BUYOUTS: Dangdang Lowers Buyout Offer, Momo Still Mum

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Bottom line: Dangdang’s latest buyout offer is likely to meet with minority shareholder resistance due to its sharp downward revision, while Momo is also likely to lower its earlier buyout price if and when it announces a final offer.

Dangdang gets lowered buyout offer

After pausing briefly last week, the train of publicly-traded Chinese firms leaving New York has resumed with the receipt of a new offer for faded e-commerce company Dangdang (NYSE: DANG). In this case it’s significant that Dangdang has announced a revised buyout offer from its founders, since that means the deal most likely has the necessary funding and is likely to move ahead. But it’s also significant that this revised offer is sharply lower than 2 earlier offers for the company, one from its founders and one from a rival bidder.

Next there’s social networking app operator Momo (Nasdaq: MOMO), which has remained mum on its own pending buyout bid in its latest quarterly results. That doesn’t mean the bid is necessarily on hold, especially after word emerged last month that e-commerce giant Alibaba (NYSE: BABA) was joining the buyout group. But Momo’s shares now trade well below their earlier buyout price, and I suspect that if and when it finally announces a concrete offer the price will also be revised downward from the earlier bid.

The main theme of this latest buyout round-up is that investors are increasingly skeptical about the wave of around 4 dozen US-listed Chinese companies that have received privatization offers since the start of last year. As a result, many of the companies’ shares now trade well below their original privatization prices, leading many buyout groups to lower their bids as some of the deals move forward.

We’ll begin with Dangdang, whose latest buyout offer at $6.50 per American Depositary Share (ADS) is nearly 17 percent below the $7.81 made by the same management-led group nearly a year ago. (company announcement) Dangdang shares rose nearly 4 percent after it announced the new offer, and now trade at $5.55, or about 15 percent below the latest buyout price. That indicates investors are still somewhat skeptical this deal will ultimately get done.

Dangdang’s shares were trading at double their current levels a year ago when China’s stock markets were soaring, but tumbled amid a broader sell-off over the last year. The company received a rival buyout bid 2 months ago from iMeigu Capital Management, which offered a higher $8.80 per ADS, representing a 23 percent premium to Dangdang’s share price at that time. But Dangdang’s shares have plummeted 23 percent over the last 2 weeks, perhaps due to concerns about China’s slowing economy.

Minority Shareholder Rebellion?

I said back in March that iMeigu’s bid would have difficulty succeeding because Dangdang’s founders controlled a big portion of the company’s stock, which is quite common among private US-listed Chinese firms. This latest offer from Dangdang’s founders seems to indicate the iMeigu offer is indeed dead, and that the original buyout group intends to force a privatization at a bargain price. Accordingly, I wouldn’t be surprised to see some rebellion by Dangdang’s minority shareholders and perhaps some lawsuits or a raised buyout offer before this deal finally closes.

Next there’s Momo, whose latest quarterly results saw revenue nearly double, touching off an 8.2 percent rally in the company’s ADSs. (company announcement) But that rally is slightly misleading, since Momo shares lost a third of their value last week after China’s securities regulator was reportedly weighing a plan that would cut off the main route being used by Chinese companies that were de-listing from New York and re-listing back in China. (previous post)

At its current ADS price of $12.99, Momo shares now trade about 30 percent below its buyout price of $18.90 announced nearly a year ago when its shares were much higher. The absence of discussion of the buyout plan in its latest quarterly results doesn’t necessarily mean that plan is dead, and the recent addition of Alibaba to the buyout group seems to indicate the bid is still alive. But if and when a final offer comes, I would expect the new price to be sharply lower than the original one, probably in the $15-$16 range.

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