IPOs: Fous Media Injects, Legend Looms, Taomee Bows
Bottom line: Legend Holdings is likely to get a tepid reception for its new shares that could start trading by month’s end, while Focus Media is also likely to complete its backdoor listing in Shenzhen in that time frame.
A new IPO, a backdoor listing and a buyout offer are all in the news today in Hong Kong, China and New York, spotlighting an emerging dynamic that is seeing Chinese companies abandon US listings for offerings closer to home. The choice of Hong Kong instead of China for the upcoming IPO by Legend Holdings, parent of PC giant Lenovo (HKEx: 992), also reflects the difficulties that private Chinese companies continue to face when trying to list at home in Shanghai or Shenzhen.
China’s 2 main domestic stock markets have traditionally favored big state-owned companies, a big factor that prompted Legend to look to Hong Kong where it will meet with local stock exchange officials this week in the run-up to its looming IPO. At the same time, outdoor advertising specialist and formerly New York-listed Focus Media has just taken a major step towards a re-listing in China by injecting itself into a Shenzhen-listed firm. Last on our list is children’s website Taomee (NYSE: TAOM), which has just become the latest New York-listed Chinese firm to receive a privatization offer due to undervaluation.
We’ll begin with Legend, which had previously wanted to list in China but later abandoned that plan due to a bureaucratic backlog created by the mainland securities regulator. Legend made its first public filing for the IPO in mid-April (previous post), and now the latest reports say it will meet with Hong Kong stock exchange officials on Thursday for an offering expected to raise up to $2 billion. (Chinese article)
If the plan gets approved, Legend would start to market the offering next week and take share subscriptions the following week, the reports say. That means shares could make their trading debut by the end of the month. This particular offer looks so-so, as Legend is quite diversified and growth at its key Lenovo PC unit is also somewhat uncertain. That lukewarm outlook was probably a major reason why the final fund-raising target was set at the bottom end of an original $2-$3 billion range.
Next let’s look at Focus Media, which is one step closer to a backdoor re-listing with the announcement that it has formally injected itself into a Shenzhen-listed building materials maker called Hongda (Shenzhen: 002211). (Chinese article) Hongda is technically buying Focus Media in the deal, and will issue a large volume of new shares to pay for the purchase. Afterwards the company will almost certainly change its name to Focus Media.
What’s most interesting is the price Hongda is paying, which is 45.7 billion yuan, or about $7.4 billion. That would be nearly triple the $2.7 billion that Focus was worth when it de-listed from New York 2 years ago, providing a good indicator of the kinds of premiums other Chinese firms abandoning New York can expect if they re-list back in China.
That growing list could soon gain yet another member, with word that children-focused and New York-listed Internet site Taomee has received a management-led offer to privatize the company. The group is offering $3.588 for each of Taomee’s American Depositary Shares (ADSs). Taomee stock shot up after the announcement to just below the offer price. But before that it was at about $3, or a third of their IPO price of $9 per ADS when the shares started trading in 2011.
This particular offer is unlikely to turn into a bidding war, since it’s being led by a group that includes that company’s top managers who are probably also its controlling stakeholders. One member of the buyout group is the recently listed Orient Securities (Shanghai: 600598), a major Chinese securities brokerage, hinting that Taomee may attempt to follow Focus Media and re-list in China if after it leaves New York.
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