This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

China Reverse Mergers Continue Wild Ride

June 20: Harbin Electric's LBO Skeptics Remain

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Doubts about the truth behind Harbin Electric's (HRBN) leveraged buyout persisted, despite the company's announcement on June 20 of a definitive agreement for a deal, long promised by the management of the Chinese reverse-merger company.

Harbin shares did indeed soar once the regular session began. By the close of trading on June 20, Harbin shares stood at $13.35, up almost 60% on the day.

But that's a far cry from the announced buyout price of $24 a share.

One trader who specializes in merger arbitrage, Thomas Kirchner, of the Quaker Funds, told TheStreet that his fund had sold out of its position in Harbin at the end of May. "There are quite a few red flags in this deal, and we continue to be pessimistic about it," he said.

In a press release, Harbin said its board of directors signed a definitive agreement to sell the company to its founder and CEO, Tianfu Yang, along with a Hong Kong-based fund called Abax, which has been involved as an investor and counterparty in several deals with U.S.-listed Chinese companies.

According to Harbin, much of the funding for its LBO, a term loan for about $400 million, will come from China Development Bank, a massive state-controlled institution that last year made a $50 million personal loan to Yang, who pledged his own Harbin shares, 7 million of them, as collateral.

Harbin's U.S.-based spokesman didn't respond to a request for comment.

The events of the last few weeks have quickly made Harbin the subject of one of the noisiest long-short battles in the Chinese small-cap space, which has been rife with controversies for almost a year. A manufacturer of micro motors based in the city of Harbin, in northern China, Harbin came public in a reverse merger in 2005. It is one of dozens of small Chinese companies that have come under extreme scrutiny after an outbreak of fraud allegations and revelations, which have eroded investor confidence in the group at large and triggered an investigation by the SEC.

Harbin itself has not escaped allegations that it has engaged in fraud. Short-sellers have been swarming around the stock since last year. One of those short- sellers is Andrew Left, who runs the Citron Research blog, where he publishes reports on companies he has taken a short position in. In recent weeks, Left has led the charge against Harbin, calling the company's buyout plans "a sham" and urging the SEC to "halt this security." Left posted his latest missive on Thursday and appeared to help push Harbin's stock down 51% that day.

In its press release on Monday, Harbin CEO and founder Tianfu Yang came out fighting. His words appeared to refer to Left. "A significant amount of information that is false and misleading as well as defamatory has been introduced into the market, and has clearly affected market trading of the Company's stock," Yang said in the press release. "The Company is prepared to take all necessary legal action against those who have made such statements." Yang's threat of legal action follows a recent trend of Chinese companies promising to sue their critics for libel and stock manipulation.

Contacted by TheStreet, Left said he stands by his position that Harbin's LBO is a fake.

But, he added, "My thoughts are irrelevant compared with what Wall Street says; the Street votes with its dollars. Unless the stock gaps to 19 or 20, then what are we arguing about here? I would venture to say, if they are able to pull this off, in the history of M&A there's never been a stock that's traded so far below the takeover value when a deal has gone through."
2 of 15

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CSKI $0.06 -75.00%
CBEH $0.11 8.37%
PUDA $0.00 900.00%
CGA $1.25 -6.70%
ONP $1.26 0.13%


Chart of I:DJI
DOW 15,901.65 -303.32 -1.87%
S&P 500 1,846.72 -33.33 -1.77%
NASDAQ 4,272.86 -90.2840 -2.07%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs