BUYOUTS: Autohome, E-House Drive Back to China

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Bottom line: Autohome and E-House are both likely to complete their privatizations from New York, continuing the migration of US-listed Chinese firms returning home to seek higher valuations on China’s stock markets.

Autohome drives away from New York

The drive back home for New York-listed Chinese companies continues as we head into the new week, with online car site Autohome (NYSE: ATHM) becoming the latest to announce a privatization plan. In a slightly unusual twist to that story, Autohome shares actually rose above the offer price before the buyout deal was announced, suggesting investors were hoping for a bigger premium than the one offered. But they quickly fell back to the offer price in after-hours trading.

At the same time, online real estate company E-House (NYSE: EJ) announced it has signed a definitive deal to privatize, nearly a year after it first announced its plan to de-list from New York. E-House’s plan has gone down a windy road since it was first announced last June at the height of a rally that saw China’s stock markets more than double in a year. Since then Chinese markets have tanked twice, and are now about 40 percent lower than where they were when E-House first announced its offer.

Let’s begin with Autohome, which was a superstar after it listed its shares in late 2013 at $17 apiece, right at the start of a flood of New York IPOs for Chinese firms. The shares tripled from their IPO price at the height of China’s stock market boom last year, but then fell to as low as $24 when Chinese stock markets crashed at the start of this year.

Authome apparently felt its shares were unappreciated by New York investors, and has announced it will pay $31.50 per American Depositary Share (ADS) in its bid to privatize. (company announcement; English article; Chinese article) The buyout consortium includes some big-name private equity companies, such as Sequoia Capital and Boyu, meaning its quite likely that this particular deal should succeed.

In a slight twist to this story, one of Autohome’s largest previous shareholders, Australian telephone company Telstra (Sydney: TLS), has also just agreed to sell its 48 percent stake in the company to Chinese insurer Ping An (HKEx: 2318; Shanghai: 601318) for $29.55 per ADS, or about $1.4 billion. Thus Telstra is selling its stake for about 6 percent less than the buyout price.

Telstra’s sale to Ping An is probably an important part of the broader buyout package, since it means the buyout group will now only have find financing to pay for the 52 percent of Autohome’s remaining shares not held by Ping An. As I’ve said above, I do expect this deal could close relatively quickly due to its solid financing, and perhaps we’ll see Autohome look to re-list in China sometime next year.

Compromise Offer From E-House

Next there’s E-House, which announced it has signed a formal deal to take the company private valued at $6.85 per ADS. (company announcement) The buyout group had originally offered $7.38 per ADS when it first announced its bid last June, and then lowered that to $6.64 in November after China’s stock markets crashed the first time. In between that period, it also signed on leading web portal Sina (Nasdaq: SINA) as a member of the buyout group.

So it looks like this final buyout offer represents a compromise between the original offer last June and the later lowered one in November. E-House may have raised its bid to the final level to satisfy some minority US-based shareholders, who have increasingly complained that buyout groups are offering prices that significantly undervalue the Chinese companies.

E-House ADSs jumped 4.3 percent to $6.55 after the final deal was announced, meaning they’re still about 4 percent below the buyout price. E-House said members of its buyout group collectively hold about 45 percent of the company, and thus shareholders are almost certain to pass the deal in an upcoming vote. The main risk could be more volatility in Chinese markets that could affect the financing, though in this case the chances look quite strong the deal will close.

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