Ray Ruiping Zhang
Chairman of the Board
eHi Car Services Limited
Unit 12/F, Building No.5, Guosheng Center, 388 Daduhe Road
The People’s Republic of China
Dear Mr. Zhang:
GKC Strategic Value Master Fund, LP is the beneficial owner of 4,900,394 Class A shares, via 2,450,197 American depositary shares (“ADS,” each representing two Class A shares) of eHi Car Services Limited (“eHi” or the “Company”).
We write to express our disappointment with eHi’s Board of Directors’ (“Board”) decision not to pursue a competitive and fair sales process. We believe that this stems, at least in part, from your consortium’s declaration that, as controller of 37.5% of the Company’s voting power, it is “interested only in pursuing the Acquisition” and is “not interested in selling their shares in any other transaction involving the Company.” Unfortunately, in recent years this has become a well-trodden path among companies incorporated under the laws of the Cayman Islands: An insider with super-voting shares, backed by handpicked sponsors, squeezing out minority shareholders at below fair value to pursue a transaction with no independent business purpose.
With respect to the inequitable nature of the sales process, we’d note that the Board has flatly ignored a higher offer—namely, the Ocean Link Consortium’s proposal to purchase all outstanding common shares of eHi in a going-private transaction for $14.50 per ADS, a price that is $1.00 per ADS higher than the price offered by your Teamsport Consortium in the Agreement and Plan of Merger announced by eHi on April 6, 2018.
While we believe that the Company is worth substantially more than $14.50 per ADS, the Board still is doing shareholders a grave disservice by ignoring Ocean Link’s proposal because such ‘topping bids’ often engender the very price competition that will be needed to make eHi’s disinterested minority shareholders whole.
The Board still has the opportunity to do right by eHi shareholders and deem the competing bid “reasonably likely to lead to a Superior Proposal.” We hope that it does so.
But if the Board instead continues to ignore a conspicuously Superior Proposal—despite its duty to shareholders—and the current Agreement and Plan of Merger is subsequently consummated, we plan to exercise dissenters’ rights to receive payment of the fair value for our Class A shares.
Dissenters’ rights have, of late, become a last refuge for disinterested shareholders of companies incorporated under the laws of the Cayman Islands. As touched upon above, shareholders within the jurisdiction have been perpetually victimized by self-interested, uncompetitive, take-privates.
This scheme has proven immensely profitable thus far: Research has pegged the average relisting premium at several hundred percent compared to the “fair value” paid to erstwhile minority shareholders who were unceremoniously squeezed out. The most recent relisting in this vein was that of Qihoo 360 Technology Co. Ltd (“Qihoo”). After being taken private in July 2016 for $9.3 billion, Qihoo relisted in February 2018 at a valuation of more than $60 billion. Qihoo’s CEO, who had spearheaded the take-private, reportedly made $12 billion alone upon relisting, more than the valuation afforded to the entire company just 18 months earlier.
The free-for-all has even bred repeat players: Baring Private Equity, a member of your Teamsport consortium, just recently squeezed out minority shareholders of Cayman-incorporated Nord Anglia Education, Inc. (“Nord”) at a material discount to peers, despite grievances from multiple key long-term shareholders who have since pursued dissenters’ rights. In fact, tellingly—and remarkably—the Nord transaction was consummated despite a majority of minority shares either voting against or abstaining entirely.
For the sake of eHi’s shareholders—as well as current and future issuers who wish to abide by best-practices but are nonetheless penalized by a deepening “Cayman discount”—we sincerely hope that a Qihoo or Nord-like result can be avoided here. To recapitulate, the Board still has an excellent opportunity to endorse transparency and pursue best practices and we sincerely hope that it takes advantage of this opening.
Very Truly Yours,
/s/ Matthew J. Schoenfeld
Matthew J. Schoenfeld
GKC Strategic Value Master Fund, LP