Origin Agritech’s Irving Kau, caught in a lie? (SEED)

[UPDATE – Here’s a pic of Irving. – Editor]

If a Bloomberg report is accurate, Origin Agritech (SEED)’s Interim CFO Irving Kau just issued a whopping lie in a pathetic and transparent attempt to divert attention away from the warning issued yesterday by the SEC concerning reverse mergers, see here, of which Origin is one of many. According to Bloomberg:

12:54    *ORIGIN WASN’T FORMED BY REVERSE TAKEOVER, CFO SAYS     :SEED US
12:54    *ORIGIN FORMED BY SPECIAL PURPOSE ACQUISITION COMPANY, NOT RTO
12:54    *ORIGIN SAYS SHARES ARE A GOOD VALUE AFTER DROP         :SEED US
12:54    *ORIGIN AGRITECH CFO KAU SPEAKS IN PHONE INTERVIEW FROM BEIJING
12:53    *ORIGIN AGRITECH CONSIDERING SHARE BUYBACKS, CFO SAYS   :SEED US

If Irving Kau thinks that Origin Agritech (SEED) was not once a little shell called Chardan China Acquisition Corp (CAQC) he is delusional. All it takes is a simple search to find a press release from from November 2005 which states:

 

Chardan China Acquisition Corp. Completes Merger with State Harvest Holdings Limited and Changes Name to Origin Agritech Limited

BEIJING & SAN DIEGO–(BUSINESS WIRE)–Nov. 8, 2005 Chardan China Acquisition Corp. (OTCBB: CAQC, CAQCU, CAQCW) (“Chardan”) and privately-held State Harvest Holdings Limited announced that the closing of the merger of the companies occurred today, and that the new company, Origin Agritech Limited (“Origin”),  will have its shares begin trading tomorrow on the NASDAQ National Market. As a result of the merger, each share of common stock of Chardan automatically converts into  one share of common stock of Origin, and each outstanding warrant of Chardan automatically converts into a warrant of Origin having the identical terms, but exercisable into common stock of Origin. The Company’s common stock, warrants and units will trade under the symbols SEED, SEEDW, and SEEDU, respectively. As a result of the merger, in which the shareholders of State Harvest Holdings received at closing, among other consideration, 10,200,000 unregistered shares of Origin, Origin will have approximately 15,100,000 shares and 8,050,000 warrants outstanding.

Chardan, whose asset management arm is the current home of Steven Oliveira, of Repros Therapeutics (RPRX) private placement fame, is a shop run by Kerry Propper that specialised in creating publicly traded shells, that they dubbed SPACs, and then merging them with Chinese companies too pathetic to even do an IPO with sleazy shops like Rodman or Roth. Are Chardan and it’s SPACs really much different from Westpark Capital and it’s WRASPs?

Chardan has also done work for such notables as super director Lawrence G. Schafran‘s SulphCo (SUF) . Chardan’s client list includes other winners, like A-Power (APWR) once a shell called Chardan South China Acquisition Corp. (CSCA), China Cablecom (CABL) once a shell called Jaguar Acquisition Corp. (JGAC), and Hollysys Automation (HOLI) which began life as Chardan North China Acquisition Corp. (CNCA). Another Chardan shell, Chardan 2008 China Acquisition Corp., with the ironically scatalogical ticker CACA, is now DJSP, and trading for a massive 7 cents per share.

Irving Kau, save what little credibility that remains, and stop spreading the lie that Chardan deals are not reverse mergers.

The content contained in this blog represents only the opinions of the author. The author may hold either long or short positions in securities of various companies discussed in the blog. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. This blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.
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6 comments

  1. [The following comment came from an IP address located inside the PRC. Specifically the “Langfang Development Area” – Editor]

    Just to show how truly moronic this investor/writer is, I, as an Origin investor and firm believer in the company, wanted to highlight the differences between a standard RTO and a SPAC.
    There are a couple of substantive differences between a SPAC and a regular RTO.


    [Wrong. There are no substantive differences between a SPAC and an RTO. Both transactions involve merging a private company into an existing listed entity with no business operations.]

    1.  A SPAC requires shareholder approval and typically, a complex disclosure document concerning the target company.  The disclosure about the target is extensive, comparable to that of IPO registration statement disclosure, generated through the requirements of a merger proxy statement or a tender offer document, AND often goes beyond the disclosure of a registration statement to include a fairness opinion and the economic analysis that is the basis for such an opinion and an analysis of the board on how the transaction was decided upon and developed.

    By contrast, an RTO only requires the disclosure of a 10K for a registrant – business discussion, risk factors, financial statements, management disclosure, etc.

    2.  A SPAC, until recently in some new offerings, required a minimum valuation of the target based on the amount of funds available in the trust fund, so there was a concern by the SPAC board and management that the target had the correct amount of assets.  This often led to a high level of due diligence by the SPAC parties.

    By contract, an RTO does not have any minimum valuation requirement.

    3.  A SPAC transaction is typically reviewed by the SEC.  Although there have been some SPAC transactions that had little review or limited review, the typical approach of the SEC was to give the SPAC transaction document a very through review.

    By contrast, an RTO transaction would not be reviewed prior to consummation.  But this is not to say that the “Super” 8-K was not ever reviewed. The difference here whe compared to the SPAC is that there is that the RTO review was after the fact. The SEC did/does look at these documents and issue comments.  Additionally, the SEC often reviewed/reviews the 10K reports of the post transaction company, with comprehensive comments, including substantive accounting review.  So it is not entirely correct to say that an RTO transaction was/is not reviewed by the SEC or assume the level of SEC review was less than that of an IPO or a SPAC transaction.

    4.  A SPAC transaction takes a relatively long period of time.  Therefore, there is time for issues to be come upon and examined.

    By contrast, an RTO transaction is a relatively faster transaction, therefore, there is the chance that some issues that may not be as carefully examined and disclosed as would happen in the context of a SPAC.

    5.  Typically in a SPAC transaction the target was a more established company, larger in size, with a greater depth and breadth of management and established product and market.  These attributes allowed them to afford the more expensive accounting, legal and valuation firms.  These have brought a greater level of assurance that the target was more robust, although not in all instances.

    By contrast the RTO transaction often involved smaller companies that had a more limited product range or placement, smaller market presence and less able to afford those professionals that could take the time and have the manpower to devle into the operations of the target.  Therefore, there was the opportunity for things to be overlooked and not as fully examined and disclosed as they might be, which caused issues later on.  Not necessarily illegalities, but less investor disclosure that gives comfort.  Also the smaller management not always was as able to understand the disclosure demands of the US system.

    6.  One should not forget that many RTO transactions were accompanied by an investment.  To some extent, the investors did due diligence on the target.  The problem here, in my opinion, is that many investors were not as thorough as they should have been.  This applies to very substantive funds, with managers of very good reputations.  In many instances, the investors did not examine the context in which the company operated, and made macro assumptions that were not borne out over time.  On the other hand, I know of situations where investor review and the selling agent investigation was such that the transaction was not funded and therefore the RTO was not completed.  So it is not possible to say that proposed RTO transactions are always successful.

    Whether or not a SPAC transaction received the same level of investor scrutiny is a question.
    BTW, Irving Kau is a reputable CFO in China, so quit dragging him in the mud with your own level of diligence


    [Irving Kau used to work for the very same shop, Chardan, that arranged the deal. According to his resume on LinkedIn, he has no other experience as a CFO. See here. Hardly the resume of a “reputable” CFO. More like the resume of a former low level banker who went to work for a client. – Editor]

  2. If SPACs and RTOs both originate with shell organizations with no operations, it seems that similarity would slightly overwhelm the argument that SPACs are “relatively long” compared to a “relatively faster” RTO.

    1. @Fiona

      Well said.

      @bmike917

      You are, of course, aware that the poster child for Chinese reverse merger frauds (and a Ping Luo favourite) China Media Express (CCME) was backed into a SPAC, TM Entertainment (TMI). SPAC deal = Reverse Merger no matter what the apologists would like people to believe.

  3. The early SPACs and the later SPACs were very different.

    The early ones kept the integrity of the investment vehicle by placing money into a company as a desired target, but the later ones refunded the money to shareholders of the SPAC as part of the agreement to complete the SPAC transaction. The SPAC transaction would have never gotten completed without this agreement for the later SPACs. This was done as the only way investors would agree to invest in the company. In essence, the later SPACs functioned much like RTOs in the later phases, only worse for the company (better for the investor) since the shell had warrants in it.

    The SPAC structure itself is not bad, Jamba Juice was purchased out of a SPAC, and Goldman did a US $350 million Liberty Lane SPAC in 2008. The problem was more the diligence conducted by the investors.

    [The SPAC structure itself incentivizes SPAC managers to do deals, ANY deals, to get paid. The structure is an invitation for abuse. But you are correct that SPACs became very faddish and even Goldman did some deals. Why? For the fees of course. – Editor]

  4. True, true.

    I actually like the CFO a lot at this company. Was impressed when I met him on a company visit and roadshow. He has one of the longest tenures of most all US-listed Chinese company CFOs going on 6 years, and is smart. Most other guys don’t even last a year in each company. Graduated from top schools, member of MENSA, background on both genetics and finance, understands the capital markets buy and sell side, tries to do what is in the best interest of shareholders and the company. Maybe a bit green when he started 6 years go, but he has come a long way from 10 years or so ago.

    BTW, thanks for your perspective. Best to all 🙂

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