Prices of many pending buyouts of US listed Chinese companies fell recently after Chinese regulators indicated that conversion of RMB funds for overseas acquisitions would be subject to increased scrutiny (see Bloomberg: China to Curb Megadeals as Regulators Tame Record Overseas Spree). It does not appear that any of the current deals would be explicitly forbidden, but regulators would have broad scope to delay approvals and their actions will probably be heavily influenced the level of capital outflows from China. Some factors to keep in mind when reviewing deal terms:
- Strategic buyers and buyers with offshore financing are probably better placed to complete transactions.
- Domestic Chinese investment funds and buyers reliant on domestic RMB bank financing probably face more difficulty.
- If the RMB is weakening then regulatory pressure will be greater. A weaker RMB may also weaken the financial rationale for completing a buyout at a fixed US$ price.
Despite these uncertainties many of the economic benefits from privatization are still available:
- Better investor support and higher valuations in domestic market
- Simpler and more efficient corporate structures
- Improved corporate visibility and reputation
Significant developments since the September review of buyouts
- Ecommerce operator Dangdang closed its buyout on 9/20
- Mobile game distributor Sky-Mobi closed its buyout on 11/16
- Synutra reached a definitive buyout agreement at $6.05/share, up from the initial offer last January of $5.91
- KongZhong reached a definitive buyout agreement at $7.55/share up from revised offer of $7.18 received in August, but below the initial offer of $8.56 in June 2015.
- Qunar reached a definitive buyout agreement at $30.39/share, unchanged from the initial offer in June
- Efuture reached a definitive buyout agreement at $6.42/share, up from the initial offer of $6.32 received in June
- Autohome announced the withdrawal of the buyout proposal that was made prior to the change in the company’s largest shareholder.
The following offers are currently open:
Some appear unlikely to proceed:
- Renren has proposed a spinoff of its venture capital investments into a new entity that will not be subject to regulatory reporting and not trade on any exchange. Public shareholders may not even be able to vote on this.
- China Cord Blood provided a lengthy update on “Recent Developments” at the end of its 2Q16 earnings report. It’s not clear whether the original $6.40 offer from the controlling shareholder (Golden Meditech) was ever withdrawn, but the controlling shareholder is currently negotiating a sale to a domestic Chinese conglomerate (Sanpower Group) and there’s no indication about the terms of a potential transaction.
Koneko Research 