AsiaInfo: Buyout Dead? 亚信科技：收购告吹？
Despite reporting solid profit growth, telecoms software maker AsiaInfo’s (Nasdaq: ASIA) latest quarterly earnings report was more significant for what it did NOT contain, namely any mention of an ongoing plan to sell the company. Does this mean the deal is dead? In my view, the lack of any news on what once looked like a lively bidding war could indeed mean that buyers are no longer interested in AsiaInfo, perhaps because the company’s financials weren’t as attractive as many thought they might be or because the company wanted too big a premium for its shares.
More broadly speaking, the collapse of a buyout deal for the company could represent a waning interest by private equity buyers in US-listed Chinese firms, whose shares spent most of last year in deep freeze due to a confidence crisis created by a series of accounting scandals. That could mean the steady string of buyouts we saw for some firms last year may be coming to an end, and that one or both of the 2 remaining buyout deals still pending could ultimately collapse.
Let’s take a closer look at AsiaInfo, which surprised investors about a year ago when it disclosed that it had received interest in a potential buyout from a unit of Chinese financial conglomerate Citic Group. (previous post) Shares in AsiaInfo, one of the oldest US-listed China stocks, shot up after the company confirmed the talks, reaching as high as $13.85 last March — a big jump over the $7-$8 level where they previously traded.
After that news broke, AsiaInfo informed investors it had received interest from other buyers, and that it had hired a financial consultant to help it consider its options. Other potential buyers mentioned at the time included big-name private equity firms KKR and TPG. AsiaInfo provided brief updates after that, often in its quarterly reports, saying simply that negotiations were continuing. As late as last November, rumors were still circulating that the original Citic bidder was was still interested in a deal that would value AsiaInfo at $900 million, a 13 percent premium to the company’s latest share price of $10.75.
So, what’s going on here? In my view, this deal has clearly run into some kind of obstacle and is quite possibly dead. I know of very few cases where deals of this relatively small size have taken more than a year to negotiate, and the lack of mention of any other big names for months means that everyone except for Citic probably dropped out of the bidding process long ago. My guess is that AsiaInfo probably wanted a much bigger premium than any of the western bidders were willing to pay, scaring off everyone except for the lone Chinese bidder.
AsiaInfo’s failure to mention the deal in its latest report means that even Citic may finally have decided it’s not interested, again most likely because AsiaInfo wanted too big a premium for the company or because it’s financials weren’t that attractive. If that’s the case, look for AsiaInfo shares to come under pressure in the next 6 months, as investors slowly awaken to the fact that no buyout offers are likely to come.
This fading lack of private equity interest could also work against 2 remaining buyout offers for similar US-listed Chinese firms, advertising specialist Focus Media (Nasdaq: FMCN) and hotel chain operator 7 Days (NYSE: SVN). Focus Media previously said it has secured all the necessary funding commitments to complete its management-led buyout, so that deal looks likely to close. But 7 Days has been quiet about its similar management-led buyout since it announced the deal last September (previous post), meaning that deal could still face some trouble. At the end of the day, buyout offers for these and other similar firms may look less attractive as US-listed Chinese shares start to regain some momentum, meaning we’re unlikely to see many similar offers in the year ahead.
Bottom line: AsiaInfo’s potential buyout deal appears to be dead, and similar offers for other US-listed Chinese look unlikely this year as the sector shows growing signs of a rebound.
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