BUYOUTS: iKang War Re-heats, 21Vianet in Stealth De-Listing?

Bottom line: A new China Life bid for iKang could trump Yunfeng, while 21Vianet could be mounting a stealth privatization bid that would see it slowly sell most of its shares to big buyers before mounting a formal de-listing attempt.

China Life eyeing bid for iKang?

A few strange twists are taking place in the story that has seen some 40 US-listed Chinese companies launch privatization bids since the start of last year, led by the surprise re-heating of a bidding war for private clinic operator iKang (iKang). In a separate headline, data center operator 21Vianet (Nasdaq: VNET) gave a new signal that it will abandon a previous buyout offer and may launch a stealth de-listing bid instead. And in the strangest development, the board of web portal operator Sohu (Nasdaq: SOHU) has rejected an investment plan by the company’s founder that looked like a prelude to a possible buyout offer at the time.

Let’s start with iKang, which is the most hotly contested of the more than 3 dozen buyout offers so far. Most of those have been launched by management-led groups, with no rival offers ever received. The iKang story began the same way last year, but quickly attracted a rival bid from one of its top competitors, Meinian. Then last week a fund connected with e-commerce giant Alibaba (NYSE: BABA) founder Jack Ma entered the contest, prompting the other 2 to withdraw. (previous post)

Everyone thought that was the end of the story, but now local financial publication Caixin is reporting that leading insurer China Life (HKEx: 2628; Shanghai: 601628; NYSE: LFC) is preparing a new bid for iKang. (Chinese article) China Life was part of the original management-led group to make an offer for iKang at $17.80 per American Depositary Share (ADS), but would raise that to more than $20 under the new offer, the report says.

Yunfeng was quite vague with its surprise offer last week, saying only it would pay between $20 and $25 per ADS. The Caixin report says that China Life’s offer would be slightly above the $20 level, and implies that the new deal may have the support of iKang founder Zhang Ligang. That would be a critical factor since Zhang controls a big chunk of iKang’s shares and would probably like to stay at the helm of the company, despite offering to resign if the Yunfeng deal succeeds.

New Investor for 21Vianet

From iKang, let’s move to 21Vianet, which announced a privatization bid last year but then appeared to back away from that plan by announcing a new plan to issue 1.75 billion yuan ($265 million) worth of convertible bonds last month. (previous post) No conversion price was given, but I calculated at the time that a full conversion of the bond would probably give the investor group 10-15 percent of 21Vianet’s shares.

Now 21Vianet has just announced it has received another major equity investment of $388 million from a company called Tus Holdings, and has given Tus’ president a seat on its board. (company announcement) That investment amount would imply purchase of a large 40 percent stake, based on 21Vianet’s latest market value, which includes a 4 percent stock decline after the latest announcement.

The stock has actually lost almost half of its value since the original convertible bond announcement last month, so perhaps investors see these purchases as a form of stealth buy-out. Such a deal could see 21Vianet slowly sell off all of its shares to other big investors, and then force through a de-listing deal at a much lower buyout price than the $23 per ADS it originally offered about a year ago.

We’ll close with a quick look at Sohu, whose eccentric founder Charles Zhang made a cryptic offer late last year to invest $600 million in his company using a vague announcement that implied a price of about $50 per ADS. (previous post) I said at the time that perhaps the offer was testing market sentiment for an actual buyout that was also rumored at that time at $56 per ADS.

But no buyout ever came, and now Sohu has announced it is no longer considering Zhang’s earlier proposal. (company announcement) This latest development was almost certainly dictated by Zhang, who runs Sohu like a personal fiefdom. It’s not too surprising, since Sohu’s shares have sunk steadily since the original investment offer last year, and now trade at around $39, or well below the earlier suggested prices.

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