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Hanfeng Evergreen, An Arbitrage Play On The CEO's Takeover?

|Includes:Hanfeng Evergreen Inc. (HFGVF)

Hanfeng Evergreen, which more commonly trades in Canada, on the Toronto Stock Exchange under the symbol HF, could generate a significant return to investors believing the company will be taken over by the company's CEO, Xindou Yu.

BACKGROUND TO THE TAKEOVER

On January 28th the company announced that they had received a takeover proposal from the company's CEO of $2.20 Canadian per share and organized a special committee led by their Chairman to review the offer. At the time, Agrium Inc, the other main shareholders had not signaled its agreement, and the share price jumped to $2.30 from $1.82.

On February 11th the CEO, committee and Agrium agreed to a takeover price of $2.25 Canadian in cash. The takeover offer was agreed to by shareholders at a March 15th shareholder meeting.

SURPRISE FINANCING ISSUE

On March 14th, the company announced that the CEO's financing is not fully committed and that they have agreed to an extension to April 30th to allow the CEO to obtain additional financing to complete the transaction. The original financing was to come from Nongkem Longgang Agriculture Investment Co., Limited which committed to provide up to $109 million in loan financing as per the Management Information Circular.

SHARE PRICE

To date there has been no news as to whether alternative sources have been secured. The market price of the stock however has dropped to $1.40 Canadian on the lack of news.

Chart forHanfeng Evergreen Inc. (HF.TO)

The current price indicates that investors trading in shares of HF do not believe the deal will close. However, volumes do not indicate that there has been a mass exodus for the door based on a trading float of approximately 35 million shares.

Date

Close

Volume

Apr 15, 2013

1.41

51,100

Apr 12, 2013

1.45

67,600

Apr 11, 2013

1.60

102,500

Apr 10, 2013

1.77

108,500

Apr 9, 2013

1.75

43,800

Apr 8, 2013

1.78

59,100

Apr 5, 2013

1.81

85,600

Apr 4, 2013

1.78

35,900

Apr 3, 2013

1.80

9,100

A buyer of HF shares could see a profit in excess of 50% at these levels in a relatively short period of time on the assumption the deal closes.

Stocks: HFGVF