BUYOUTS: Momo Gets Offer, Focus Media Gets More Headaches
Bottom line: Momo’s plan to privatize just 6 months after its IPO could set a new record, while Focus Media’s latest delay in its China re-listing plan should serve as a warning for others considering similar backdoor listings.
The privatization story for US-listed Chinese companies has gained yet another member, with word that social networking app operator Momo (Nasdaq: MOMO) has become the latest name to receive a management-led buyout offer. The offer comes just 6 months after Momo made its trading debut in New York, and if it succeeds Momo could win the new record for a Chinese company with the shortest life as a US-listed company.
It’s worth noting that Momo’s announcement is the only one we’ve seen over the last 24 hours, which perhaps marks a slowdown from the 3 companies that made similar announcements over the long Chinese holiday weekend. (previous post) Many of the firms that are trying to de-list are eying re-listings at home in China, where their shares might be more appreciated by local investors.
But some may start to rethink that path after seeing the latest headaches now being faced by Focus Media, which also de-listed from New York 3 years ago but is facing numerous delays as it tries to perform a backdoor re-listing in China. The latest reports say that the chairman of Hongda New Materials (Shenzhen: 002211), the backdoor listing vehicle Focus is using, has quit and shares held by the company’s controlling stakeholder have also been frozen amid an ongoing probe by the Chinese securities regulator.
Nothing surprises me these days in this fast-evolving privatization story, which has seen 20 US-listed Chinese companies receive buyout offers in the last 3 months alone. These companies have seen their shares languish in New York over the last few years due to lack of interest by US-based investors. Meantime, a sudden surge in China’s own stock markets is driving many of the companies’ owners to eye privatizations to be followed by re-listings back home.
Momo is typical of the group, though its short life as a public company could break the previous record held by game operator iDreamSky (Nasdaq: DSKY), which announced its own privatization plan earlier this month just 10 months after its IPO. (previous post) Momo went public in December last year, in an IPO that was marked by controversy after its founder was accused by his former employer of illegal and unethical behavior on the eve of the offering. (previous post)
Momo ultimately went ahead with the IPO and sold its American Depositary Shares (ADSs) for $13.50 apiece. Now it’s offering to buy back those same shares for $18.90 each. (company announcement; Chinese article) That’s certainly not a bad premium for people who bought IPO shares, and also marks a 20 percent premium over Momo’s last closing price before the announcement. But as I’ve said several times already, I would caution there’s a fair chance the deal could ultimately collapse if China’s current stock market rally fizzles, which looks like it’s already starting to happen.
Meantime, the latest headaches for Focus Media reflect the kind of rocky path that many of these privatizing firms could face if they try to re-list in China via backdoor vehicles. Focus was one of the earliest Chinese firms to de-list from New York with its privatization 3 years ago. More recently the company identified Shenzhen-listed Hongda New Materials as its vehicle for a backdoor listing into China, and earlier this month it injected its shares into the company. (previous post)
But Focus’ already rocky homecoming has grown even more turbulent over the last couple of weeks as the nation’s securities regulator reportedly opened a probe into Hongda and its chairman. Now the latest reports are saying that Hongda’s chairman has officially quit, and that shares of the company’s controlling stakeholder have been frozen amid the probe into potential securities law violations. (Chinese article)
Insider trading appears to be one of the major issues being probed, which is quite common in China. I’m sure the issue will ultimately be resolved and Focus will complete its backdoor listing. But snags like this could serve as a warning for other companies considering similar backdoor listings, including the many now privatizing from New York.
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