BUYOUTS: Vimicro, CNIT, AirMedia Line Up; Sina Joins E-House Bid

By newsdoug on June 23, 2015

Bottom line: The next 2 weeks could see another 3-5 US-listed Chinese companies announce buy-out bids, but the number will slow after that and many deals could collapse if China’s stock market rally falters.

Another 3 companies have joined the fast-growing privatization queue over China’s long holiday weekend, leading me to create the temporary tag of “buyouts” for headlines describing this brief but explosive story. For anyone who hasn’t followed that story closely, the current quarter has now seen 19 privatizations unveiled by US-listed Chinese firms, including the 3 latest announcements from video surveillance specialist Vimicro (Nasdaq: VMIC), advertising specialist AirMedia (Nasdaq: AMCN) and IT services provider China Information Technology (Nasdaq: CNIT).

In related news, leading web portal Sina (Nasdaq: SINA) has announced it is joining a group making a previously announced privatization bid for E-House (NYSE: EJ), one of China’s leading real estate services companies. That particular move looks related to an existing alliance between the 2 companies, and thus probably just marks a continuation of that relationship that I’ll describe below.

Astute readers will note that of the 4 companies that I’ve mentioned being privatized, the only one that I write about with any regularity is E-House. That nicely summarizes what’s happening here, namely that none of these privatizing companies have been able to gain any attention from investors, which has caused their shares to languish even as stock markets in New York have rallied over the last few years.

At the same time, these New York-listed companies are looking enviously at a Chinese stock market rally that has seen the major indexes more than double over the last year. I’ve previously written that much of the money backing this latest privatization wave appears to be speculative funds linked to the China stock market rally. Thus the wave could come to a screeching halt and many of the announced deals could collapse if the Chinese stock market rally sputters, which could be starting to happen.

Let’s look very briefly at the 3 new buy-out deals, starting with Vimicro that has received a management-led offer to buy the company for $13.50 per American Depositary Share (ADS). (company announcement) The price represents a 23 premium over Vimicro shares over the last 90 trading days. Like many of the other recent announcements, there’s no detail on who is financing the bid, supporting my hypothesis that it’s all speculative money from Chinese investors.

Next there’s AirMedia, whose management-led offer of $6 per ADS represents an even bigger 70 percent premium to the company’s closing price the day before the announcement. (company announcement) Again, there’s no detail on who will finance the bid. Finally there’s China Information Technology, which has received its own management-led offer of $4.43 per ordinary share, representing a 30 percent premium over the stock’s closing price over the last 15 trading days. (company announcement)

I wish I could offer more insight about all 3 of these companies, but the fact is I know very little about them due to their small size and limited growth potential. Of the 3, the largest is Vimicro, which is still only worth a relatively modest $340 million, followed by AirMedia at $300 million and China Information Technology at $130 million.

Lastly there’s the E-House deal, which was announced 2 weeks ago (previous post) and has just seen Sina join as one of its financiers. (company announcement) E-House and Sina previously partnered in a real estate company that was once listed in New York, but later privatized, with Sina taking shares in E-House as part of that deal.

In this latest move, Sina will help to finance the privatization of E-House, which is one of the largest Chinese companies so far to get a buy-out offer. Once the privatization occurs, Sina will exchange all of its E-House holdings for shares of Leju (NYSE: LEJU), an E-House unit that made its own public listing in New York last year. That wraps up the latest privatization news, though I expect we could see 1 or 2 more deals this week as the wave begins to ebb with a dwindling number of buyout candidates.