Markets

In China, Tycoons' Divorces Hurt Stocks


Wu Yajun, China's most successful female entrepreneur, is estimated to have lost $2.92 billion during her divorce this year

Photograph by ImagineChina

Wu Yajun, China's most successful female entrepreneur, is estimated to have lost $2.92 billion during her divorce this year

Divorce has come to China. Once considered taboo, splitting up got much easier in 2003, when the state did away with a rule requiring that employers approve divorces. Last year China’s national divorce rate was 22 percent, according to the Ministry of Civil Affairs.

China’s raucous tabloid press is voraciously feeding off the trend, especially when it comes to covering high-profile divorces. Last summer, venture capitalist Wang Gongquan announced over the popular microblog Sina Weibo that he was leaving his wife for his mistress: “To all friends and relatives, to all colleagues, I am giving up everything and eloping with Wang Qin,” he tweeted. “I feel ashamed and so am leaving without saying goodbye.” In October newspapers revealed details of 61-year-old real estate mogul Wang Shi’s impending divorce and his alleged affair with a 31-year-old actress.

Investment analysts also take a keen interest in these big-money divorces, for the simple reason that many of the tycoons and their soon-to-be-ex-spouses control big chunks of their companies’ stock. In that way, the potential corporate fallout from a divorce is greater in China than in the U.S., says Andrew Collier, managing director of Orient Capital. “Shareholding in the U.S. tends to be more diffuse,” he says.

Wu Yajun, China’s most successful female entrepreneur, once worth an estimated $7.3 billion, filed for divorce this summer. News leaked in mid-November when filings with the Hong Kong Stock Exchange revealed that her ex-husband had received about 40 percent of the shares he had held jointly with Yu in her company, Longfor Properties, a developer of commercial and residential real estate. The couple had controlled 72 percent of the company’s shares. When Longfor’s stock price dipped 4.2 percent on Nov. 20, Barclays Hong Kong-based analyst Wendy Luo wrote in a research note: “It is possible that Mr. Cai [Wu Yajun’s ex-husband] may sell off some or all of his shares.”

Now divorce rumors are swirling around Robin Li, chief executive officer of Internet search giant Baidu (BIDU). Li and his wife own 20.8 percent of the stock. The gossip has no apparent basis in fact, but no matter. “People are worried about what the dissolution of their marriage might do to the ownership of Baidu and how this might negatively affect the stock, presumably because some believe the wife would flood the market with her shares to get liquidity,” wrote TheStreet.com’s (TST) Eric Jackson on Nov. 14, just after Baidu shares hit their lowest price since January 2011. A Baidu spokesperson said the company does not comment on Li’s private life.

The most vivid case of a divorce torpedoing corporate ambitions concerns the video-sharing site Tudou, once a contender to become the YouTube (GOOG) of China. On Nov. 9, 2010, Tudou registered with the U.S. Securities and Exchange Commission in preparation to list on Nasdaq. On Nov. 10, one day after the SEC filing, the former wife of Tudou founder Gary Wang filed a lawsuit in Shanghai court seeking the division of Wang’s equity interest in Tudou. The suit specifically targeted a special class of shares that empowered Wang to give the Nasdaq-listed company operating control over Tudou in China. If the suit were successful, “it would have blown up the company,” says China-based lawyer Greg Pilarowski, who has advised Chinese companies on going public abroad. The lawsuit effectively stopped the IPO until Wang and his ex-wife resolved their differences in June of last year, and she came away several million dollars richer.

By August 2011, when Tudou finally had its Nasdaq launch, competitor video site Youku (YOKU) had already listed on Nasdaq, and a rash of securities-fraud cases had soured investor sentiment on Chinese companies. Pilarowski estimates that as a result of the delay, Tudou’s IPO was valued at $822 million, substantially less than the $1.03 billion it probably could have raised in late 2010. This August, Tudou merged with its former rival.

The bottom line: Chinese tycoons often own controlling stock in their companies. If they divorce, their ex-spouses can get a big chunk of the equity.

Larson is a Bloomberg Businessweek contributor.

We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Companies Mentioned

  • BIDU
    (Baidu Inc)
    • $198.43 USD
    • 0.71
    • 0.36%
  • TST
    (TheStreet Inc)
    • $2.36 USD
    • 0.02
    • 0.85%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus