(This story corrects 13th paragraph of March 1 story to say Shan is chairman and CEO of PAG, not founder.)
By Elzio Barreto
HONG KONG (Reuters) - Hong Kong-based private equity firm PAG has agreed to buy the 42.1 percent stake of the three co-founders of Yingde Gases 2168.HK for $616 million, the latest twist in a months-long battle for control one of China's largest industrial gases company.
PAG signed a deal with Zhao Xiangti, Sun Zhongguo and Trevor Strutt to buy their combined stake at a price of HK$6 ($0.7729) per share, Yingde said in a statement on Wednesday. The agreement will be suspended if they receive a competing offer at least 5 percent higher than PAG's, or equivalent to HK$6.3 per share, it said.
Shares of Yingde jumped as much as 20 percent to HK$6.40, a 21-month high, after they resumed trading on Wednesday, following news of PAG's bid for the shares. The stock has more than doubled since late December, when U.S. industrial gas maker Air Products (APD.N) made a takeover approach of as much as $1.5 billion in cash for Yingde.
The shares later trimmed the gains to close up 17.5 percent.
"We believe that this is a positive development for shareholders because it potentially sets a higher price for a takeover – equal to or higher than HK$6.30 - whether that ultimately is by PAG, Air Products or another bidder," Seth Fischer, chief investment officer of Hong Kong-based activist hedge fund Oasis Management Company, said in a statement.
Oasis had said on Monday it would seek a seat on Yingde's board.
Yingde's main products include oxygen, nitrogen, argon and some specialty gases which it sells primarily to companies in the steel, iron ore, chemicals and electronics industries. It is an established leader in China in on-site industrial gas production, with 69 gas facilities in 19 provinces, according to November 2016 report by Macquarie Capital.
Over the past few months, the company has seen high drama.
Sun and Strutt, previously the Chairman/CEO and COO of Yingde, respectively, were relieved from their posts during a November board meeting that named Zhao chairman of the company and have since been in a legal fight to get reinstated.
Yingde in January disclosed details of Air Products' December offer after an inquiry from Hong Kong's Securities and Futures Commission. It revealed that Air Products' initial non-binding bid was for HK$5.5 per share, but it could raise it to HK$6 if allowed to conduct due diligence on Yingde.
Yingde would help Air Products expand into emerging markets and diversify its revenue mix, with a combination also helping with synergies, according to a Jefferies report in January that estimated the U.S. company could raise its bid as high as HK$8.8 per share "before the return outlook deteriorates below buyback-equivalence".
PAG declined to comment, while Air Products didn't immediately reply to a Reuters request for comment.
PAG, whose chairman and CEO Weijian Shan was previously at TPG Capital LP, manages about $16 billion of capital, with recent investments including the $3.6 billion purchase of printer maker Lexmark International Inc last year. The firm raised $3.6 billion for its second Asian buyout fund in January 2016..
While Yingde's shares have surged, its bonds have also rallied in 2017, with hedge fund Oasis's board seat push viewed positively by Yingde's bondholders.
Its bonds due 2020 USG9844KAB5=TE have rallied over 25 cents since the start of the year and the bonds trade at 101/102 cents on the dollar now, significantly higher than the lows of 64 cents struck in March 2016. On Wednesday, these bonds rose 3 points.
"The firm, with its activist bent, would be helpful to provide checks and balances," independent research firm Lucror Analytics said in a note, referring to hedge fund Oasis.
Additional reporting by Umesh Desai; Editing by Muralikumar Anantharaman