XING/QXM Privatization Debacle

In September 2010, XING made an offer to privatize its majority-owned, publically traded subsidiary QXM in a cash and stock deal. XING's expressed motivation for the privatization involved the substantial cash stockpile available at QXM, which XING intended to use to finance asset acquisitions needed to expand its mining business.

On April 7, 2011, the company announced that it failed to secure a quorum and was therefore unable to take a vote on the privatization plan. As a result, the company has abandoned the plan.

Since the announcement of the privatization proposal in September, both companies have traded with relatively high correlation with each other (approximately 90%). As recently as the day before the announcement however, QXM traded at an approximate 16% discount to the implied post-privatization price. The pricing disparity caused many to consider the arbitrage opportunity of shorting XING and buying QXM.

After the announced failure of the proposal, shares of QXM suffered a substantial bout of selling and closed down 22%. XING experienced only a moderate decline of 3% on the day.

Undoubtedly, existing and future investors in both companies are faced with some interesting questions as to how XING will secure the cash it needs to grow its business and whether QXM shareholders in the long run are better or worse off for dismissing the acquisition.

It is our opinion that a substantial amount of the share price volatility on April 7 was the result of arbitrage positions (long QXM / short XING) being unwound and not a change in the implied value of either company.