Consultant Chris Hsu was paid an “enormous financial incentive” to get the 51job management buyout “done at any price”, Jonathan Adkin, the dissenters’ KC argued in last year’s Cayman court appraisal trial, the ruling shows.

This follows years of criticism from former minority shareholders who argue the recruitment company’s USD 4.5bn MBO from Nasdaq in 2022 was structurally flawed and conflicted.

The 24 November ruling and public filings show Rocketeer Management, a Cayman registered vehicle for which Hsu is the principal, “stood to earn a fee tied to the success or completion of a transaction”. Company witness and special committee member Li‑Lan Cheng acknowledged Hsu had “22 million reasons to avoid” 51job walking away from a deal. He added, however, that only the special committee could make such a call.

CEO Rick Yan, testifying as a company witness, said it was important Hsu had “skin in the game” so their interests were aligned.

The transaction’s total advisory fees and expenses amounted to USD 65.4m, as per the shareholder proxy.

The ruling also reveals that Hsu assisted Yan with his personal deal financing, requested that Yan and acting CFO Kathleen Chien download the encrypted Signal messaging app and enable its auto-delete function, and helped choose the special committee’s advisors.

Justice Doyle accepted that Hsu’s involvement was “not ideal” but concluded it did not affect the special committee’s independent decision-making.

As reported, the judge’s 257-page Cayman Grand Court appraisal ruling surprised dissenters by concluding that fair value was 49% below the deal price. The case is now heading toward an appeal that will keep scrutiny of the MBO alive.

Hsu’s “central role” in the 51 job take-private became a focus of former minority shareholders effort to show that the MBO was “orchestrated by insiders” after his links to Rocketeer Management were uncovered by investigators, as reported.

The dissenters argue the deal process contained “glaring procedural deficiencies” that resulted in a “woefully inadequate” offer price, as per a March 2023 discovery application by dissenter 507 Summit.

The significant involvement of Hsu’s Rocketeer is detailed in the shareholder proxy, which shows the consultant was the first advisor hired on the deal and remained active throughout its two‑year lifecycle. It outlines his solicitation of private equity firm DCP’s initial bid, his coordination with lending banks, and his communications with shareholder Recruit regarding its potential participation.

The proxy also discloses Hsu’s discussions with Yan about the CEO’s role in the buyout, his position as an intermediary between the company and the buyer group, and his participation in multiple special committee meetings, including those held during the renegotiation of deal terms.

While the proxy first mentions Rocketeer on 14 September 2020 when the company engaged the consultant despite “not actively seeking a potential buyer”, the judgment shows Hsu had already emailed Yan on 20 June. During the trial, Adkin alleged that Hsu was “working with the company on a potential take‑private” in June when he had lined up unnamed “new investors”. The ruling offers no comment on this timeline discrepancy.

The ruling also details that Hsu helped the special committee appoint Kroll as financial adviser and Davis Polk as legal adviser “by sharing contact details and making introductions.” It further discloses that Hsu was the special committee’s sole intermediary with the buyer group on price negotiations – a role Adkin suggested was inappropriate given Hsu was hired by the company while the special committee’s duty was to safeguard the interests of minorities.

This argument was rejected by  Cheng who said Hsu attended meetings but was “never present during our privileged discussions.” Cheng viewed Hsu as a “go-between” and said his involvement improved the deal process compared with prior take‑privates he had experienced.

Under cross-examination Yan also confirmed Hsu’s involvement extended to helping the CEO secure financing for his equity contribution. According to the proxy, China Merchants Bank provided a USD 450m facility to RY Elevate, a BVI‑incorporated entity solely directed by Yan, to fund USD 125.8m of his USD 130.1m equity commitment. The financing enabled Yan to increase his ownership in 51job to 45.56% from 18.6% upon completion of the MBO, as per the proxy.

Take-private ‘playbook’

According to the ruling, the company hired Hsu because of his experience in take-privates and China’s recruitment industry and because 51job’s management “knew very little about what take‑private meant”.

Yan acknowledged Hsu had a “playbook” for take‑privates that included using the encrypted messaging app Signal. Yan and Chien testified they downloaded Signal in September 2020 at Hsu’s request and used it sparingly, particularly while the acting CFO was stuck in the US due to the pandemic.

When asked why the disappearing messages function was enabled on 10 December 2021 – around the time advisers began discussing regulatory headwinds and potential changes to deal terms – neither Yan nor Chien could recall activating it. Yan said it was probably on Hsu’s advice.

Doyle concluded there was no evidence Signal’s auto-delete function was used to intentionally conceal material information.

A third company witness offered no explanation when asked why the shareholder proxy referenced Rocketeer rather than Kilometre Capital, the Hong Kong based investment boutique Hsu set up in 2010.

Between 2012 and 2014, public documents show Hsu’s Kilometre Capital secured “strategic consultant” mandates for several high profile Chinese ADR privatizations including Tsinghua’s acquisitions of cell phone chip makers Spreadtrum Communications and RDA Microelectronics and the USD 3bn MBO of mobile game company Giant Interactive.

Since then neither Hsu nor Kilometre has appeared in Chinese ADR take‑private disclosures. But, as this news service reported last year, Hsu was behind Kaihui Limited, the strategic consultant hired in March 2020 to project‑manage 58.com’s USD 8.7bn MBO – another deal dissented by minorities and now awaiting a fair value ruling following a 2024 appraisal trial.

51job’s take-private was led by Yan, private equity firms DCP Capital and Ocean Link with Chien, other managers and Japanese strategic shareholder Recruit Holdings rolling over. Together these parties held around 58% of the shares and voting rights at the time of the May 2022 delisting.

The deal was dissented by tens of minority shareholders owning USD 1.27bn worth of shares at the revised USD 61 per share offer price.

51job, the company’s Cayman Islands attorneys Maples group and Valle Makoff, counsel for Chris Hsu, did not answer requests for comment.