BUYOUTS: Sinovac, Ku6 Join Privatization Queue

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Bottom line: Sinovac may be forced to raise its buyout offer following a chorus of complaints from investors, while Ku6’s new buyout offer is unlikely to meet with any resistance due to its small size and big premium.

Sinovac gets buyout offer

The final days of the Year of the Ram are seeing 2 more US-listed Chinese companies head for the exit door, with new privatization announcements from vaccine maker Sinovac (Nasdaq: SVA) and Internet video company Ku6 (Nasdaq: KUTV). Sinovac’s announcement instantly drew criticism from one US fund manager for being too low, and it’s quite possible we could see some law firms that specialize in securities litigation voice similar criticism.

Meantime, no one is criticizing the Ku6 offer, mostly because this is a company that ceased to be relevant long ago. I’ve followed Ku6 since it first went public as Hurray Holdings in 2005. Back then it raised $70 million in its IPO, and it was acquired 4 years later by online gaming giant Shanda. But all that seems like a distant memory now, and the new privatization bid values the company at just $51.5 million.

These latest 2 deals represent what’s likely to be the tail end of a wave of privatization bids that were the big story for US-listed Chinese companies last year. Most of the 3 dozen bids came from management-led groups. Many were funded by Chinese private equity that was hoping to privatize the companies and quickly re-list them in China at higher valuations to earn some fast profits.

But US-based shareholders are starting to object that many of the bids grossly undervalue the companies, and are calling for shareholders to reject the offers as too low. Earlier this month at least 3 law firms also threatened to file class action lawsuits if infant formula maker Syntra (Nasdaq: SYUT) accepted a management-led buyout offer that they said was far too low. (previous post)

According to the latest new buyout offer, a group led by the Sinovac’s chairman has offered to pay $6.18 for each of the company’s American Depositary Shares (ADSs), representing a 23 percent premium to their previous close. (company announcement) No sooner did the company announce the proposal, then minority shareholder Hengren Investments objected the price was too low. (English article)

Hengren has become a leader in objecting to the low prices of many of these offers, and successfully got an earlier bidder to sharply raise its price for online dating site Jiayuan (Nasdaq: DATE). I expect we’ll probably see a few securities law firms add their voice of objection in this latest offer for Sinovac, as US investors try to squeeze more money out of the groups privatizing many of these Chinese companies.

Big Premium

Meantime, I doubt anyone will object to the $1.08 per ADS being offered for Ku6, which represents a whopping 55 percent premium to the company’s last closing price before the announcement. (company announcement; Chinese article) That’s because there’s not much of a business left these days at Ku6, which posted a meager $11 million in revenue and a $2 million loss for all of last year.

The company began life as a provider of services related to SMS text messaging, which was a hot area a decade ago and helped lift other companies like Sina (Nasdaq: SINA) and Sohu (Nasdaq: SOHU) to some of their first-ever profits. But when that business began to fade, Ku6 tried to transform itself into an online video company without much success.

It found a white knight when it sold a majority stake in itself to Shanda, another former online entertainment high-flyer that later fizzled and was recently sold off by its founder Chen Tianqiao. Shanda dumped its Ku6 stake in 2014 (previous post), and the company has continued its fall into irrelevance since then. Accordingly, this privatization will probably be welcome by everyone, allowing the buyer to quietly sell Ku6’s few remaining assets to a rival for a small profit.

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