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Peter Fuhrman
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Chairman, Founder and Chief Executive Officer at China First Capital (www.chinafirstcapital.com) , China-based international investment bank and advisory firm for private capital markets and M&A transactions. China First Capital has a disciplined focus on -- and strives for a leadership... More
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  • WH's Canceled IPO Shows Dangers Of Misjudging Demand -- China Daily Article
    By Michael Barris (China Daily USA)
     
     
     
     

    It could have been the largest IPO in a year. Instead the canceled initial offering of Chinese pork producer WH Group became an epic flop and an example of the pitfalls of failing to accurately gauge investor demand for IPOs.

    Eight months ago, in the biggest-ever Chinese acquisition of a US company, WH, then known as Shuanghui International Holdings Ltd, acquired Virginia-based Smithfield Foods Inc, the world's largest hog producer, for $4.7 billion. Awash in kudos for tapping into China's increasing demand for high-quality pork, a Shuanghui team began working on a planned Hong Kong IPO.

    By late April, however, the proposed offering was in deep trouble. Bankers slashed the deal's marketed value to $1.9 billion from $5.3 billion. Finally, the company, now renamed WH Group, announced it would not proceed with the IPO because of "deteriorating market conditions and recent excessive market volatility".

    The decision handed the company a setback in its effort to cut the more than $2.3 billion of debt it took on in the Smithfield purchase and dealt a blow to Asia's already struggling IPO market and the stock prices of some formerly high-flying Asian companies. The WH IPO debacle is even seen as possibly hampering the much-anticipated New York IPO of Chinese e-commerce giant Alibaba Group, expected to occur later this year and valued at an estimated $20 billion.

    WH

    What went wrong? To put it simply, investors scoffed at the idea of paying top price for WH shares without any clear indication of how the Smithfield acquisition would save money.

    The price range of HK$ 8 to HK$ 11.25 per share ($1.03 to $1.45) was at a valuation of 15 to 20.8 times forward earnings. "The synergies between Shuanghui and Smithfield are untested. Why do investors have to buy in a hurry?" Ben Kwong, associate director of Taiwanese brokerage KGI Asia Ltd, was quoted in the Wall Street Journal. "They would rather wait until the valuation is attractive."

    A disease that infected pigs, inflating US prices, also turned off investors. US pork typically trades at about half the meat's price in China, because US feed tends to be cheaper. But Chicago hog futures have soared 47 percent this year to $1.25 a pound. Investors also saw corporate governance practices which awarded shares to two executives before the listing occurred as worrisome.

    "I just couldn't get over, in reading the SEC documents filed at the time of the takeover, the brazenness of it," China First Capital CEO and Chairman Peter Fuhrman wrote on the Seeking Alpha investment website. "These big institutions seemed to be betting they could repackage a pound of sausage bought in New York for $1 as pork fillet and sell it for $5 to Hong Kong investors and institutions.

    The Smithfield acquisition "never made much of any industrial sense", Fuhrman wrote. The private equity firms behind WH - CDH Investments, Singapore state investor Temasek Holdings and New Horizon - "have no experience or knowledge how to run a pork business in the US. In fact, they don't know how to run any business in the US", he wrote.

    One man's meat, however, is another man's poison. As Fuhrman wrote, the debacle has ended up putting smiles on the faces of the mainly-US shareholders who last year reluctantly sold their Smithfield shares at a 31 percent premium above the pre-bid price. Some of these same shareholders had protested that the Chinese company's offer for the pork producer was too low. Ultimately, the sellers received the satisfaction of knowing they got the "far better end of a deal against some of the bigger, richer financial institutions in Asia and Wall Street," Fuhrman wrote. And that, he said, has likely made them as delighted as pigs in muck.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 18 7:46 PM | Link | Comment!
  • Alibaba Files For IPO In US
    Alibaba files for IPO in US Updated: 2014-05-07 06:56 By MICHAEL BARRIS in New York (chinadaily.com.cn)

     

     
     
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    Alibaba files for IPO in US

    Alibaba Chairman and Non-executive Director Jack Ma participates in a teleconference in Hong Kong in this October 22, 2007 file photo, one day before its initial public offering in the territory. [Photo/Agencies]

    Chinese e-commerce giant Alibaba Group Holding officially filed on Tuesday to go public in the US in what could be the largest initial public offering ever.

    A regulatory filing gave a $1 billion placeholder value for the offering, but the actual amount is expected to be far higher, possibly exceeding $20 billion and topping not only Facebook's $16 billion 2012 listing, but Agricultural Bank of China Ltd's record $22.1 billion offering in Shanghai and Hong Kong in 2010.

    Alibaba, founded by former English teacher Jack Ma in a Hangzhou apartment, and its bankers have been moving to throw their own shares behind the IPO, analysts have said.

    In its filing Alibaba gave no date for the proposed IPO or whether it would be on the New York Stock Exchange or Nasdaq. It cited its advantageous placement in a nation in which e-commerce is fast becoming a way of life, as Chinese consumers turn to the Internet to buy innumerable items. But Alibaba's prospectus cited statistics showing that the market hasn't been fully tapped. Just 45.8 percent of China's population used the Internet, while 49 percent of customers shopped online.

    Often described as a combination of eBay and Amazon, Alibaba handled $240 billion of merchandise in 2013. With more than 7 million merchants, it has more than $2 billion in revenue and profit of more than $1 billion.

    Alibaba's sheer size could weigh on the stock price of US rival Amazon.com if the Chinese company's shares are added to indexes and portfolios targeting e-commerce and related sectors, analysts said.

    "Amazon simply doesn't measure up to the size of Alibaba's earnings and earnings growth rate," analyst Robert Wagner wrote.

    Shares aren't expected to begin trading for several months, as the US Securities and Exchange Commission reviews Alibaba's offering materials and the company promotes its prospects to institutional investors.

    The offering managers are Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and Citigroup.

    Ma, who has described the challenge of providing what he calls personal business as "my religion", is Alibaba's biggest individual shareholder, with an 8.9 percent stake.

    Alibaba's announcement continues a flurry of IPO filings by Chinese technology companies. Internet security application developer Cheetah Mobile is expected to go public on the New York Stock Exchange on Thursday and is expected to raise $153.75 million to $178.35 million. Three weeks ago, Weibo Corp, the Chinese micro blogging service owned by Sina Corp and Alibaba Group Holdings Ltd, raised $285.6 million in a Nasdaq IPO, while real-estate listings website Leju Holdings Ltd raised $100 million in an initial offering on the NYSE.

    "The key question for China is how much new money, if any, Alibaba will raise in this US IPO," Peter Fuhrman, chairman and CEO of Bejing-based China First Capital, told China Daily.

    "If all the cash goes to Japan's Softbank and US's Yahoo, then it's hard to see how Alibaba, its customers and the hundreds of millions of Taobao-addicted Chinese consumers will benefit from the IPO." US web-portal company Yahoo is a 24-percent Alibaba shareholder, while Japan's Softbank has a 37-percent stake.

    Taobao is an Alibaba e-commerce website on which some 7 million sellers with 800 million product listings pay Alibaba for advertising and other services. In 2013, the combined transaction volume of Taobao and Alibaba's Tmall shopping site reached $240 billion.

    If Alibaba were to raise money from the US stock market to invest in its China business, Taobao could become even more dominant as China's largest and best e-commerce shopping platform, according to Fuhrman. "If so, China's future will include more products, more discounts, more great online buying opportunities for consumers in every corner of the country," the investment-company executive said.

    Besides Taobao and Tmall, Alibaba also operates digital payment system Alipay, which is used as a mobile payment system on cell phones in China. Used much like credit cards in other countries, Alipay handled $519 billion in payments last year.

    Nearly 20 percent of Alibaba's nearly $248 billon in merchandise sales last year was made through mobile phones in the fourth quarter.

    michaelbarris@chinadailyusa.com

    usa.chinadaily.com.cn/business/2014-05/0...

    May 07 10:03 PM | Link | Comment!
  • WH Group / Smithfield Foods Failed IPO. Read Chinese-Language Commentary In Forbes China.万洲国际止步IPO:华尔街券商陷入昂贵窘地

    www.forbeschina.com/review/201405/003280...

    万洲国际止步IPO:华尔街券商陷入昂贵窘地

    今天,香港和华尔街会有很多金融精英们生着闷气,难堪得不想抬头见人。究其原因:一个疯狂的IPO交易--由一群大牌投资银行联手打造,摩根士丹利领头,还有数家大型中国及亚洲的私募股权公司参与其中,包括中国的鼎晖和新加坡的淡马锡控股--没能找到足够投资者。终究,投资银行家们没能点石成金。万洲集团的首次公开招股计划已宣告中止。

    我们先回顾一下这个交易的背景。万洲国际前身为双汇国际,这是一个由银行和私募股权公司创建的、注册在开曼群岛的公司,持有去年"超级"杠杆收购来的美国猪肉生产商史密斯菲尔德食品公司的资产。万洲国际也是从事中国境内猪肉加工业务的上市公司河南双汇投资发展股份有限公司(下称双汇发展)的控股股东。而去年"双汇并购史密斯菲尔德"的交易主体正是双汇国际,该交易并没有直接涉及到双汇发展与史密斯菲尔德之间的股权转换,因此我们不应该将其看作是双汇发展并购史密斯菲尔德,而应该是双汇发展的大股东万洲国际(彼时为"双汇国际")对史密斯菲尔德进行杠杆收购式的私有化。

    作为该项交易中的买方,双汇国际的股东中除了有双汇发展的管理层,还有鼎晖、高盛、淡马锡、新天域等PE巨头。该交易有70亿美元来自于银行贷款,其中双汇国际从中国银行牵头组成的银团获取了近40亿美元的并购贷款,而双汇国际的股东从自己腰包掏出的资金量极少,此交易不失为史上罕见的超级杠杆收购。

    一年前,我是为数不多的质疑这桩交易的逻辑和经济效益的声音, 您可以点击这里阅读我原来的文章。 当时围绕这桩交易几乎是一片赞扬之声和对美好未来的展望,主流财经媒体大体上都持赞同意见,对摩根士丹利、鼎晖等人提供的故事照单全收。在过去的几个月里,这桩现在已经"暂时"失败的IPO进入实施阶段,媒体也是按部就班地跟进报道,并没有就这个交易一些明显的薄弱点提出有洞察力的质问-- 高负债,估值偏高,以及其"走偏"的公司架构(这笔交易看上去像是中国企业收购了美国最大的猪肉生产商,而实质并非如此)。

    我在这个交易中没有任何关联利益,因为我和我的公司从来没有为任何当事方提供过服务,我也没任何其中所涉及公司的股份。我只是读了收购交易时他们递交SEC的申请文件后,无法忍受这有些痴人说梦的说辞,这些大机构像是在赌定他们能将在纽约花一美元买的猪碎肉香肠包装成精品猪里脊,然后以5美元的高价卖给香港的投资者和机构。

    换句话说,当时任何一个看了SEC文件的人都会认同这整个事情海市蜃楼一般,是建立在一个非常不稳固且毫无根据的假设和"蓝图"上,史密斯菲尔德惨淡的运营状况和迷茫的发展前景更是让人笑不出来。但是,我们一遍又一遍听到的(现在看来无疑是和实际情况不符的)是 "中国迄今对一家美国公司完成的最大的收购交易","美国最大的猪肉生产商和其在世界上最大的猪肉市场对手之间的合并。"

    摩根士丹利,鼎晖,淡马锡和其他参与者似乎都有点太乐观了。原来的史密斯菲尔德"退市"交易去年刚刚通过,他们比原计划更快想要让公司重新在香港上市。如果他们成功了,意味着投资银行家们将得到巨额交易费,根据交易股价,PE投资也能得到丰厚的回报,这其中大部分PE已持有双汇发展的股份超过七年了。但是,恐怕有些"刻意没有被提及"的因素才真真是万洲国际如此急于上市的最强推动力。

    比如说,高昂的利息支付压力和还本压力。万洲国际从银团借了40多亿美元,就算以4%的综合利率计算,每年的利息就将近2亿美元。史密斯菲尔德退市之前的一个整财年(2012年4月底至2013年4月底)的净利润只有1.8亿美元,而最近一年受到"猪瘟"等突发状况影响,史密斯菲尔德的状况只会是比之前更糟糕。双汇发展2014年初进行了"公司历史上派现额最高的一次"分红,每10股派现金14.5元,万洲国际作为双汇发展大股东持有13.26亿股,分红所得现金数额应该不菲,给银团的利息支付尚可维持,但偿还本金恐怕就不大现实了。因此,万洲国际急于要通过IPO缓解其"火烧眉毛"的资金压力。

    上周首先传来消息,由于在路演时遭遇"冷场",万洲国际想要削减60%的IPO的规模。然后IPO突然在香港时间周二晚宣布中止。另外一个从来没有得到过合理回答的问题是为什么万洲国际里面的PE机构没有在中国股市上卖掉他们持有的双汇股份,而是自其上市以来一直持有,也没有退出?

    这是不寻常的,特别是双汇的股价已经远高于鼎晖当初的买入价。我那时还没在中国工作,但我知道那个初始的投资并没有得到社会公众的赞美和奖赏。2006年, PE机构提供资金协助企业管理层私有化当时仍为国有的双汇,几乎就在同时,说这笔交易造成国有资产流失的言论开始流传,因为与管理层绑定并且互相绑定,大家须要同进同退的架构模式,使其中的PE机构们没有办法自由地选择时点通过正常的股市渠道退出。因此只能在香港"另起炉灶",采用"曲线救国"的方式实现其所持双汇发展的股票的价值。这与去年香港上市的海螺创业的出发点和实现路径异曲同工。

    从行业整合角度来说,收购史密斯菲尔德的故事也并不是童话般完美。参与的PE机构都没有在美国经营猪肉生意的经验或知识。事实上,他们几乎没有在美国经营任何生意的经验。而现在双汇中国管理层,要同时经营双汇发展和其陷入困境的美国表弟,同时面对美国和中国两个大国的严格食品监管和商业监管,同样对如何在美国养猪卖猪肉几乎一无所知。而在美国养猪卖猪肉以前是,现在是,未来也将继续是史密斯菲尔德的主要业务,出口猪肉到中国可能会是其一个美好的业务点缀,但是在可预见的未来并不会成为其业务基石。

    如何,何时以及为什么这些美国资产可以在亚洲挂牌出售恐怕现在对参与其中的金融机构也是亟需解决的谜团了,包括当时为收购提供数十亿美元融资的中国银行,以及整个收购交易的操盘手摩根士丹利。所以现在才有了PE机构的这种愁闷场面,他们跟其合作伙伴一起,试图将他们对双汇的初始投资从"历史遗留问题"造成的流动性不足中解救出来,却没料到在这失败了的IPO上花费了更多钱。

    万洲国际的IPO失败也成为其他PE投资的、正等待在香港重新上市的私有化交易的一记警钟。 (读这里这里,以及这里)史密斯菲尔德,虽然不是什么特别了不起的超级明星企业,但从市场份额和公司盈利能力层面,却无疑已经是那些从美国"私有化"退市并计划通过IPO出售给香港投资人的中国企业中的一颗璀璨明珠了。

    对于拥有万洲国际的PE财团,他们梦想了整个"先动用70亿美元在美国收购然后转到香港IPO"的计划,又为这个失败的IPO花了LP们至少1,500万美元用在律师、保荐及审计费上。即使他们未来再尝试IPO,这个"前期花费"也只会有增无减。这是有史以来被渲染的最夸张的IPO,有14个投资银行被授权包销(此次IPO的银行不仅包括摩根士丹利,也有中信证券,高盛,瑞银,巴克莱银行,瑞士信贷,摩根大通等金光灿灿的名字)。所有昂贵的火力集中出击,结果:史上最贵的IPO哑弹。

    相比之下,现在喜大普奔的就是去年以31%溢价出售史密斯菲尔德股份给万洲国际的美国股东们。这当然抵消不了多少美国与中国已达到3180亿美元新高的贸易逆差。但是,这些美国投资者现在可以满足地知悉,他们得到了比这些亚洲和华尔街资本大鳄们好得多的结果。

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 05 5:22 AM | Link | Comment!
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