BUYOUTS: Wanda’s Offer, eLong’s Exit, Yongle’s Backdoor

Bottom line: Dalian Wanda’s de-listing plan from Hong Kong is likely to succeed, while eLong could re-list in China and become the travel services provider for WeChat following its New York privatization.

Dalian Wanda joins homeward migration

A trio of new headlines are part of the recent homeward migration of offshore-listed Chinese companies, led by a highly anticipated $4.4 billion offer to privatize property giant Dalian Wanda (HKEx: 3699). Also making news is faded online travel agent eLong (Nasdaq: LONG), whose shareholders have just approved a privatization that will soon end its 12-year-old listing in New York. Finally there’s film production house Yongle Film and Television, which would have been a strong New York IPO candidate in a earlier era but is now in the process of making a backdoor listing in Shenzhen.

Each of these stories has a slightly different angle, but their common theme is how they reflect the growing divide between western and Chinese investors in valuing Chinese companies. Western investors are a relatively skeptical and realistic group, whereas Chinese are much more impulsive and often buy stocks based on company names and friends’ recommendations. That different approach has led to a current state where the Chinese-traded shares of dual-listed companies now trade at a 34 percent premium to their Hong Kong-listed counterparts.

Such higher valuations are clearly on the radar of Dalian Wanda boss Wang Jianlin, who has made a relatively unusual offer to take his company private just a year and a half after its Hong Kong IPO. Under his deal, Wang has set up a special company to buy out Wanda’s Hong Kong-listed shares, and is offering investors in that company up to 12 percent interest if the company fails to re-list in China within 2 years. (English article; Chinese article)

Current owners of Dalian Wanda stock would get HK$52.80 ($6.80) for each of their shares, representing a premium of 45 percent to the company’s March 29 closing price and valuing the company at about $31 billion. Interestingly, Wanda’s shares have dropped 4 percent in the 2 sessions since trading resumed, and at their latest close of HK$49.25 they are now about 7 percent below the buyout price.

Investor Skepticism

That discrepancy shows there’s a bit of investor skepticism towards the deal, which is probably justified due to its large size and the huge uncertainties in China’s economy. But barring a collapse of China’s real estate market or a severe broader economic downturn, I do think this deal will get done and Wang will meet his 2-year re-listing target.

Next there’s eLong, whose privatization is notable because it’s probably the oldest New York-traded company to de-list in the current buyout wave. eLong has just announced that its shareholders have approved its buyout offer, and that after the deal it will become jointly owned by a group whose largest shareholder include leading online travel agent Ctrip (Nasdaq: CTRP) and Internet giant Tencent (HKEx: 700). (company announcement)

This story was also interesting because at one point it seemed like Tencent and Ctrip might make competing buyout offers for the company, though they eventually settled into a compromise where both hold large stakes. (previous post) Following the buyout, we might see eLong try to re-list in China, and it could soon become the travel agency partner on Tencent’s popular WeChat platform, replacing Tongcheng as the current provider.

Last we’ll briefly mention Yongle, which is a relatively big-name maker of movies and TV shows that are suddenly in huge demand from China’s booming online video industry. Media are reporting that Yongle is eyeing a backdoor listing using the Shenzhen-traded Hongda Building Materials (Shenzhen: 002211). (Chinese article) Anyone who thinks they’ve seen Hongda’s name before would be correct, as this company was originally the planned backdoor listing vehicle for the formerly New York-traded Focus Media.

The latest reports say Yongle has already submitted an initial application to inject all of its assets into Hongda, which would pay for those using new shares valued at 3.26 billion yuan ($500 million). As I’ve said above, this deal is part of the homecoming trend because Yongle looks like the kind of company that might have pursued a New York IPO in the past. But now the company is opting for a domestic listing, and will probably get a significantly higher valuation if it can successfully execute the plan.

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