I'm quite excited to see some drama finally taking shape in one of the imminent privatization plans for a U.S.-listed Chinese firm, with word that a major stakeholder in telecoms software maker AsiaInfo-Linkage (Nasdaq: ASIA) plans to oppose the company's buyout plan. This particular plan is just one of many privatization plans announced by U.S.-listed Chinese companies over the last year, mostly launched by opportunistic buyers who believe the shares were heavily undervalued. But unlike the other plans, this one has drawn particular controversy due to hints of insider dealing that excluded higher bids from several U.S.-based private equity buyers.
That AsiaInfo saga has lasted for nearly 2 years now, starting with the company's announcement in early 2012 that it had received interest in a buyout from a group led by a unit of China's Citic conglomerate. The buyer group also included Edward Tian, an earlier investor in the company who has strong connections in the Chinese telecoms sector and currently holds about 4 percent of AsiaInfo's shares.
AsiaInfo opened up the bidding process after several U.S. private equity firms including TPG also expressed interest in competing bids. But it ultimately chose the Citic consortium, which offered $12 per share. That selection prompted a flood of lawsuits alleging the price was too low and others implying that higher bids had been excluded. Shareholders are now set to vote on the deal at a meeting on December 19, which happens to be on Thursday.
In the latest twist to this tale, one of AsiaInfo's largest shareholders has said it will vote against the deal because the price is too low (shareholder announcement). The shareholder, Brandes Investment Partners, lists a number of reasons for its decision, including the fact that the buyer is an insider group with ties to the company and that shares for many U.S.-listed Chinese firms have rallied strongly since the buyout deal was first announced. Brandes also points out that Shareholder Services, a major independent adviser on this kind of deal, also opposes the deal.
I've had a look at AsiaInfo's current list of shareholders and it does indeed look like the company has enough independent shareholders to potentially veto the deal. Brandes itself is the company's second largest non-insider stakeholder, with about 5 percent of AsiaInfo's shares at the end of September. Meantime, insiders, including Edward Tian, hold a relatively modest stake of less than 20 percent.
All that said, we could see some fireworks at the Thursday special shareholder meeting. Investors seem to think the deal will be approved, since AsiaInfo shares have been slowly moving closer to the $12 offer price over the last few days. They actually traded just above the offer price at $12.03 late last week, perhaps indicating some investors were hoping for an increased offer price. But they eased in the latest trading session to close back below the offer price at $11.93. I don't know enough about the allegiances of all the company's stakeholders to make a well-informed guess about the outcome of the Thursday vote. But I would expect a feisty meeting at the very least, and wouldn't be surprised to see a very close vote.
On a broader basis, some might be asking if this AsiaInfo saga could presage more such resistance for future buyouts of Chinese firms. I suspect the answer to that question is "no", since most of the other buyouts have targeted long-neglected companies whose offers came from management-led groups. None of those offers has attracted the same volume of lawsuits and investor complaints like AsiaInfo, mostly because investors long ago lost interest in the companies. Accordingly, we could see a few more privatization bids in 2014 for some of the remaining companies whose shares have failed to join in the rally this year for U.S.-listed Chinese firms.
Bottom line: Thursday's shareholder meeting to vote on AsiaInfo's buyout will be lively, with opposition shareholders mounting a serious bid to sink the deal.
Disclosure: No positions