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JA Solar Deal: Better for Chairman or Holders?

NEW YORK (TheStreet) -- This past week began and ended with deals showing business links between Chinese solar stocks and their senior executives that can bring out the skeptics.

On Friday, solar cell giant JA Solar (JASO) announced the acquisition of a solar wafer company, Solar Silicon Valley, that is 70% owned by the Jinglong Group, which is controlled by JA Solar's chairman, Baofang Jin.

On Monday, LDK Solar (LDK) said its board had authorized the repurchase of up to $110 million in what it views as "grossly undervalued" shares. LDK Solar's chairman has pledged 31% of the LDK Solar shares he owns as collateral to banks, and with the recent decline in shares, the buyback plans could be linked to the collateral issue.

It's part and parcel of the way Chinese companies do business for deals to take place between U.S.-listed stocks and affiliated companies held by senior managers. For the most part, it's been an accepted part of investment in these shares for most investors. Michael Sheppard, solar analyst at iSuppli, referred to the trend as "coopetition."

The iSuppli analyst said it's the status quo in the sector, and with the JA Solar acquisition, the usual mix of skepticism and acceptance was evident in the market reaction.

"The related party transaction is sure to raise investor questions," wrote Stifel analysts in a research note. The closing is expected by the end of the third quarter.

JA Solar established an independent committee of independent directors to evaluate the deal, and board members affiliated with the acquisition target did not vote on the approval.

JA Solar shares were down slightly on Friday after it announced that it would issue 30 million shares to finance the acquisition, shares priced at $5.82, a premium to the stock's closing price on June 30 of $5.55. The deal price is roughly 20% of JA Solar's market cap.

Here are some of the key aspects of the JA Solar deal to consider in assessing the 70% interest of JA Solar's chairman in the just-acquired company as an aspect of the transaction, vs. the benefit to JA Solar shareholders from the acquisition.

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