AsiaInfo, Simcere Bow Out From New York

Curtain comes down on AsiaInfo, Simcere

It seems appropriate that 2 more longtime-listed Chinese companies are bowing out of New York as we head into the final days of 2013, with word that shareholders have approved plans to privatize telecoms software maker AsiaInfo-Linkage (Nasdaq: ASIA) and drugmaker Simcere Pharmaceutical (NYSE: SCR). AsiaInfo was the more lively of these 2 de-listing stories, with a narrow majority of shareholders approving a buy-out offer after several months of protest from others who thought the price was too low. Meantime, Simcere’s looming privatization raises the question of what’s next for this neglected company, whose foreign partners include Bristol-Myers Squbb (NYSE: BMY) and Merck (NYSE: MRK).

The 2 imminent de-listings cap a year that has seen many US-traded Chinese companies go private, after investors lost interest in their shares following a 2 year confidence crisis towards the sector. Others to de-list this year include hotel operator 7 Days and outdoor advertising specialist Focus Media. A longer list of others are in the process of privatizing, including telecoms chip maker Spreadtrum (Nasdaq: SPRD), IT services providers Camelot Information Systems (NYSE: CIS) and Pactera (Nasdaq: PACT) and online game operator Giant Interactive (NYSE: GA).

AsiaInfo has been one of the most contentious of the long list of privatizations, as many investors believed that insider politics were an element in the company’s acquisition by a group led by a unit of Chinese conglomerate Citic Group. Believing the offer price was too low, a number of shareholder law firms sued to block the deal after it was announced earlier this year. One major shareholder said earlier this week it would vote against the buy-out offer of $12 per share.

Despite all that resistance, AsiaInfo has announced that shareholders narrowly approved the deal in a vote this week, with 52.75 percent voting in favor. (company announcement) AsiaInfo said it expects the deal to finally close in the first quarter of next year, at which time it will de-list after more than a decade of trading on the Nasdaq. I suspect we may see 1 or 2 more legal challenges, but the company will ultimately close the deal and de-list, providing an entertaining end for its life as one of China’s oldest US-listed firms.

Meantime, Simcere announced shareholders approved its management-led privatization plan by a much wider margin, with 81.6 percent voting in favor of the deal. (company announcement) Simcere said it expects to de-list very soon, meaning we could see the company’s shares disappear from the New York Stock Exchange by year end. Simcere first announced the deal back in March, showing just how long these deals can take to close.

All of these de-listings raise the interesting question of what’s next for these companies. Private equity is providing much of the funds in nearly all of these cases, meaning we can probably expect to see most of these firms either sold to larger companies or make new IPOs in the next 5 years. In the case of AsiaInfo I would expect we could see the latter, with the company possibly making an IPO in either China or Hong Kong within that 5-year timeframe.

Simcere represents a more interesting case, since it’s one of China’s larger private drug firms and already has tie-ups with Bristol-Myers Squibb and Merck. That means it could be an attractive takeover target for either of those companies as they seek to expand in China. Of that pair, Merck could be the strong contender since it already has a joint venture with Simcere, which the pair formed in 2011. Many of these other recently privatized companies could see similar developments in the next few years, and I suspect we’ll see a number of firms list in Hong Kong.

Bottom line: AsiaInfo’s privatization is likely to close by March despite 1 or 2 more legal challenges, while Simcere could be purchased by Merck following its imminent de-listing.

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