China Ming Yang Wind Power: Potential 55% Annualized Return

Wind Power Turbines

On Feb. 3, 2016, China Ming Yang Wind Power (NYSE: MY) announced it had entered into a definitive merger agreement for a going private transaction led by a consortium of investors, including the company’s Chairman and CEO, Mr. Zhang. With little in the way of the transaction closing around mid-June and ~4% of price upside remaining, investors should consider picking up a few shares for what should be a smooth ride.

Going private transactions are often the best arbitrage opportunities, since the antitrust reviews are usually not a concern (the impact of those transactions on a company’s pricing power is limited). What’s more, when the deal is put together by a bunch of insiders with significant control, the chances of it going through are high, especially if no alternative transaction has emerged. China Ming Yang Wind Power displays all the attributes of an attractive merger arbitrage opportunity that is being largely ignored because of the limited liquidity in the stock. However, for the average retail investor, there are more than enough shares changing hands daily to realize a ~55% annualized return, and below are reasons why investors should go ahead.

Plain vanilla deal structure – the merger consideration is US$2.51/share in cash.

No material regulatory approvals to be obtained – as mentioned above, since this transaction is not about 2 businesses amalgamating and getting more control of a market, there are no antitrust concerns.

Financing has been obtained – debt and equity commitments have been obtained for the full size of the transaction.

66.66% of the votes required, 44.6% already committed – while 2/3 of the shares outstanding are required to vote in favor of the merger proposal, the rollover shareholders holding 44.6% of China Ming Yang Wind Power have already committed to do so, leaving ~23% of the shares to go to gain approval. The main risk on this point would be if some other large shareholders revolted against the management buyout because they thought that a better offer existed in the market. However, the ownership structure outside the insiders is fragmented and no other potential bidder has come forward since the announcement of Mr. Zhang’s proposal on November 2, 2015. It is therefore now pretty obvious that the remaining shareholders face the choice of voting for the proposal or letting the stock drop back to pre-announcement levels, 20% below current, a scenario that is highly unlikely given the limited potential of the company to be subsequently acquired due to the ownership stake of Mr. Zhang and other insiders (who can de facto veto any merger proposal requiring two thirds of the votes).

In conclusion, China Ming Yang Wind Power’s going private transaction is an investment opportunity that presents a very attractive risk-reward profile. With the shareholder vote due to take place on June 6, 2016, the deal offers the possibility of a relatively high return in a short amount of time. Check the current status of this transaction and others by looking at the portfolio.

Update 6/6/2016: shareholders have approved the transaction and the deal should now close shortly.

Disclosure: Long China Ming Yang Wind Power.

This article expresses an opinion and the author does not receive compensation for it and has no business relationship with any company whose stock is mentioned in this article; do your own due diligence before making investment decisions.

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