BUYOUTS: Mindray Defies Buyout Doubters, Shares Jump

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Bottom line: Mindray, E-House, Ming Yang and other US-listed Chinese companies that announce revised buyout offers by the end of this month stand a better than 70 percent chance of completing their privatizations.

Mindray shares leap on merger deal signing

After several months of silence, the wave of privatization bids by US-listed Chinese firms earlier this year is suddenly jumping back into the headlines with a series of new developments that indicate the more solid offers will move forward. The latest news has medical device maker Mindray (NYSE: MR) announcing it has just entered into a formal buyout deal, which even includes a price that’s slightly higher than its previous offer.

Mindray’s announcement comes the same week that wind power equipment maker Ming Yang (NYSE: MY) announced its own new privatization bid (previous post), and real estate services company E-House (NYSE: EJ) announced a lower price for its previously announced bid. (previous post) In both of those cases, skeptical investors reacted by dumping shares of both companies, causing them to trade well below the offer price.

Mindray followed a similar trajectory in its current buyout offer, which dates back to June when the company said a management-led group proposed a bid to buy it out at a price of $30 for each of its American Depositary Shares (ADSs). Like many of the others, Mindray received the offer at the height of a boom in China’s domestic stock markets that led many companies to believe they could get much better valuations by leaving New York and re-listing in their home market.

But then China’s stock markets crashed, dragging down shares of US-listed Chinese firms as well. At their low point in September Mindray’s shares traded as low as $23.46, or more than 20 percent below the original offer price. That prompted me to predict many buyout offers would get revised downward, and Mindray did just that by announcing a lowered price in September at $27. (previous post) Like the cases with Ming Yang and E-House shares earlier this week, Mindray’s stock also tumbled after it announced its lowered offer, falling to 13 percent the new price.

These unusual share declines to such low levels below the offer prices reflected investor skepticism that the deals would actually close, and also disappointment at the lowered prices in the cases of E-House and Mindray. In Mindray’s case, the company ultimately raised its price slightly to $28 in the end, according to its new announcement saying it has formally signed a merger deal that will facilitate its privatization. (company announcement) The deal would value Mindray at $3.3 billion, it added.

Shares Jump — Finally

This time Mindray shares finally reacted the way you would expect, jumping 7 percent to $26.62, leaving them just 5 percent the offer price. Mindray’s announcement seemed to boost investor confidence that the other recent deals might get done after all, with Ming Yang shares leaping 8 percent and E-House rising slightly.

The sudden flurry of activity this week seems to indicate that China’s financial markets have settled enough by now for backers of some of these deals to reassess the situations and decide whether they want to move ahead. In the cases of Mindray and E-House the backers decided to move forward, albeit at lower prices than the original offers, but still at reasonable premiums to current trading levels. But that doesn’t guarantee that all the other offers, about 3 dozen altogether, will proceed.

So, what’s the big picture in this for investors looking to make some money off the trend? If I were in the market, I would say that the 3 deals this week and any more in the next few weeks could stand a good chance of getting completed, probably 70 percent or higher. But any previous buyout candidates that don’t announce revised bids by the end of this month are likely to scrap their original privatization plans. And if volatility returns to China’s stock markets, which is always a possibility, then even some of these newly revised deals could also run into trouble.

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