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After Shareholder Revolt and Insolvency, Will Ambow Education Get a Second Chance?

If successful, the new listing for Ambow would be a striking resurgence for a company once valued at more than $1 billion before sinking into insolvency, as well as for its then and current leader, Jin Huang.

Peter H. Frank
    Apr 15, 2018 5:10 AM  PT
After Shareholder Revolt and Insolvency, Will Ambow Education Get a Second Chance?

Ambow Education Holding Inc., which five years ago was forced into insolvency after allegations of financial improprieties, is seeking to exit its purgatory on the "pink sheets" and once again be listed on a major U.S. exchange. 

The Beijing-based company, currently traded over-the-counter under the ticker symbol "AMBOY," filed with the Securities and Exchange Commission last August for approval of the issuance of new shares, a listing on the NYSE American exchange, and a return to its original ticker symbol "AMBO." An updated filing in early April said the company was seeking to raise $5.75 million, though the number of shares to be offered was not disclosed. 

If successful, the new listing for Ambow would be a striking resurgence for a company once valued at more than $1 billion before sinking into insolvency, as well as for its then and current leader, Jin Huang. It could also return a sense of investor legitimacy to a company that only recently returned to profitability and bought a small college in downtown Boston. 

Indeed, it was just five years ago that the company, an education services provider and owner of schools in China, became a prime example of the downfall of many Chinese companies listed in the U.S. after the eruption of several accounting scandals involving Chinese ADSs. 

Even in that environment, "Ambow's situation stands out," an article in The New York Times said at the time. 

For her part, Huang was the target of institutional shareholders back then who called for her resignation in a letter to the board, claiming her presence put their investment in "imminent peril." The company's auditors, it said, could no longer rely on Ambow's internal controls "or the representations of the Company's management." 

Now, as Ambow is seeking approval to return, the old directors are gone, senior management has changed, but Huang is still there. 

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Ambow Education Founder and CEO Jin Huang speaking at 

Fortune's Most Powerful Women conference in 2011. (Credit: Asa Mathat / Fortune MPW)

Listed on the NYSE, Before It Wasn't 

Ambow, which in Chinese is a combination of the words "safe" and "knowledgeable," was started by Huang in 2000. Over the next nine years, the Beijing-based company grew quickly to more than $132 million in annual revenue and had five schools teaching kindergarten through high school, 96 tutoring centers, two colleges, and 16 centers for adult education. 

By August 2010, it was ready to go public. Although it had reported a $16.6 million loss the previous year, it sold 10.7 million shares at $10 each on the New York Stock Exchange. The offering was underwritten by J.P. Morgan and Goldman Sachs. (The IPO price at the time was equivalent to a current value of $300 per share, adjusted for a subsequent 1-for-30 reverse stock split.) 

Shares in the company quickly took off. By the end of the year, the Ambow stock was up 40 percent, valuing the company at more than $1 billion. 

But the surge was short-lived. Two months later, its shares had reversed course and were trading below its IPO price as the company followed the path downward of other Chinese stocks in the midst of enormous investor concern over Chinese ADSs. 

However, it was in early 2012 that Ambow took its first notable hit. The company, trading at nearly $8 per share back then, announced in April of that year that it would not file its annual report on time. Then, in early July, it disclosed in a regulatory filing that a former employee had made "allegations of financial impropriety and wrongful conduct in connection with the Company's acquisition of a training school in 2008." 

Resignations Hit the Company 

Details of the allegations were not described, but that same day, Ambow also announced that its chief financial offer had resigned after seven months on the job and that it was restating its financial results for each of the four quarters in 2011. The stock fell below $3 per share. 

After limping through the year, by the next spring, with the stock trading near $1, Baring Private Equity Asia offered to buy the company for $1.46 per share, representing a 45 percent premium to the company's then-trading price. 

Within days, though, things began to fall apart. In March 2013, three of the company's four independent directors quit, including two from the audit committee, saying "they were unable to effectively discharge their duties in light of the refusal of Dr. Jin Huang to resign or take a leave of absence from her leadership positions," according to the company's annual report. 

Soon after, the NYSE halted trading in the company's shares. 

Indeed, Huang was the primary target of the shareholder revolt that erupted at the time. It was her "desire to entrench herself," the shareholders claimed in arguing for her resignation, that continued "to impede an impartial investigation of alleged accounting, finance and governance deficiencies." 

She did not resign, and the company was placed under provisional liquidators in the Cayman Islands in June 2013. 

Huang explained, in a letter to shareholders back then, "Having spent most of my career focused on execution in a private company context, I was under-prepared for the demands of managing our relations with investors, building investor confidence in the organization's governance culture and preserving regular dialogue with Wall Street analysts and shareholders." 

By February 2014, an audit committee investigation concluded "there was insufficient evidence to substantiate the allegations," but the damage had been done. Within months, trading in the stock resumed, but having failed to file its 2012 annual report, the company's ADSs were removed from the NYSE, and by October 2014, Ambow was trading in the over-the-counter market, or on the "pink sheets." 

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Shares of Ambow Education since its 2010 IPO, with price adjusted 

to reflect a 1-for-30 reverse stock split in 2015. (Source: Thomson Reuters Eikon)

Getting Over Over-the-counter 

Since that time, Ambow's stock has mostly languished. 

Over the next year, while Ambow was trading on the OTC, its stock was selling for pennies, finally prompting the company to complete a 1-for-30 reverse stock split to bolster its stock price in September 2015. 

Its fortunes since then have also been shaky. Revenue has risen slightly over the past few years, though the company reported losses from continuing operations consistently since 2012. Last year, finally, it broke into the black, reporting $3.7 million in profits through the first nine months on revenue of $45 million. 

For most of this year, the company's stock, when it traded, mostly hovered just above $3 per share. Then, after not trading in nearly three weeks, the stock suddenly dropped to 1 cent per share on March 29, where it sat until this week, when Thursday it bounced up to $2 per share. 

Now, it is waiting to issue new shares and regain listing on a market – this time, the NYSE American using the Benchmark Co. as its underwriter. Having originally filed its registration statement with the SEC in August last year, the company has filed more than a half-dozen amendments since then, including its most recent on April 3. 

The Future Awaits 

When, or if, the IPO occurs is hard to predict, but the company is clearly looking for a second chance. 

"We aspire to become a global educational service provider and maintain our position as an established and well-respected company providing educational and career enhancement services in China," it explained in its recent SEC filing. 

Presumably to that end, late last year, Ambow purchased Bay State College in downtown Boston for $2.5 million and future payments. Founded in 1946, the school has about 800 students and offers associate's and bachelor's degrees in business, information technology, healthcare, criminal justice and fashion. 

For her part, Huang is still president, CEO, and chairwoman. She is also Ambow's largest shareholder with 100 percent of the super-voting Class C shares. With less than 2 percent of the Class A shares, Huang holds 59 percent of the company's voting control. 

A U.S. citizen, she currently resides in China. Before starting Ambow in California and setting up a holding company in the Cayman Islands in 2005, she earned her doctoral degree in electronic engineering from the University of Electronic Science and Technology in Chengdu, where she attended from 1981 to 1990. For the next three years, she conducted research at the University of California, Berkeley, before working as an engineering manager until 1998 at companies in Silicon Valley. 

"Dr. Huang is a renowned entrepreneur," said Craig F. Pfannenstiehl, president of Bay State College when announcing the deal, "growing Ambow from the ground up, and we are excited to be working with her team at Ambow." 

With its plan to sell $5.75 million worth of shares to the public, the company must now hope investors will feel the same.

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