FUND RAISING: WuXi Pharma Joins De-Listing Queue, Renren Waits
Bottom line: WuXi PharmaTech’s privatization will be followed by at least 3-4 more similar buy-outs this year for US-traded Chinese stocks, including a 50-50 chance that Renren will attempt a privatization by mid-year.
I’m beginning to feel like I should start a betting list of Chinese candidates that may de-list from New York, following word that unappreciated drug maker WuXi PharmaTech (NYSE: WX) has become the latest company to announce a management-led buy-out. At the same time, dying social networking (SNS) site Renren (NYSE: RENN) has also announced results of its own recent Dutch auction-style share buyback plan, which also hints that it could become the next company to attempt a privatization.
This privatization wave is actually more than 3 years old, and began with the management-led buyout of former online gaming pioneer Shanda Interactive at the height of an investor confidence crisis that left many US-listed Chinese company shares depressed. That wave of buy-outs ebbed as the confidence crisis eased last year and investors once again became interested in Chinese companies.
But now a second “mop up” round of buyouts has begun over the past year, which is seeing a group of orphans like WuXi PharmaTech launch new privatization bids, mostly led by the companies’ managers backed by private equity. This group of companies was hoping investors would rediscover their shares during the big rally for Chinese stocks in New York last year. But that rally was mostly limited to big Internet names, and now non-Internet companies like WuXi PharmaTech and smaller Internet names like Jiayuan (Nasdaq: DATE) are launching new de-listing plans in growing numbers.
According to its newly announced plan, WuXi PharmaTech will offer the equivalent of $46 per American Depositary Share (ADS), representing a 16 percent premium from before the buy-out was announced. (company announcement) The group backing the plan includes a fund called ABG, which is focused on healthcare assets and was founded by a former managing director of Goldman Sachs (NYSE: GS) and Och-Ziff Capital.
WuXi PharmaTech shares rallied after the announcement to near the buy-out price. But they have largely traded sideways over the last 3 years, and now trade at about the same level they were at a decade ago despite the company’s good growth prospects. The only other major US-listed Chinese pharmaceutical company, Simcere, also de-listed in 2013.
Next let’s look at Renren, which was once billed as the Facebook (Nasdaq: FB) of China but was later overtaken by larger SNS companies like Sina Weibo (Nasdaq: WB) and Tencent (HKEx: 700). Renren’s shares have also languished since their IPO back in 2011, and the loss-making company has been slowly selling off assets to the point where its biggest remaining asset is its relatively large cash pile.
Renren attempted to put $50 million from that cash pile to work last month when it announced a Dutch auction-style share buy-back, allowing interested investors to set the price for selling back their ADSs to the company in a range of $2.40 to $2.75. (previous post) Now Renren has announced the results of the auction, which saw just 154,643 ADSs offered by investors, all at the top end of the range for $2.75.
That means the buy-back will total just $425,000, or a fraction of the original upper limit of $50 million, indicating investors had little or no interest in the plan. Renren’s shares now trade at $2.96, which explains why more people didn’t accept the Dutch offer, since they could get more money for their stock simply by selling it on the open market.
Renren’s shares are now near a 6 month high, and I suspect they’re being pushed up by investors who expect that a buy-out offer for the company is imminent. The current mood certainly does seem to indicate an offer could be coming, and perhaps we’ll see something by mid-year. But I would also caution investors that Renren differs from the other companies now de-listing because it’s losing money and has no real chance of becoming profitable anytime soon. Accordingly, I would only put the chances of a buy-out offer at about 50-50.
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