The exodus of Chinese tech firms from New York stock exchanges continues at a steady pace, with cellphone chip maker Spreadtrum (Nasdaq: SPRD) announcing a sweetened buyout offer and online entertainment firm Shanda indefinitely delaying its IPO plans. These latest moves reflect not only the chilly US investor climate towards Chinese firms, but also the fact that many of these firms have become attractive buyout targets due to their low valuations. As a result, we could see some interesting bidding wars emerge in the weeks ahead for a few of the companies that have already received buyout offers.
I wouldn’t be surprised if one such bidding war were to break out for Spreadtrum, which announced it has received a sweetened offer from another company that launched a buyout bid last month. Spreadtrum has announced that Tsinghua Unigroup, which is affiliated with the prestigious Tsinghua University in Beijing, is now offering $31 per American Depositary Share (ADS) to buy all of Spreadtrum’s stock. (company announcement) The new price is 9 percent higher than Unigroup’s original unsolicited offer of $28.50 per ADS, which Spreadtrum received last month. (previous post)
Spreadtrum later hired a financial adviser to evaluate the bid, and I’m sure this sweetened offer is the result of the adviser’s recommendation. Spreadtrum shares jumped nearly 13 percent to $29.76 after the announcement, or 4 percent below the new offer price. Spreadtrum was clearly trying to get more money for its shareholders, which resulted in the higher bid.
I honestly think Spreadtrum could get an even stronger offer, especially following its recent announcement that business had improved sharply as it found more buyers for its low-cost mobile chips. (previous post) Accordingly, I wouldn’t be at all surprised to see a bidding war break out for Spreadtrum soon, with western private equity firms like Carlyle or Sequoia Capital as the most likely firms to make a counter offer.
Such a bidding war could be just the first of several for undervalued US-listed Chinese firms that have already received relatively cheap buy-out offers. I previously wrote that IT outsourcing firm Beyondsoft (Shenzhen: 002649) may be weighing such a bid for Camelot Information Systems (NYSE: CIS), which has already received a management-led buyout offer. (previous post) Another firm that could become the object of a bidding war is AsiaInfo-Linkage (Nasdaq: ASIA), which has accepted a buyout offer from a unit of financial conglomerate Citic Group.
Meantime, other media reports say that online literature specialist Shanda Cloudary has canceled its plans to raise $200 million through a US listing due to weak investor sentiment. (Chinese article) The news comes just a week after Cloudary announced it had raised $110 million by selling a stake in itself to a group including Goldman Sachs (NYSE: GS) and Singaporean sovereign wealth fund Temasek. Other media reported the sale valued Cloudary at about $400 million, or significantly less than its estimated $600 million valuation just a year earlier.
I had previously said the Goldman investment could signal that Cloudary was preparing to make an IPO, but this latest announcement appears to show that I was wrong. Cloudary made 2 previous IPO attempts over the last 2 years that both ended in failure due to dismal market sentiment in New York towards Chinese firms.
The firm was aiming to make a third listing attempt this year, but then become embroiled in turmoil after a big group of its middle managers left to set up a rival company. The new investment by Goldman and Temasek will give Cloudary the money it needs to continue operating during a rebuilding period that will probably continue at least through the end of this year. If all goes well, we could see the company make yet another attempt at a New York listing as soon as the first half of 2014.
Bottom line: Bidding wars could soon break out for undervalued companies like Spreadtrum and Camelot, while Cloudary is unlikely to attempt an IPO this year.