One of my well-informed sources tells me that Shenzhen-listed IT outsourcing firm Beyondsoft (Shenzhen: 002649) is weighing a bid for rival Camelot Information Systems (NYSE: CIS), in what would be an interesting twist to the ongoing exodus of Chinese firms from US stock exchanges. If this information is true, it could mean we may start to see some bidding wars among private buyers for the growing number of Chinese firms that are abandoning their New York listings due to low valuations.
The growing number of de-listing plans includes 2 basic types. The more common type so far has seen management-led groups team up with private equity to make privatization bids, usually at about a 15-30 percent premium to the company’s stock price. Companies that fall into this category include Camelot, which announced a privatization plan in March, as well as its main rival Pactera (Nasdaq: PACT), which announced its own similar plan last month. (previous post)
A second group of companies has received unsolicited offers from third-party investors, again usually offering a premium in the 15-30 percent range. Companies in this category include telecoms software maker AsiaInfo-Linkage (Nasdaq: ASIA), which announced an offer earlier this year (previous post), and smartphone chip maker Spreadtrum (Nasdaq: SPRD), which announced it had received an offer just late last week. (previous post)
With all that background in mind, let’s take a closer look at this potential Beyondsoft bid and what it might mean for Camelot’s existing privatization offer and for other similar de-listing bids in general. Under its initial privatization offer announced 3 months ago, a group of Camelot managers had teamed up with an unnamed financial institution to offer $1.85 for each of Camelot’s American Depositary Share (ADS).
That price represented a 23 percent premium to Camelot’s price at the time, but was still well below the highs of $25 the stock reached during headier days shortly after its 2010 IPO. The stock last closed at $1.73, indicating investors are still unsure if Camelot will actually close a deal.
Meantime, Beyondsoft is one of China’s better run and more aggressive IT outsourcing firms, and should easily have the resources to make a superior bid for Camelot if it wants to. Beyondsoft made headlines last year when it announced plans to buy Achievo Corp’s Asia-based assets in Japan and the Chinese cities of Beijing, Shanghai and Chengdu for $56 million. (previous post) A Camelot acquisition would be in a similar range, since the company’s current market capitalization is $80 million.
If my source is correct, then I wouldn’t be surprised to see Beyondsoft make a counter bid for Camelot in the next month or two, most likely at a higher price than the previous $1.85 offer. Such an offer would mark one of the first public bidding wars to break out for these privatizing firms, and could presage some similar offers as cash-rich buyers look to snap up some these privatizing companies at bargain prices.
Another bidding war took place behind the scenes for AsiaInfo-Linkage, which hired a financial adviser to consider counter offers after receiving an initial bid from a unit of Chinese conglomerate CITIC more than a year ago. Other private equity buyers that had reportedly expressed an interest in AsiaInfo included TPG, Silverlake and Primavera, though AsiaInfo ultimately chose to sell itself to the CITIC group.
I don’t know enough about internal politics at many of the de-listing companies to say which could possibly receive rival offers in their march to privatization. But I wouldn’t be surprised to see 2 or 3 such groups join Beyondsoft in making rival bids for some of these privatizing companies in the second half of this year.
Bottom line: Beyondsoft’s interest in making a bid for Camelot could presage a new wave of bidding wars for privatizing US-listed Chinese firms in the second half of 2013.