Grentech Follows Shanda in Privatization Ploy 国人通信赴盛大网络後尘宣布私有化
Just a month after a frustrated Chen Tianqiao announced a plan to privatize his underappreciated Shanda Interactive (Nasdaq: SNDA), another smaller US-listed China tech firm, China Grentech (Nasdq: GRFF), has announced a similar plan. (English announcement; Chinese article) Grentech’s plan shouldn’t be too difficult in theory, as the company has a modest market cap of just $62 million, compared to Shanda’s much larger $2.2 billion. Yet rather than sparking a rally for Grentech shares, the offer to privatize the company for $3.10 per ADS actually unleashed a sell-off that saw its shares sink 4 percent to $2.76, meaning they now trade at an 11 percent discount to the offer price. Shanda’s shares have done a little better since Chen’s mid-October announcement of a potential offer to buy out his company for $41.35 per share. They climbed as high as $40 after the announcement. (previous post) and now trade at $39.50, or about a 4.5 percent discount to the offer price. Clearly in Grentech’s case there’s a high degree of skepticism about the privatization offer, which would be led by its CEO supported by fund-raising from one of China’s major brokerages, Guotai Junan. In both the Grentech and Shanda cases, the offers are the result of months of frustration that have seen US-listed China company shares plummet due to investor concerns about their accounting. Whether or not either Shanda’s Chen or Grentech’s CEO Gao Yingjie are really serious about their offers is another matter. I suspect Chen’s offer, which he previously said is non-binding, is more of a ploy to raise his company’s share price, and that the price will sink again when investors realize he has no intention of executing the plan. Grentech’s plan looks likely to fail too, but most likely because the company will be unable to secure the necessary funding. Either way, this kind of privatization scheme seems more like a desperate attempt to revive sagging company shares, and we may yet see one or two more such plans until the current confidence crisis subsides.
Bottom line: The latest privatization ploy by a US-listed China firm, Grentech, is likely to fail due to lack of financing, and reflects frustration at the ongoing confidence crisis toward such stocks.
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◙ Shanda’s Private Ploy: For Real or Market Manipulation? 盛大拟退市：是动真格还是虚晃一枪？
◙ Accounting Scandal Claims AutoChina As Second Big Victim
