The Case For Change
After two-and-a-half years of extensive analysis and due diligence, Aristeia has concluded that systemically poor corporate governance is preventing Sina from evaluating an array of strategic routes to reducing or eliminating its widening valuation gap, with shares currently trading at a staggering 41% discount to net asset value. We believe Sina’s current Board has failed shareholders in several ways, including:
- Failing to hold itself to the standards expected of U.S.-listed public company boards. This includes not meeting standards with respect to the number, tenure, true independence and classification of board members. The Company has also failed to ensure that senior Sina executives engage with shareholders in a meaningful way.
- Approving — and in some cases, participating in — unnecessary share issuances to related parties such as Mr. Chao, the Company’s Chairman and CEO, who used borrowed funds to opportunistically purchase hundreds of millions of dollars of Sina stock. Those excess cash proceeds still remain on the Company’s balance sheet today despite the transactions having diluted other shareholders and reduced public shareholder value by nearly $1 billion.
- Creating an exception to Sina’s “poison pill” solely for Mr. Chao, with little to no economic rationale or premium obtained for doing so.
- Hiding behind share price appreciation driven solely by the performance of Sina’s stake in Weibo, which has misaligned employee compensation and led to cumulative stock-based compensation that has exceeded the Company’s cumulative core EBITDA over the past three full years.
- Perpetually disregarding and overlooking an array of options available to unlock value for the shareholders to whom the Board owes its fiduciary duties.
We believe that there are a number of strategies that can be implemented in order to close the existing valuation discount and benefit shareholders, including:
- A sale or merger of Sina to an acceptable buyer/partner which would allow Sina shareholders to capture a control premium for their Weibo shares, or a reverse merger in which Weibo acquires Sina.
- A complete or material spin-off or split-off of Weibo shares to Sina shareholders.
- A sale of Sina’s Weibo stake followed by the return of those proceeds to Sina’s shareholders.
- An aggressive share repurchase of Sina’s undervalued shares using some of the $18+ per share of Sina’s net cash.
Unfortunately, Sina’s insular Board has not responded substantively to our proposals for enhancing shareholder value. We are now left with no alternative other than to seek constructive change by nominating highly-qualified independent candidates for election at the Company’s 2017 Annual Meeting and working to ensure the voices of shareholders are heard.