BUYOUTS: Autohome, iKang, Wanda in Twisted Buyout Tales

Bottom line: Privatization plans by Autohome and iKang will face long delays due to shareholder resistance and rival bids, while Wanda Commercial’s similar buyout will proceed soon after some technical issues are resolved.

Autohome, iKang take buyout clashes to court

Three of the larger privatization bids by offshore-listed Chinese firms are running into snags, hinting at a growing wave of resistance to such offers considered by many as too low and opportunistic. Two of the most colorful tales involve online car site Autohome (NYSE: ATHM) and private clinic operator iKang (Nasdaq: KANG), whose management-led buyout deals both hit snags due to unexpected third-party developments. In the latest twist to those stories, Autohome is now taking legal action to prevent a separate share sale that could kill its own management-led buyout bid; while iKang is playing legal games with a rival bidder that trumped an original management-led buyout plan.

Meantime, the largest of this particular trio of buyout bids for real estate giant Wanda Property (HKEx: 3699) has hit its own new snag, with Hong Kong’s securities regulator holding up announcement of a formal offer as it requests additional information on the deal.

The broader theme behind all 3 stories is that privatization is a difficult process because it involves big capital raising and also an attempt to value a company at levels that are acceptable to minority shareholders. Snags in the Autohome and iKang cases are at least partly due to the belief by certain shareholders and rival buyers that the original management-led buyout offers were undervalued.

Let’s begin with Autohome, which last month announced a buyout deal on the same day that its biggest single shareholder, Australia’s Telstra (Sydney: TLS), announced a deal to sell its 48 percent of the company to Chinese financial services giant Ping An. (previous post) While the 2 moves initially looked coordinated, it later became clear that Telstra was unhappy about the management-led buyout plan and decided to independently sell its stake to Ping An over the buyout group’s objections.

Now media are reporting that the original management-led buyout team has taken action in a Cayman Islands court to try and halt Telstra’s planned stake sale to Ping An for $2.1 billion. (English article; Chinese article) The reports say the buyout group has also filed a complaint with the US securities regulator, and apparently both objections are related to the way in which Telstra may have manipulated Autohome’s board to get its deal approved.

Bidding War for iKang

Next there’s iKang, which is also a twisted tale that started with the usual management-led buyout offer last August. But then in November, a rival group that included iKang’s chief rival, known both as Health 100 (Shenzhen: 002044) and Meinian, made a surprise higher offer for the company. That prompted iKang’s founder to say he would never sell his stake to the second buyer group, and then iKang launched a poison pill shareholder rights plan to prevent a hostile takeover. (previous post)

Now iKang has held a press conference this week accusing Meinian of copyright infringement related to some of its health management software. (Chinese article) Meinian has responded with its own statement saying the allegations are groundless and designed to create negative publicity to derail its hostile takeover bid. This story is obviously still far from finished, and I do expect that the original buyout group will either have to raise its price to beat the Meinian bid or ultimately concede defeat.

Finally there’s the Wanda Commercial buyout deal, which hasn’t even been formally announced even though chief Wang Jianlin as talked about it extensively. In this case requests for more information from Hong Kong’s securities regulator are apparently related to the deal’s unusual nature, involving the way in which Wanda Commercial would be privatized. (English article)

Of the 3 deals discussed in this post, this particular setback involving Wanda is probably the least controversial because the delays appear to be mostly technical. But the reports do note that some original cornerstone investors from Wanda Commercial’s original 2014 Hong Kong IPO believe they are being treated unfairly in this current buyout process. Thus they may also need to be placated before the final announcement of an actual offer in the next few weeks.

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