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No. of Recommendations: 29
I appreciate this, but I don't believe that another article like the one I wrote in December will make much difference right now. The retail owners all know the deal and will not vote to approve. Hopefully there were a lot of them that were nonvotes last time knowing that it still counted as a "no" and we'll get more this time. Hopefully there were also a lot of arbs that bailed at a loss last time and won't play in round two.

An article like that isn't going to convince arb owners that they should vote no, and I just can't see an article like mine convincing other institutional investors to make a large bet on this company until the dust clears on this latest offer.

In my opinion, the best way to prevent this proposed buyout, albeit very much a longshot, is to make the special committee understand the liability involved with doing something that is so blatantly against the best interests of shareholders, and that they already have so much information that contradicts $7 being a reasonable or fair price. I'll be writing another letter to the SC focusing particularly on the materially incorrect assumptions that went into the Houlihan Lokey's DCF valuation. Particularly the "imminent" spending required for the new manufacturing facility and "other" needs of about $200 million or $4 per share that were backed out of the valuation, in retrospect, for no apparent reason. It's great that we now have YONG's CFO on an SEC earnings call this month stating clearly that the manufacturing facility is only in the early stages and won't be built until 2014 or 2015 (my guess almost definitely 2015 if they don't have it planned out already). That info is officially known to the Sp Comm and, to not take into account in considering the offer, would be a major violation of their fiduciary duty.

Not to mention how far off all of the 2013 P&L assumptions were in the valuation. I think we have to convince them that they need to get a new fairness opinion before considering the offer given the amount of time that has passed and how much more successful the business has been compared to the estimate. We need to convince them that it would be inappropriate to make a decision on the offer before the Q1 results are released, given that their release is just weeks away, and the quarter actually ends on monday. This is China and we are mostly american shareholders so I'm not naive enough to think that this will "definitely" have the impact I would hope, but imo, it's our best shot. At a minimum, if we got them to increase the offer or require a new fairness opinion, those would be major wins for us retail shareholders.

I'm also considering drafting a formal letter to Houlihan Lokey requesting that they withdraw their fairness opinion based on the significantly material erroneous assumptions that we now know and the fact that there is a risk that the Board could rely on that opinion in consideration of this new offer, which could open HL up to liability, despite all of their standard wording that says that the assumptions and estimates are management's responsibility and not their fault. If they have concrete SEC filed documentation proving that the estimates are materially wrong and the knowledge that the Board could use their report to make a decision on this newly revised offer, I would think they must have a responsibility to adjust their valuation or withdraw the opinion. I'm talking to a corporate lawyer friend who is very familiar with fairness opinions to find out more about what might work here. The fact that HL is in the USA and so are we makes them a lot more susceptible to litigation if they have failed to act in a situation where their code of conduct requires them to.

Given the likely lack of independence that the Special Committee has from the CEO and MS, no matter what, this is gonna be one heck of a tough fight, but I haven't given up yet. I put half of my 2016 $7 calls for sale with a 20c limit order yesterday and when it didn't execute for about 5 minutes, I asked myself what am I doing, and cancelled it. This company and this investment is too personal for me and I'd rather let those calls expire worthless than lock in a small profit and essentially say I'm giving up on how much I know they are really worth. Granted my $5 calls and long shares, which are still by far the largest holdings in my portfolio are pretty profitable even at $7.

And I fully admit and encourage that anyone reading this with a stake in YONG recognize that I consider this investment personal and probably discount everything I say at least a bit, as I'm certainly not unbiased when it comes to the company. I know I would if I was reading someone else's comments on another company where this was the case.

I plan to draft my new letter to the SC this weekend. I'll dig up contact details, as they did confirm that my last letter (way back in 2012, wow) was forwarded to the SC, and I even got a call from one of the class action lawyers when they were trying to get an injunction, so we know that if we write unemotional, formal, professional letters and submit them through the right channels, they will get the SC, and will be made available to law firms during discovery. A significant number of letters with a similar theme would have to be valuable to any law firms that gets involved in a new class action, even if they do not have the sobering effect we would like on the special committee members and YONG's legal counsel.

I'll send around the contact info and how I will be submitting my letter at the end of the weekend. While I think it would be a good idea for other shareholders to write a letter as well, we do not want to submit the exact same worded letter multiple times. When drafting something yourselves, just focus on the themes that are most important, even if they are not the specific ones I noted above (e.g. it would be easy to make a case that the offer should be rejected based on the book value or liquidation value alone).

I'll keep you updated...

mekong
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