Investors have wielded a little-known US discovery law that is growing in popularity “as an offensive weapon” to attack the pandemic era buyouts of 58.com and 51job, the two most heavily dissented Chinese ADR take-privates to reach the Cayman courts in the past decade.

The deals were “orchestrated”  to “forcibly” cash out minority shareholders at lowball valuations, according to legal filings from hedge fund managers challenging the merger prices, which triggered dissent from investors owning stock worth a combined USD 3.3bn under the terms of the offers.

Section 1782 of the US Code allows foreign litigants to apply to obtain evidence for use in proceedings taking place overseas – and beyond the reach of an offshore tribunal – so long as they can prove the relevance of the material sought, and that the individual resides within the jurisdiction of a US court.

The hedge funds’ submissions reveal many details behind the buyouts of NYSE-listed 58.com and NASDAQ-listed 51job, including the extensive involvement in both deals of Christopher Hsu of Hong Kong-based Kilometre Capital who is not named in any deal press releases or securities filings.

Lawyers for the dissenters filed multiple 1782s against parties to the transactions: private equity firms, company directors, special committee members and their advisors. These included General Atlantic, Warburg Pincus and law firm Fenwick & West for 58.com, and Duff & Phelps Securities, now part of Kroll Inc, for 51job.

The USD 8.7bn MBO of 58.com, China’s largest classified ads platform, was “opportunistically” proposed in April 2020 at a time of “immense market volatility”, said two of its then largest minority shareholders, Genesis Emerging Markets and Aberdeen Standard Investments. Another, Coronation Asset Management, said in August of that year, the company was being “stolen from the public markets”.

Likewise, the MBO of recruitment giant 51job, launched in September of the same year, shocked shareholders when – nine months into the deal process – the buyer group was allowed to slash the agreed USD 5.7bn transaction by an unprecedented USD 1.4bn.

Dissent against 58.com and 51job, under section 238 of Cayman Islands Companies Act, matched the amount of money similarly deployed against more than 20 previous Chinese ADR take-privates, based on calculations by this news service. Shareholders have long criticised many of these deals for being underpriced by buyer groups that often hold enough voting rights to ensure Cayman’s two-thirds EGM voting threshold is a mere formality, as reported.

More than 20 well-known financial and legal advisory firms were mandated on these deals, according to the 58.com and 51job deal press releases. But there was no mention of two strategic consultancies, Kaihui Limited for 58.com and Rocketeer Management for 51job, that were hired to explore strategic options ahead of both MBOs.

The consultancies were named in US securities filings as per Rule 13e-3, which requires enhanced disclosure around MBOs. But the Securities and Exchange Commission filings do not reveal that Hsu, the founder of Hong Kong-based boutique investment and advisory firm Kilometre Capital, was behind both Kaihui and Rocketeer.

Hsu’s Rocketeer “played a critical role in every step of the [51job] Merger process, up until the consummation of the Merger almost two years later”, said dissenter 507 Summit in a 1782 targeting the consultant. Meanwhile, Kaihui, “was closely involved in the process of negotiating the [58.com] Merger Price” and “effectively represented both the Special Committee and the Buyer Group, creating a conflict of interest,” said dissenters FourWorld Event Opportunities and Genesis in another 1782 directed at Hsu.

Hsu declined multiple requests to comment for this article, so it’s unclear why his name or that of Kilometre, the boutique he is most closely associated with, was not made public for the two high profile deals. Other parties to the transactions including 51job and 58.com either did not respond to requests for comment or declined to comment, citing the ongoing litigation.

These legal battles are now nearing resolution with 51job’s fair value appraisal trial beginning last week (24 June) and a ruling in 58.com’s case expected soon.

Using the 1782 process, the funds secured written evidence in support of their dissent cases in Cayman, where courts are skeptical of relying on the merger price as a fair value benchmark in deals adjudged to be lacking a robust arm’s length sales process.

Among the funds’ other targets, they accused 58.com Chairman Jinbo Yao of having “helped orchestrate” the company’s MBO at a “depressed price” to “enrich those in control of the company at the expense of minority shareholders,” according to several 1782 applications filed by FourWorld Capital Management and Genesis on behalf of other dissenters.

Similar allegations were made against the take-private of 51job, whose shareholders were “forcibly canceled through a merger orchestrated by its majority shareholder, company insiders and affiliates, and private equity funds,” said Oasis Focus Fund and Quadre Investments in a 1782 filing used to depose Chris Hsu of Rocketeer.

Trials and judgements 

Despite the 58.com trial wrapping up in September 2024, a ruling from Chief Justice Margaret Ramsay-Hale, who is overseeing her first Cayman appraisal case, has still not been published. Meanwhile, the ongoing 20-day Cayman Grand Court fair value appraisal trial into 51Job’s take private is expected to put Hsu’s role and that of the special committee and its advisors once more under scrutiny.

The dissenters have reason to be optimistic. “Companies must now expect the deal process and the independence of the special committee to come under increased scrutiny [from the Cayman Grand Court],” law firm Ogier said last year in a commentary on Section 238 developments.