BUYOUTS: Rival Bid Worries Heat Up Zhaopin, Autohome Deals

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Bottom line: Zhaopin’s slight raising of its privatization price could reflect minority investor complaints about undervaluation, while Autohome’s buyout price could rise up to 20 percent in a game of strategic maneuvering with Ping An.

Zhaopin raises buyout price

Minority investors have long complained that a wave of privatization bids for US-listed Chinese companies are grossly undervalued, and now the companies may finally be responding to those grievances. That’s my assessment based on the latest reports that say online recruitment site Zhaopin (Nasdaq: ZPIN) has quietly raised the bid price for its privatization plan, as valuation questions also threaten to derail a similar plan by online car site Autohome (NYSE: ATHM).

Minority investor complaints about undervaluation center on the fact that top managers often control a majority of their companies’ shares through direct and indirect relationships. That means they can choose whatever bid price they want and be assured of its acceptance at shareholder votes. But threats of lawsuits and rival bids, and also perhaps worries about being seen as greedy and unethical are forcing some of the management-led buyout groups to rethink their prices and offer more.

That could be the case in the latest news that Zhaopin has raised the bid price for its buyout plan to $17.75 per American Depositary Share (ADS), versus $17.50 when the company first announced its privatization plan in January. (company announcement; Chinese article) There’s no explanation given for the increase, which is a relatively modest 1.4 percent over the earlier price.

Zhaopin shares surged 7.6 percent after the announcement of the latest proposal, though at their latest close of $16.05 they are still about 10 percent below the actual offer price. One media report is attributing the big stock price jump to the addition of venture capital giant Sequoia Capital to the buying group, which is boosting confidence that the deal will get completed. (English article)

Frankly speaking, the deal shouldn’t be that difficult in monetary terms because it will only value Zhaopin at around $1 billion. Instead, one could postulate that investors might be excited by the slight rise in the buyout price and be hoping another suitor could emerge to start a bidding war. A similar war has already broken out for iKang (Nasdaq: KANG), after a rival suitor trumped an earlier management-led privatization offer for the clinic operator. (previous post)

Buyout Brinkmanship

Next let’s turn our attention to the intriguing story of Autohome, which launched a privatization bid last month at $31.50 per ADS. (previous post) On the same day of that announcement, Autralian telco Telstra (Sydney: TLS) announced it was selling its sizable 48 percent of the company to financial services giant Ping An for $29.55 per ADS, representing a 6 percent discount to the buyout offer.

When the deal was announced I said the Telstra sale looked like part of the broader buyout package, assuming that Ping An had agreed to support the deal in advance that would give it an instant 6 percent premium to its own purchase price. But it soon became clear the 2 moves weren’t coordinated, and now a former Autohome executive is accusing Ping An of trying to derail the privatization bid. (Chinese article)

Former Autohome vice president Ma Gang vented his frustrations in a post on his microblog titled “Autohome’s Elegy: A Dream Sapped by Capital Game Playing”. Based on the content of the post, it appears that Autohome managers were crafting their buyout deal when Telstra suddenly announced the plan to sell its stake to Ping An. Autohome managers then rushed to publish their own buyout plan the same day, possibly raising it above what they had original envisioned to beat Ping An’s price.

Autohome’s shares now trade at about $28, or 10 percent less than the buyout price, which isn’t too far from the offer. But Ma Gang’s microblog post indicates that perhaps Ping An might try to force Autohome to raise the buyout price or threaten to vote against it. That means investors who enjoy risk might be able to profit by buying Autohome shares at their current levels, which could rise more than 10 percent if a game of pricing brinkmanship breaks out between the company and Ping An.

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