A month ago, we wrote an article highlighting Qiao Xing Mobile Communication (NYSE:QXM), a small Chinese company which traded below its net cash value (QXM was the last stock added to the ValueHuntr Portfolio) At the time, we indicated our willingness to wait for a catalyst to unlock this value, as the company’s cash was worth between $4 and $5 per share, but the company was mysteriously trading at the depressing level of $2.6 per share. We referred to this as “an opportunity with asymmetric payoff with the odds of a positive return extremely tilted towards shareholders”. A month later, the much waited catalyst seems to have arrived in the form a private takeover proposal.
The company recently announced that it has received a proposal from its parent company, Qiao Xing Universal Resources, Inc. (Nasdaq: XING) regarding the acquisition of all outstanding ordinary shares of QXM that XING does not currently own. The proposed transaction, if completed, would result in QXM becoming a privately-held company. XING has proposed to offer 1.9 shares of its common stock plus $0.80 in cash for each QXM share held by persons other than XING. XING filed its letter of intent with the Securities and Exchange Commission on Form 6-K on September 8, 2010. The letter of intent is available on the SEC’s website here.
Strategically, this deal is headed for failure. Previously, XING was engaged in telecommunication terminal products business and changed its focus to the resources industry in 2007. The idea of a miner buying out a mobile handset business is a big warning sign to me. Therefore, taking profits at this level seems reasonable.
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Disclosure: No positions