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China Opportunity to Merge with Specialty Steelmaker Golden Green Enterprises
11/14/2008 - China Opportunity Acquisition enters into definitive agreement with Golden Green Enterprises Limited under which the companies will merge, with Golden Green Enterprises being the surviving entity.
China Opportunity Acquisition Corp. has entered into a definitive agreement with Golden Green Enterprises Limited (BVICo) under which it will merge with China Opportunity, with BVICo being the surviving entity.
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BVICo’s subsidiary, Henan Green Complex Materials Co., Ltd (Ge Rui), is a leading private manufacturer of cold-rolled specialty steel products in China. Its products are focused predominantly on high-end, value-added finished steel products that are sold entirely to companies within China.
Ge Rui serves a broad customer base comprising over 200 manufacturers serving a wide range of industries. Products are sold into the Chinese domestic market, primarily to the Eastern and Coastal regions. Ge Rui delivered approximately 187,000 tonnes of specialty steel products in fiscal year 2007, an increase of 32.6% from the prior year.
With manufacturing operations located in Zhengzhou, Henan Province, Ge Rui currently operates six cold-rolled steel production lines and two acid pickling lines with a current annual production capacity of approximately 250,000 tonnes.
Ge Rui also is constructing a new production facility that will expand its product line into higher value-added zinc coated steel products. This new facility, which is expected to be completed in 2009, will double the company’s total capacity to 500,000 tonnes.
Ge Rui’s total revenues were $139.6 million in fiscal 2007, a 41% increase from $99.0 million in fiscal 2006. The increase was mainly attributable to increased sales volume and a slight increase in product prices.
Net income was $23.7 million in 2007, a 49% increase from $15.9 million in 2006. As of June 30, 2008, the company had no long-term debt or preferred stock.
Ge Rui’s revenue was $101.0 million for the six months ended June 30, 2008, a 49% increase from $67.8 million for the same period last year. Net income was $19.8 million for the same period, a 77% increase from $11.2 million for the comparable year-ago period.
Ge Rui’s current management team, led by CEO Mingwang Lu, will remain in place following consummation of the merger.
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“We are very pleased to announce the transaction with Ge Rui,” stated Harry Edelson. “Ge Rui has emerged as one of the largest privately-owned cold-rolled specialty steelmakers in China. Specialty cold-rolled steel manufacturing is a highly attractive niche segment of the steel market in China, due to strong demand and given that only a few domestic manufacturers are capable of producing these high-quality steel products. Ge Rui’s advanced production technology and state-of-the-art facilities in China enable it to compete against larger international players, as they are able to supply the same high-quality products to domestic manufacturers, but at a lower price.”
“Ge Rui’s execution combined with the attractive market dynamics have led to robust top- and bottom-line growth,” continued Edelson. “Revenues and net income between 2005 and 2007 increased at a compound annual growth rate of 49% and 74%, respectively. Results for the first six months of 2008 remained very strong, as revenue increased 49% and net income rose 77% year-over-year. We look forward to building on this solid track record by executing an aggressive growth strategy, which consists of increasing production capacity, expanding into new higher-margin products lines, and entering the export market.”
Terms of the Transaction—Under terms of the merger agreement, China Opportunity will merge with BVICo, with BVICo being the surviving entity. As a result of the merger, holders of China Opportunity securities of will receive like securities of BVICo, on a one-to-one basis, in exchange for their existing China Opportunity securities. Immediately prior to the merger, the current BVICo shareholders will own 30.0 million shares of BVICo, which they will continue to own after the merger is consummated. The current BVICo shareholders also will be eligible to receive up to a total of 3.0 million contingent shares of the combined company—consisting of 1.0 million shares each year, in 2009, 2010, and 2011—if the combined company generates net income of $45.0 million, $60.0 million, and $80.0 million, in 2009, 2010, and 2011, respectively. In addition, if at least 75% of the warrants that BVICo will issue to the public holders of China Opportunity’s current warrants are exercised, the current BVICo shareholders will be entitled to an aggregate cash payment of $5.0 million.
The transaction, which is currently expected to close in March 2009, is subject to customary closing conditions, including approval of the merger agreement by the China Opportunity stockholders. The closing also is conditioned on holders of less than 40% of the shares of China Opportunity common stock voting against the acquisition and electing to convert their China Opportunity common stock into cash, as permitted by the China Opportunity Certificate of Incorporation.
China Opportunity Acquisition Corp. is a blank check company formed on August 7, 2006 as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business that has its principal operations located in P.R. China.
