By Michelle Jones
NQ Mobile Inc (NQ) announced today that it has received a non-binding buyout proposal. As is unsurprising, there's plenty of debate back and forth about the veracity of that bid. Is Bison Capital serious? And would NQ Mobile management really accept a bid that's half what the company's share price was trading at a year ago? These are undoubtedly the musings of short-sellers right now.
Bison Capital seems interested in NQ Mobile
There is no way of knowing for sure whether the bid is a serious one, but it certainly seems to be. Bison Capital does have connections to China through its founder, so it's very possible that the firm is interested because of the China connection. Also there's another connection that may have been overlooked.
In May, NQ Mobile announced in a press release that it had signed a definitive agreement to sell to Bison Mobile Limited, a segment of Bison Capital, up to 5.88% of its wholly owned subsidiary FL Mobile. Bison Mobile paid $15 million, while "other investors" paid an additional $10 million for a stake in FL Mobile. However, the deal comes with a redemption right if FL Mobile doesn't complete "a qualified" initial public offering after the completion of the investment.
NQ Mobile's history of accounting problems
However, NQ Mobile has been so embroiled in controversy that some of our readers wonder why a firm like Bison Capital would use its own investors' capital to buy a company that continues to delay the release of its annual report.
NQ is now on its third auditor in a relatively short amount of time. The company selected PricewaterhouseCoopers to replace its previous auditor after insider trading allegations. Earlier this month, the company announced that it had replaced PwC with another auditor-one that may be more agreeable with what it wants.
PwC wanted to broaden its investigation of NQ Mobile's books. The company's independent investigation committee noted that some documents were missing, and the firm wanted to see those documents. However, NQ management was either unable or unwilling to comply and apparently didn't really know why the documents in question were missing.
There seems to be no end of auditing problems at NQ Mobile, which is notable because of short-selling firm Muddy Waters' allegations of fraud at the company. One of the questions that has been raised is the length of time it takes NQ to collect payments from customers. However, the company's new auditor, Marcum Bernstein Pinchuk LLP, has previously expressed opinions that it isn't a big deal when companies' customers take a long time to pay up. In other words, NQ Mobile may have more success getting the audit opinion it wants without a whole lot of trouble, like an expansion of the audit investigation would probably be.
NQ dodging delisting?
At this point, NQ is in real danger of being delisted from the New York Stock Exchange because of its inability to file that annual report. Companies have six months beyond the date when the report was originally due to file it, and the clock is ticking.
One of our readers suggested that the fact that the proposal from Bison is non-binding in nature and comes with numerous conditions is suspicious and possibly only a ploy to raise NQ's stock price and keep it from being de-listed. Again, this is something we can't possibly know at this point. It's simply too early. But the point is worth considering simply because of how unusual it is to make a non-binding buyout offer public until there is actually a deal. Given the already close relationship between Bison Capital and NQ Mobile, it's possible that a deal is closer than some think, although the offer comes with plenty of conditions that could prevent it from happening.
Another possibility would be that the bidder plans to go hostile, but it seems like that would be out of character for Bison.
Is the price right?
And then there's the matter of the price. The proposal is a fixed cash price of $9.80 per American depository share. In October, NQ Mobile spiked at around $25 per share before Muddy Waters released its initial short-sale thesis on the company, after which shares plummeted. Then again, Bison Capital may truly believe in NQ Mobile and be taking advantage of the fall in share price to pick up a company at a price it thinks is a song. However, it seems like quite a big risk to buy a company with so many accounting issues. Consider what happened to Hewlett-Packard Company (NYSE:HPQ) with the whole Autonomy acquisition.
NQ management has maintained that nothing has really changed in the company's fundamentals since that point. So will the board really entertain an offer that's so much lower than the peak in October? QTR, a famous Seeking Alpha contributor, suggests that this non-binding offer is nothing but "a tactical 'NQ vs. the short sellers' decision" and asks, "If I'm the SEC - how do you let this company just slink out the back door." The contributor added that NQ "just leveraged one of the more powerful options that it has." In other words, the company might just be trying to get itself out of the limelight that was created when Muddy Waters published its initial report.
So how will this all turn out? It's anyone's guess, but just when it seems like the drama is almost over, something else happens. So what's next?