(Bloomberg) -- A group of Renren Inc. investors are trying to block the private sale of company-owned assets to a consortium that includes its own top executive and major shareholder SoftBank Group Corp.
More than 100 mainly Chinese investors in Renren -- once known as China’s answer to Facebook -- penned an open letter to the Securities and Exchange Commission and SoftBank asking regulators to halt the deal. The shareholders are calling for an investigation into the sale of holdings in 44 portfolio companies, including Social Finance Inc., saying the deal amounts to a fire-sale that benefits its chief.
Renren announced the complex deal in April, which it said was necessary to address concerns that the SEC might deem it an investment company -- forcing its delisting if it failed to obtain relevant licenses.
Under the plan, the portfolio holdings and some other assets are being transferred into a subsidiary known as Oak Pacific Investment while Renren would keep businesses including social networking and used cars. OPI would in turn be sold through a private placement to SoftBank and a handful of other investors, with the proceeds to be distributed to all shareholders through a dividend.
The letter accused management of trying to transfer the assets at values equal to or lower than their book value, neglecting their duty to smaller shareholders and misrepresenting certain financial statements. For example, it says the shares in SoFi -- one of America’s biggest student loan refinancers -- are being sold at a valuation of $269 million when they could be worth double that amount.
“The unfair transaction recently announced by Renren will cause significant unrecoverable loss to all small investors whose rights are unfairly treated,” the smaller shareholders said in the letter to the SEC.
Renren responded to Bloomberg News by reiterating comments made in an earlier filing. The company said it wasn’t practicable to sell the investments itself and distribute cash to investors because most of its holdings are in closely held startups. It said it couldn’t identify enough interest from buyers for SoFi and other holdings, many of which were private companies. That in turn helped undermine their valuation.
It also said a special committee of board members, including two independent directors, evaluated the proposal and approved it.
“After correspondence and discussions with the SEC staff, Renren undertook to reduce the aggregate value on its balance sheet of the shares in companies that it does not control in order to ensure that it would not be deemed to be an investment company,” Renren said.
SoftBank declined to comment. John Nester, an SEC spokesman. declined to comment.
The minority shareholders however disputed Renren’s explanation and said they were able to identify funds with strong interest in SoFi. They wrote that the funds were willing to pay significantly above management offers, a statement Bloomberg was unable to independently verify.
SoFi, run by a clutch of Wall Street veterans including former Twitter Inc. COO Anthony Noto, targets millennials and currently also offers mortgages, personal loans, wealth management and life insurance. While the company has had a string of setbacks, it was said to be in talks to raise funds at a $4.3 billion valuation in February.
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