BUYOUTS: Autohome Fades on Management Exodus, Ku6 Bows

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Bottom line: Autohome’s shares will come under pressure after a mass defection of its middle management, most likely to start a rival company, while Ku6 is likely to close shop within the next 2 years following its de-listing from New York.

Mid-level managers leave Autohome en masse

A couple of new twists are bubbling through the headlines in a wave of buyout offers for US-listed Chinese companies, led by the latest signs that a privatization for online car site Autohome (NYSE: ATHM) is effectively dead. Those signs are coming in reports of a wave of resignations by mid-level company executives, following a failed management-led buyout bid. Meantime, online media site Ku6 Media (Nasdaq: KUTV) has formally completed its own buyout offer, meaning this insignificant player that was once a leader in China’s new media space will probably de-list very soon and could disappear completely within the next 2 years.

We’ll begin with the Autohome story, which is by far the more interesting of this pair of buyout tales among around 40 US-listed Chinese companies to announce such privatization plans since the start of last year. Most of those bids have been launched by management-led groups, who believe they can get higher valuations by privatizing their companies and re-listing them back in China.

Autohome’s story is one of the more colorful among the batch, and illustrates how difficult such deals are to execute. The company’s managers were in the process of crafting such a deal, when their controlling stakeholder, Australia’s Telstra (Sydney: TLS), reached a separate deal to sell its nearly 50 percent of the company to Chinese financial services giant Ping An.

Telstra took its action because it wanted to sell the stake by a June 30 deadline, and believed the management-led buyout group couldn’t meet that time frame. The buyout group tried to stop the deal through legal actions, but Telstra ultimate prevailed and sold its stake to Ping An just before the June 30 date. (previous post) The sale saw many of Autohome’s top executives and board members replaced by Ping An appointees.

Now the latest reports are saying many of Autohome’s mid-level managers are also defecting from the company, including many of its co-founders who were currently vice presidents. (Chinese article) Autohome shares actually rose 1.2 percent in the latest trading session, though I suspect investors weren’t aware of the latest mass defections and the stock could fall in the next few days. The stock is still down nearly 20 percent from mid-June when the battle for control began.

New Rival Start-Up?

As a longtime watcher of Chinese companies, I can say with relative certainty there’s a strong possibility that the Autohome team will reassemble soon and launch a new company to rival their former employer. That could cause headaches for Autohome, which will also face growing competition from Bitauto (NYSE: BITA), a rival that recently won big new backing from Internet giants Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700).

Meantime, Ku6 has just announced the formal closing of its own buyout deal, bringing it one step closer to ending its decade-long history as a listed company. (company announcement; Chinese article) Unlike many of the other privatizations, Ku6’s move was driven by its shrinking size and the threat of a forced de-listing for failing to meet Nasdaq’s minimum requirements. The company’s current market value is a tiny $50 million, meaning the buyout was probably quite easy to finance.

I remember much headier days for Ku6, which was one of several companies to discover big profits in fee-based text messaging services in the days before the mobile Internet. Ku6 later tried to transform into an online video site, but failed in that effort. In what’s likely to be its final buyout announcement, Ku6 describes itself as an Internet video company focused on user generated content. Perhaps it has found a new formula for success, but more likely Ku6 will disappear completely in a few years following its bow from New York.

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