Bottom line: New buyout bids for Dangdang and YY look opportunistic due to a recent sell-off in their shares, while Baixing.com could lead a new wave of domestic IPOs for Chinese Internet firms next year.
A few lingering buyout offers for US-listed Chinese firms are trickling in after Thursday’s market rally in China, with e-commerce stalwart Dangdang (NYSE: DANG) and the newer social networking site YY (Nasdaq: YY) both announcing new privatization plans. These 2 announcements look quite opportunistic, as they come after a sell-off that has seen Dangdang and YY’s shares plunge over the last 2 weeks, but right after a major one-day China rally that spilled over into the US.
At the same time, online classifieds site Baixing.com is charting a path for the future, with word that it’s scrapping its variable interest entity (VIE) structure that is typically used for Chinese firms looking to list in New York. The company is reportedly making the move as it eyes a domestic Chinese listing instead, and also as it receives new funding from online search leader Baidu (Nasdaq: BIDU).
This trio of developments shows that private Chinese Internet firms still see some attraction for listing at home rather than a previous preference for New York. Recent stock market gyrations in China are really irrelevant to such longer term IPO plans, most of which probably won’t come for the next year or two anyhow. Accordingly, I do expect that many smaller US-listed Chinese Internet companies may ultimately succeed in privatizing and return to China’s domestic stock markets.
Let’s begin with Dangdang, and I’ll openly say that this is one company I’m quite happy to see leaving New York. Dangdang has been a disappointment since it first listed in 2010. It was one of China’s first major e-commerce companies, but failed to maintain its edge and has rapidly been overtaken by the more aggressive and innovative Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD).
Dangdang’s shares have traded below their $16 IPO price for most of their history, and a sell-off over the last 2 weeks saw them drop as low as $6.51, or just over a third of the IPO price. According to its new management-led buyout offer, Dangdang shareholders will receive $7.81 for each of their American Depositary Shares (ADSs), representing a 20 percent premium over the last close. (company announcement; Chinese article)
Of course if this same offer had come just 2 weeks ago before the sell-off, it would have represented a 28 percent discount to the company’s stock price at that time. Following the recent sell-off, it’s quite possible that some other US-listed Chinese companies that received earlier buyout offers might revise those offers downward to reflect recent tumbling prices. In the case of Dangdang, I really hope this new opportunistic offer succeeds so we can be rid of this company in New York.
The YY offer looks quite similar, and will see a management-led group pay $68.50 for each of the company’s ADSs. (company announcement; Chinese article) That represents a nearly 20 percent premium from YY’s last price, but is also a 9 percent discount from its price 2 weeks ago. Like many of the other offers, this one and also Dangdang’s could easily still collapse if China’s home markets go back into correction mode.
Last let’s look at Baixing.com, which operates an online classified advertising site similar to 58.com (NYSE: WUBA), often called the Craigslist of China. Any US investors hoping to buy into this second Chinese Craigslist will be disappointed to hear the company has recently jettisoned its earlier plan for a US listing and is now eying an IPO in China instead. (Chinese article)
An unnamed company official disclosed the change in IPO direction in a report where he also confirmed that search leader Baidu recently invested in the company. Such a strategy would be consistent for Baidu, which has suddenly discovered a successful formula by investing in well-run companies and then funding their growth with its own huge cash pile. We can probably expect a similar strategy with Baixing, which is likely to lead a new wave of domestic IPOs by Chinese Internet companies starting next year.