In more than 2 years since I started this blog, today marks the first time I'm writing about telecoms equipment and services provider UTStarcom Inc. (UTSI), which has just announced that a plan to privatize the company has derailed. The reason I point out this fact is that when I first started writing about Chinese tech firms a decade ago, UTStarcom was an investor darling, riding high on a low-end wireless technology. But investors quickly abandoned the company after it failed to find a new blockbuster product, and now it appears that even its potential rescuer has decided to give the company a pass.
More broadly speaking, UTStarcom's plight illustrates what could happen to some of the Chinese firms currently trying to privatize, after receiving offers from private buyers and management-led groups. Privatization is never easy, especially for larger companies that require hundreds of millions or even billions of dollars in money to fund such buyouts. But the prospect is even more difficult for companies like UTStarcom, whose future prospects are far from bright as they struggle for business direction.
Before we begin with a look at UTStarcom and what its fate might mean for other de-listing candidates, let's give some quick background on the recent trend that has seen a number of Chinese firms recently privatize from overseas markets. Most of the firms believed their shares were grossly undervalued, following a 2-year winter for their stocks sparked by a series of accounting scandals.
Leading B2B e-commerce site Alibaba.com led off the privatization wave with its de-listing from Hong Kong last year, and was later followed by online entertainment firm Shanda Interactive, advertising specialist Focus Media and hotel operator Seven Days, all of which de-listed from New York. Others that have announced de-listing plans that are still pending include AsiaInfo-Linkage (ASIA), which operates is in a similar space to UTStarcom, IT services providers Camelot Information Systems (CIS) and Pactera (PACT), chipmaker Spreadtrum (SPRD) and drug maker Simcere Pharmaceutical (SCR).
So now that we've gone through the background, let's look more closely at UTStarcom's collapsed buyout deal, which was originally announced back in March. I'll be quite honest in saying I didn't even notice the original buyout offer, and only spotted this latest development after reading about it in the Chinese media. (company announcement; Chinese article)
No reason was given for the bid's withdrawal, but presumably the buyer made its decision after deciding that it was unlikely to get much value out of the company beyond UTStarcom's current market capitalization of about $110 million. In a slightly interesting twist, UTStarcom announced that one of the men who was leading the buyout bid is now joining its board.
As I said above, UTStarcom is now just a shell of the company it was when it rose to prominence selling equipment for a low-end wireless technology called PHS offered by China's 2 fixed-line telcos a decade ago. Its shares traded as high as $150 during the telecoms boom of the late 1990s, and were still above $100 as late as 2004. But they have declined steadily since then to their current levels of about $3, and have largely fallen off most investors' radar screens.
It's hard to say what's ahead for UTStarcom, since I haven't followed it closely for quite a while. The collapse of this buyout deal suggests the company could be difficult to save, and could continue its slow decline until it's either bought out for a bargain price or simply closes shop. It's possible some of the other companies now in the de-listing process could follow a similar path, though I suspect that the 5 I mentioned above will ultimately succeed in privatizing. Still, UTStarcom's plight underscores the risks associated with any de-listing, especially for companies that have passed their prime and are struggling to find new direction.
Bottom line: The collapse of UTStarcom's privatization plan underscores the difficulty of executing such buyouts, especially for firms struggling for direction.