The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Corrects company's full name in first paragraph to Sinovac Biotech and adds stock symbol.

By Jeffrey Goldfarb

NEW YORK, June 19 (Reuters Breakingviews) - Just as Covid lingers, so too does a protracted corporate battle over more than $10 billion earned trying to protect people from the deadly virus. A ruthless clash for control of Sinovac Biotech SVA.O, whose vaccine became one of the world’s biggest sellers, has left its stock untradeable on Nasdaq for more than six years. A fresh fight for the board may determine whether the heap of money is distributed to shareholders or, like so many others in U.S.-listed Chinese companies, they wind up getting stiffed.

Although Sinovac’s plight is an extreme example, it’s emblematic of the often-underappreciated investment risks created by ubiquitous labyrinthine Chinese business structures. The company is based in Beijing, incorporated in Antigua and Barbuda, with shares quoted on an American bourse, and a pivotal subsidiary that may be governed by arbitration in Hong Kong. As U.S. lawmakers renew a push to delist all Chinese companies from U.S. exchanges, there’s a danger that more shareholders will get short-changed.

Sinovac’s saga started long before the infectious coronavirus began its deadly spread across the planet. A failed takeover tussle led to a legal brawl to control the boardroom, ultimately prompting Nasdaq officials in February 2019 to stop open buying or selling of shares. The drama at turns involved violence and corporate espionage.

The pandemic significantly raised the financial stakes. Because of the trading halt, shareholders were unable to capitalize on the windfall that resulted from Sinovac producing at least 2.9 billion doses of its CoronaVac jab. While rival vaccine maker Moderna’s MRNA.O market value soared to $180 billion, Sinovac shares remained frozen at $6.47, imputing a $460 million market capitalization. The Covid bonanza has left more than $10 billion in cash and short-term investments sitting idle on the company’s balance sheet. The stockpile alone is worth more than $140 a share, or 22 times the suspended price.

For long-suffering equity owners, a potential resolution is getting tantalizingly closer. A special shareholder meeting next month tees up the culmination of a corporate war that has been raging for nearly a decade, costing millions of dollars for armies of lawyers, accountants, investigators and spin doctors.

Two broadly delineated camps lead the campaigns. On one side is Sinovac founder and Chief Executive Weidong Yin, whose 2018 plan to take the company private failed, as did his subsequent attempt to retain oversight of the board. He is backed by Asian buyout firm SAIF Partners, a longtime 15% shareholder, and two other investors, Vivo Capital and Advantech Capital, which hold a combined, but disputed, 16% stake.

The rival group is led by Chairman Jiaqiang “Chiang” Li, whose 1Globe Capital family office owns a big slug of the company and is supported by various related parties, healthcare investment giant OrbiMed, and Boston-based Heng Ren Partners, which has been fighting for years to extract payments to Sinovac shareholders.

Although multiple legal hurdles to a resolution remain, a significant one was cleared in January. Following seven years of court appeals, the UK Privy Council, Antigua’s top tribunal, deemed the 1Globe-supported slate of directors to be Sinovac’s legitimate board, duly elected in 2018 but prevented from taking office by Yin’s incumbent crew. The group, only now led by Li, declared a $55-a-share special dividend worth nearly $4 billion, one of the biggest ever paid by a U.S.-listed Chinese company.

Fresh conflicts hang in the balance, however. SAIF, the shareholder supporting Yin, has called for a special meeting and nominated 10 directors, including both Yin and Li, representatives from other big shareholders, and ones ousted by the Privy Council’s decision. The meeting is scheduled for July 9, originally the same day the dividend was due to be distributed. On Tuesday, Sinovac’s board brought forward the payment to July 7, declared a second payout of $19 a share and intentions for a third one as high as $50 per share, taking the total potential outlay to almost $9 billion.

Further muddling matters, Sinovac has lost its auditor. Following the January court ruling, Grant Thornton Zhitong told the company it could no longer stand behind years of financial statements and internal controls. As a result, Sinovac missed a deadline to disclose certified 2024 annual results and is scrambling to find a new accountant to comply with Nasdaq listing requirements by July 15. No wonder Sinovac shareholders are anxious.

The controversy stretches back to February 2016, when the company accepted Yin’s management buyout proposal over a higher bid from a joint venture partner, Shandong Sinobioway Biomedicine, which was backed by Li’s 1Global. Before the deal closed, Sinovac held what would turn out to be its last annual general meeting, in February 2018. Sinobioway helped orchestrate a rebellion, encouraging shareholders to attend in person and vote against Yin’s board, while a proxy for Li-supporting OrbiMed nominated a new slate of directors at the eleventh hour. When the insurgents won more votes, Sinovac said the ambush was invalid and that its sitting directors had been reelected. As a defensive maneuver, the company also triggered a dilutive poison pill, which was later invalidated by courts.

With the election contested, the fight intensified. In April 2018, Sinovac co-founder and Sinobioway Chairman Aihua Pan, and dozens of others, forcibly entered a Beijing facility to steal the company’s official seals and seize control, according to court documents and company statements. Sinovac said the intruders left behind incriminating evidence on laptops of the earlier plan to replace the board. The U.S. Securities and Exchange Commission found that investors had banded together without making the requisite disclosures. 1Globe and Li agreed to pay $290,000 in fines.

These feuds, and others involving former Sinovac director and 1Globe executive Pengfei Li, set the scene for the upcoming showdown. Anticipating that Yin’s takeover bid lacked the necessary shareholder support, Sinovac terminated it in July 2018. Soon after, it raised $87 million by selling shares to Vivo and Advantech, in a private placement known as a PIPE. The money was supposedly meant to help fund new vaccines, but the company said years later that it had “not yet been utilized.”

A subsequent transaction amplified concerns about Sinovac’s relationship with the two investors. In May 2020, as researchers around the world raced to develop a Covid vaccine, the company arranged for its R&D division, Sinovac Life Sciences, to borrow $15 million from the pair as a loan convertible into 7.5% of the unit’s equity. The investment, whose necessity and valuation were dubious, would turn out to be extremely rewarding. Sinovac distributed about $2.7 billion in dividends from the start of 2021 through the middle of 2024, most of it to minority backers of its R&D unit. The company says Vivo and Advantech were paid more than $800 million, a return of 50 times their initial investment.

All this was prelude to the brutal fight for the remaining cash. The Li clan, which now controls the company, considers the shares sold to Vivo and Advantech void. Cancelling the deal would prevent the two investors from receiving a cut of the dividend and negate their votes at the upcoming shareholder meeting, although Sinovac says it has set aside funds for the duo’s portion of the payout, pending litigation. Advantech has asked a federal court in New York to “preserve the status quo,” while it pursues arbitration rulings in Hong Kong and Beijing. Vivo is suing in Antigua and the United States, alleging that the board and 1Globe are acting illegally.

In one of the lawsuits, Vivo accuses Li and his allies of trying to “loot” Sinovac and says it supports dividends for all. It’s a tough case to make, as the investor for years did not publicly press the board to disburse its excess cash more widely. In fact, under Yin’s leadership, Sinovac told the SEC two years ago that it had no intention of paying any dividends “in the near future.”

There are reasonable questions to pose about the Li clan’s motives and tactics, but the case against Yin’s team looks stronger. The ousted chairman and his board selectively paid a fortune to the R&D unit’s investors, two of which became significant shareholders after they had backed his ill-fated acquisition of Sinovac, but no one else. If Yin and his supporters regain control on July 9, Sinovac could end up delisted by Nasdaq, leaving shareholders to start another painstaking attempt to get their hands on the cash.

It’s not the first time that investors in U.S.-listed Chinese companies have been short-changed. In 2016, the chairman of Qihoo 360 led a deal to take the antivirus software developer private by squeezing out minority shareholders at a roughly $9 billion valuation. Two years later, the company relisted in Shanghai at more than $60 billion.

In another disputed episode, the chairman of SoftBank-backed RenRen, China’s doomed answer to Facebook, unsuccessfully tried to buy the company in 2015 at a 70% discount to its initial public offering price. He later spun off RenRen’s valuable investments, including one in online lender SoFi Technologies, into a new outfit he controlled. Minority shareholders sued and ultimately secured a landmark $300 million settlement. As with Sinovac’s cross-border jurisdictional mess, a major obstacle for RenRen investors was convincing a judge that New York was the right venue for their lawsuit against a Cayman Islands company with its main operations in China.

Sinovac’s response to the Advantech lawsuit in New York sums up the sentiment: “This is an action commenced by a foreign entity, to enjoin a foreign proceeding, in favor of a different foreign proceeding, involving a foreign company, foreign conduct, and the application of foreign law that does not belong in this Court,” it argued this week.

Ultimately, this is what gives the Sinovac soap opera broader relevance. A U.S. congressional committee in March identified 286 Chinese companies trading on American exchanges with a total market value of $1.1 trillion. Nearly 50 of them have listed since January 2024. Sinovac’s vaccines may have helped prevent millions of deaths, but its cautionary financial tale, if properly absorbed, stands a chance at saving millions of dollars for investors, too.

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(Editing by Peter Thal Larsen; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GOLDFARB/jeffrey.goldfarb@thomsonreuters.com))