NQ Mobile Offer: Fact Or Fiction?

| About: NQ Mobile (NQ)

Summary

NQ Mobile just received an all cash offer from Bison Capital for 100% of its outstanding stock.

Reviewing the recent 6K filing is worthwhile as we look into the legitimacy of the offer.

My thoughts on the offer and how I will proceed with the recent state of events.

On July 30, 2014 NQ Mobile (NYSE:NQ) announced a non-binding proposal for purchase from Bison Capital Holding Company Limited ("Bison") for all outstanding ordinary shares and ADS shares for US$9.80 in cash. The board has acknowledged the offer and has maintained that it is in careful review at this time.

This offer came as quite a surprise and there appears to be a lot of activity going on behind the scenes sparked by this unexpected offer. Friday afternoon, I was able to reach a representative for NQ Mobile in Beijing. My contact stated that they saw the Bloomberg TV interview that was televised on Thursday with Carson Block of Muddy Waters to get his views about the recent turn of events. Remember that Block has emphatically accused NQ Mobile of fraud, so why would any reputable firm be stupid enough to buy this company for $9.80 in cash?

Bison Capital (the entity making the offer):
Is Bison Capital the real deal or simply a ploy? Are they misinformed or is this a lucrative value play? As far as I have been able to research and understand, the Bison Capital deal was "unsolicited." It's obvious that through its due diligence, they must feel that NQ Mobile at US$9.80 is a deep value play and therefore, decided to make a move on the stock while at the same time the short sellers continued with its short campaign.

Let's Review the 6K Filing:
Form 6K NQ Mobile Inc. disclosure for: July 31, 2014. Remember that any publicly-traded company is obligated to disclose to the investing public any and all offers that they receive. You can draw your own conclusion by reviewing the recent NQ Mobile 6K filing to determine your course of action. My position is to be invested on the reversal up and add to any weakness.

My Thoughts On The Matter:
It is my strong opinion that the offer from Bison Capital was unexpected, but is a legitimate and bona fide offer. This feels as real, as real can be. The shorts of course will say otherwise. Think about it, why would Bison tarnish its reputation by throwing its hat in the ring in such a controversial situation unless they were extremely confident that they could consummate the transaction even before the 20-F is filed? I think that if you just make some very basic searches you can see that these Bison executives look very sharp, knowledgeable and may have sparked some interest from other private equity groups who I feel will stand up and take notice if they haven't already. Maybe a few tech companies in this space will also take notice?

You might ask, "Will this deal come together with Bison Capital and a consortium of additional investment funds?" This scenario is entirely possible. Over the years I have seen deals like this come together by a solo group or a combination of multiple private equity firms or groups of investors. In any event I do feel that "special situation" along with "value" funds are taking a closer look.

Another question that you might ask is, "Will the deal get approved by the board at $9.80 per share?" I view this price as a deep discount to the growth valuation that NQ Mobile has been alluding to with its FL Mobile, NQ Live platform and global expansion plans. The bottom line is that I really don't see a buyout at $9.80 per share happening at this level. This offer, while somewhat reassuring that the stock isn't a "zero" is still too low. Quite frankly, I don't even see this going through at anything less than $15.00 per share.

Additional Thoughts:
This isn't over by a long shot. Positive, proactive changes are being made to move NQ's business forward despite the "noise." As you have already seen the company has responded to the threats and accusations. The short sellers have agitated NQ Mobile management and I see NQ being far more proactive in defending the company and standing up for its shareholders in the coming days and weeks. Look, the initial claims by Muddy Waters were put to bed months ago. Yes, the "classification" of the money was in question, but the cash has been verified as being where NQ said it was, period. The clients are real and I think that you will see that the fundamentals will eventually prevail in due time. Let's review some facts:

  • The far-ranging forensic investigation conducted by Shearman & Sterling and Deloitte Touche together as the "investigation team" showed no apparent fraud. Please click the full release here.
  • The PwC audit was dragging out the process with its demands which may have been construed as unreasonable requests by NQ and the value of the stock was exhibiting the market's dissatisfaction with the many delays. Action needed to happen sooner rather than later.
  • The responsibility of any CEO is to "maximize shareholder value" and NQ management needed to take swift decisive action, and they did. A new, highly respected and reputable auditor was hired Marcum Bernstein Pinchuk LLP.

Summary:

At this point, I do believe that Bison made this aggressive call based on its belief in the senior management and the company's overall global growth strategy. NQ is no longer just a mobile security company. Its pipeline of services are growing and we are in the early stages of growth. Are there risks involved? Sure, all stocks entail some kind of risks one way or another. Remember that NQ management isn't running away. Oh no, they are far from it. NQ remains focused. It has expressed extreme confidence in its business which includes; mobile security, the NQ Live platform, mobile games and enterprise partnerships among some of its innovative product listings.

Lastly, I believe that Bison must believe that (without any hesitation) the 20-F will in fact eventually get filed (soon rather than later) unless the company is acquired beforehand. Sure, the stock is off from the TYD highs, and most recently down with most stocks due to geopolitical concerns, but I do feel that this too shall pass. Outside of the day-to-day I think that serious investors need to stay focused on the fundamentals and spend less time being distracted by the "noise." NQ management continues to exhibit that they are getting down to business. NQ's actions speaks volumes.

Sources:

http://seekingalpha.com/symbol/NQ

http://ir.nq.com/phoenix.zhtml?c=243152&p=irol-IRHome

ir.nq.com/phoenix.zhtml?c=243152&p=i...

www.reuters.com/article/2014/07/18/us-nq...

http://blog.nq.com/2014/07/

Disclosure: The author is long NQ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.