By ZHUANG Jian

As another twist in its five-year-long effort to acquire a major stake in the London-based data center operator Global Switch, Jiangsu Shagang Co (Shagang), a Shenzhen-listed steelmaker, disclosed details of a revised acquisition plan, the second in three years. The acquisition would be a major step for its parent company, Jiangsu Shagang Group, to reorganize its holdings in Global Switch. According to the new plan, Shagang is to acquire the entire share capital of Suzhou Qingfeng, an investment vehicle that, through a concatenation of deals, owns 51 percent of Global Switch. The transaction will be conducted via cash and share issuance. Daily-Tech, the data center company originally the target of the acquisition, has been completely dropped from the deal.

All is well in the new deal, however, the financial condition of Daily-Tech and the disappearance of LI Qiang, its major shareholder and a key player in previous transactions, may derail the deal.

The proposed acquisition can be traced back to 2016, when Li pulled together a consortium to buy 49 percent of Global Switch and later upsized it to 51 percent. Shagang Group, through a few other companies, owns the other 49 percent. Suzhou Qingfeng, also founded by Li and for some time managed by Daily-Tech, controls 100 percent of the consortium. Li became a board member of Global Switch after the acquisition. In 2015, Li acquired 6.34 percent of Shagang at 529 million yuan (US$ 81.67 million) through a share transfer.

Shagang unveiled details for the prospective acquisition in 2017, valued at 25.8 billion yuan, but negotiations were soon deadlocked. In November 2018, it adjusted the original proposal, scrapping the plan to buy an 88 percent stake of Daily-Tech to aim solely on Suzhou Qingfeng instead. Central to the negotiation was the remaining 12 percent of Daily-Tech owned by Suzhou Qingfeng, which it had agreed to sell. The shares were bought from Li Qiang for 400 million yuan in 2017 to “expand Suzhou Qingfeng’s global exposure to the data center business,” and by the time Shagang announced the revised plan, Suzhou Qingfeng had reportedly found a buyer.

While terms of the potential acquisition were being sorted out, Daily-Tech Hong Kong, a Daily-Tech subsidiary, entered business dealings with Global Switch. For a short time, it was Global Switch’s biggest client, having contributed 430 million yuan to its revenue in 2018. Less than a quarter of it was paid, however. In fact, in 2019, Global Switch terminated its business relationship with Daily-Tech Hong Kong after repeated failed efforts to recover the ballooning unpaid bills. The write-off of the bad debts also cost dearly to Suzhou Qingfeng, the largest shareholder of Global Switch. In 2019, it reported a net loss of 440 million (total revenue was 3.1 billion).

By November 2020, when the acquisition plan was revised again, Suzhou Qingfeng still had not sold its 12 percent stake in Daily-Tech. The shares will be written off from Suzhou Qingfeng’s balance sheet, due to the involved parties’ “inability to properly assess the financial condition of Daily-Tech”, thus excluded from the deal, according to the revised plan*. Multiple attempts by Suzhou Qingfeng to reach Li Qiang have failed.

Li has shed his responsibilities as the legal representative of Suzhou Qingfeng and chairman of Daily-Tech. No explanation has been given for his departure. He also resigned from the board of Global Switch. He is not rid of Shagang, however. Since 2015, Li has downsized his holding of Shagang from 6.34 percent to 1.19 percent. But 329 million yuan of the original purchase price, more than two-thirds of the total, has not been paid.