The hedge fund managers lost $75 million (according to the Shanghai relisting) and they are not going to give up easily. Maso Capital is currently seeking $92 million in the Cayman Islands court, which were already put into escrow by Qihoo 360 per the court’s order. Fund managers say $92 million is but a conservative estimate of the shares’ true worth a robust expert valuation could yield an even higher share price for Maso. The privatization-and-relisting scheme is no new trick financial experts dubbed this antic “The Chinese Loophole”. It essentially means listing a company on the NYSE, privatizing at a low valuation then relisting in China for a much-increased value shortly after. This is made possible through a simple process through a public listing, a Chinese company taps into U.S.
Then, majority owners take the company private at a significantly cheaper valuation, squeezing minority investors out at a named price thanks to the power of majority in a vote. Shortly after, the company relists back home in China, at a much higher valuation but without adding real value in the form of products or assets, leaving executives with a big windfall. While the companies are listed in the U.S, they are classified as Foreign Private Insurers (FPIs), subject to regulation by their home country’s exchange and not by the SEC. FPIs are also exempt from corporate governance practices by which most publicly listed domestic firms must comply, including a requirement to host annual shareholder meetings. That said, if investors could prove in court that they were cheated out of their true shareholding, consequences for said companies could be catastrophic.