Michael SacerdoteJune 22 at 8:00pm Thanks for the email. With respect to PME, I dont think theres any controversy about whether the business is successful or whether management is very, very savvy; the business appears to be thriving and management is clearly extremely smart. The issue that I raise is whether American investors are likely to benefit from the enterprise. PMEs VIE structure is more complex than many other VIEs and appears to be unnecessary since VIEs are only mandated in certain industries such as technology. The presence of the VIE effectively turns the US-listed entity into a callable security in which management can exercise a call option with strike of $0 at any time. If the company had been squeaky clean all along, the risk of management exercising the call would be very low. However, because management has engaged in enormous related party transactions in which the CEO has been on both sides of the deal, I think the risk to US investors is very high. American investors would have no legal recourse if management did something they didnt like. This might be one of those cases where the stock is a terrific deal for Chinese investors but a very high-risk deal for American investors.
Posted on: Tue, 24 Jun 2014 19:43:21 +0000
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