More than a year after first announcing a potential buyout, telecoms software maker AsiaInfo-Linkage (Nasdaq: ASIA) has finally reached a deal with a group led by a unit of Chinese financial giant Citic that would see its shares de-listed. Investors were unimpressed by the final announcement, with AsiaInfo shares actually closing down by 0.7 percent at $11.60 after it announced a deal to sell itself for $12 per share to the group led by Citic Capital Partners which also includes Singapore’s Temasek sovereign wealth fund. (company announcement) Word of the deal was quickly followed by another announcement from a law firm specializing in shareholder lawsuits hinting at a possible suit over the relatively low offer price. (law firm announcement) All of this shows how difficult these privatization deals are, even as many US-listed Chinese firms attempt such transactions amid a lack of US investor appetite for these former high flying stocks.
AsiaInfo is one of the oldest US-listed China stocks, and is also an exemplary case of what has happened to these companies’ shares over the last 2 years. AsiaInfo stock traded at more than $30 as recently as 2010, as US investors clamored for a piece of the China growth story. But then appetite for its shares, and for Chinese companies in general, started to sour in 2011 after a series of accounting scandals were exposed at other US and Canada-listed Chinese firms. AsiaInfo shares were trading at around $7 when it first disclosed early last year that the Citic group had expressed an interest in buying the company. (previous post)
AsiaInfo’s shares jumped after the news came out, even though a price was never specified. They continued their rally after AsiaInfo said it had retained an adviser to consider other rival offers, and its shares eventually rose to nearly $14 amid investor hopes for a bidding war. But such a war never erupted, at least not publicly, and the shares ultimately settled down to their current level that values AsiaInfo at about $840 million.
The fact that AsiaInfo’s shares fell to $11.60 after the news came out isn’t necessarily bad, since that’s just 3 percent below the offer price and a fairly small discount that indicates investors think the deal will close. But clearly the final price has come as a disappointment to investors who were hoping for a company valuation at $1 billion or more.
As I’ve said above, all of this shows that completing such privatization deals is hardly an easy matter, especially for companies valued at $1 billion or more. Several firms in that range have launched or contemplated privatization bids over the last year, but so far only Shanda Interactive has succeeded. Another bid by outdoor advertising specialist Focus Media (Nasdaq: FMCN) is approaching its 1 year anniversary, amid a steady stream of rumors that the $3.7 billion buyout is having trouble finding financing. (previous post)
Others that are in the process of trying to privatize include hotelier 7 Days (NYSE: SVN), information technology services firm Camelot Information Systems (NYSE: CIS) and Simcere Pharmaceutical (NYSE: SCR), all of which have market values of $700 million or less. I suspect that in some cases private equity firms that are helping to finance these bids are having the same concerns as stock buyers who worry about questionable accounting practices by some Chinese firms.
At the end of the day, it does appear that AsiaInfo’s privatization will get finished, and the company will most likely either get sold or re-listed again in Hong Kong or on one of China’s 2 major stock exchanges over the next few years. But the long time needed to close the deal, and the ultimately disappointing price, don’t auger well for the many pending privatization bids still in the pipeline. Accordingly, I wouldn’t be surprised to see at least 2 of the 4 big pending deals ultimately fail, with Focus Media facing some of the biggest challenges due to its large size.
Bottom line: US-listed Chinese firms could face trouble privatizing amid growing concerns among financiers about their long-term prospects.