip Lam Pak-kin, Boto's deputy managing director, said the company's management rejected Anglo Chinese's conclusions, claiming the adviser lacked in-depth knowledge of the business. 'We have been in the business for more than 20 years. That is not something someone can learn in a few weeks,' he said.

Santa's gift - Business 2, Page 2

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