Bottom line: Many US-listed Chinese companies that have yet to complete privatization bids announced last year are likely to formally abandon the plans in the next few months, after new withdrawals from Autohome (NYSE:ATHM) and China Information Security Technology (CNIT).
It's been well over a year since the cresting of a wave of privatization bids by US-listed Chinese firms, which were hoping to leave New York and get better valuations by re-listing back in China. But despite the early enthusiasm, many of the firms that announced such bids at the height of the frenzy have yet to complete their plans.
A small group of larger names, including Internet companies YY Inc. (NASDAQ:YY) and Momo (NASDAQ:MOMO), have formally announced the scrapping of their bids. Now two more have joined their ranks, with online car specialist Autohome and cloud services provider China Information Security Technology both announcing they have also abandoned their bids. At the same time, game developer Sky-mobi (NASDAQ:MOBI) is moving forward with its own privatization bid, and has just announced the scheduling of a shareholder meeting to vote on the proposal.
None of these developments comes as a huge surprise to anyone who has closely followed the buyout wave that saw around 40 companies receive privatization proposals, most in the first half of last year. China Information Security Technology's bid always looked a bit shaky, as the company was quite small and unknown. Its shares now trade at 85 cents apiece, a tiny fraction of the proposed $4.43 buyout price announced last June.
China Information Security Technology only cited unspecified "current circumstances" for the buyer group's decision to retract its offer, which was being led by company management (company announcement). But it's been quite clear for a while that this particular offer was one of the most likely to fail, as reflected by the huge decline in the stock price since the offer's first announcement.
I've been saying all along that a majority of these offers are likely to ultimately get abandoned, though it's not clear if companies that fail to compete their deals will make formal announcements. Most successful de-listings to date have come for stronger companies like security software maker Qihoo 360 (NYSE:QIHU) and hotel operator Homeinns (NASDAQ:HMIN), which could find financial backers for their plans with relative ease.
By comparison, smaller names like China Information Security Technology were having more difficulty finding funding, and most likely saw initial backers of their deals balk after hopes for quick re-listings back in China became uncertain.
By comparison, the situation with Autohome was quite different, and that deal's collapse was quite long and complicated. Autohome's management thought it had crafted a solid buyout offer, when its biggest shareholder suddenly announced its own separate plan to sell its nearly 50 percent stake in the company (previous post).
Autohome has been in a state of turmoil since then, including an exodus of its top management. So this latest announcement that it has formally abandoned its privatization bid is more incremental and largely expected (company announcement). The announcement only cites "certain circumstances" for the bid's withdrawal, and says a special company committee considering the bid has been dissolved.
Finally there's Sky-mobi, which is probably one of the last companies that's likely to complete its privatization. Sky-mobi first announced its management-led buyout deal in June last year, and later signed a definitive deal (previous post). Now it has just announced the formal scheduling of a shareholder vote on the deal, set for November 16 (company announcement). The company's stock now trades at $2.08, slightly below a buyout price of $2.10, which shows investors are quite confident the deal will close.
I haven't seen any recent tallies, but at this point I expect that around half of the companies that announced buyout plans have either completed or nearly completed the privatizations, or announced formal withdrawals of the plans. Perhaps we'll see one or two more plans ultimately completed; but it's more likely we'll see a steady trickle of new formal withdrawal announcements like the ones from Autohome and China Information Security Technology over the next few months.
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