Buyout Binge Update: More Chinese U.S.-Listed Companies Look to Go Private

U.S.-listed Chinese companies have mostly underperformed after their IPOs.
Anthony RussoFeb 17,2021,18:13

The buyout binge continues as more Chinese U.S.-listed firms look to go private amid rising Sino-American trade tensions and falling stock prices.

Much as happened in the past six months that could potentially impact Chinese companies trading on American bourses. The biggest factor was a bill could delist Chinese firms from trading on U.S. exchanges if they refuse to abide by auditing standards.

Of course, Beijing can thank beverage maker Luckin Coffee (OTC: LKNCY), whose $300 million accounting scandal turned out to be the last straw for Washington. Now, the message from Washington to Beijing is clear: Abide by audit inspections and standards or leave American bourses.

The good news for these firms? Chinese U.S.-listed firms will have three years to comply with those demands, leaving plenty of time to field buyout offers. Since we last looked at the buyout binge by Chinese U.S.-listed companies in June, many more have received buyout proposals, with some already going private, or accepting them.

The last time we discovered the common trend among Chinese U.S.-listed companies appeared to be that they either have significantly underperformed immediately after the IPO or their shares peak years after only to suffer a precipitous fall.

Let’s take a look at some Chinese companies that are considering or have accepted buyout deals, as well as some that have already gone private in the past several months.

Chinese Firms That Have Received Buyout Offers

New Frontier Health (NYSE: NFH) was one the latest to receive a buyout proposal. Last week, the premium healthcare services provider said it received an offer from members of a “buyer group” for $12.00 per share.

So far, New Frontier has only been publicly traded since June 2018. Before the buyout proposal, New Frontier’s stock had mostly underperformed since pricing its IPO at $10.00 per share. While the stock is now up from its IPO price, an 11% gain in two years is nothing to celebrate over.

But hey, it could be worse--just ask shareholders of TuanChe Ltd. (Nasdaq: TC). TuanChe received an offer for $4.25 in January.

The automotive marketing provider ended its first day of trading at $31.32 per share. Now, the stock is down 85%. Even a 1 for 4 reverse stock split in late October couldn't save the stock price from falling. The share price, has, however, creeped up a bit year-to-date.

It also doesn't get much better for shareholders in education provider Tarena International (Nasdaq: TEDU). In December, founder and chairman Shaoyun Han offered to buy out the company at $4.00 per share.

But when compared with TuanChe, it’s been a longer and more painful ride for shareholders of Tarena, which has been publicly traded for about seven years now. Shares of Tarena are down 65% from its IPO pricing of $9.00 each.

Upscale and lifestyle products provider Secoo Holding (Nasdaq: SECO) received a buyout proposal from its founder and chairman in January for $3.27 per share.

But shareholders may as well refer to this company as Sicko Holding, because investors are going to have to keep taking Pepto-Bismol to relieve the pain caused by a more than four-fold price drop from its initial share price of $13 in September 2017.

Then there’s Hollysys Automation (Nasdaq: HOLI), whose board of directors rejected the original buyout offer of $15.47 per share. According to Hollysys, that offer “substantially undervalues the Company.”

Now, the automation control system solutions provider is reviewing a new proposal worth $17.10 per share.

Formerly, the company was known as HLS Systems International Ltd. before changing its name in July 2009. It has been listed on Nasdaq since 2007 and went public through a reverse merger with a special purpose acquisition company called Chardan North China Acquisition Corp.

Unlike others on this list, Hollysys has been a strong gainer. Since the beginning of 2008, shares of Hollysys are now up 79% to date.

Companies Going Private

Some Chinese firms have already agreed to go private including Gridsum Holding (Nasdaq: GSUM). The provider of cloud-based big-data analytics accepted a deal to be acquired for $2 per American depositary share by a group of investors led by its chairman and chief executive officer, Guosheng Qi.

The same consortium has been trying to acquire the company since July 2019; at the time, the stock was trading near $3 per share. But ever since its IPO in September 2016, Gridsum's stock has been on a jagged downtrend.

Shares of Gridsum are now down 85% to date from its IPO price of $13. The merger for Gridsum is anticipated to close in the first quarter.

Another privatization deal involved Chinese gaming giant Tencent HKEX: 0700) buying out search engine platform Sogou (NYSE: SOGO) from parent Sohu.com (Nasdaq: SOHU) in late September.

Under the deal, stockholders of Sogou will receive $9 for each share they own.

Sogou has also been a major disappointment for shareholders, whose stock is down 36% from its IPO price of $13 in November 2017.

Earlier this month, Ruhnn Holding (Nasdaq: RUHN) holding agreed to go private at roughly $296.4 million equity value.

The key opinion leader backed by Chinese e-commerce giant Alibaba Group (NYSE: BABA; 09988) has failed to gain much attraction since its IPO in April 2019. The stock in Ruhnn is now down by more than triple from its IPO price of $12.50.

The deal is expected to close by the end of June.

Shanghai-based Ossen Innovation (Nasdaq: OSN) has agreed to go private for $5.10 per share.

In more than 10 years since being publicly traded, the steel materials maker is down more than double from its closing price on its first day of trading. Ossen implemented a 1 for 3 reverse split in August 2016.

The deal is expected to close during the first half.

Chinese Firms That Have Already Gone Private.

Others have recently gone private including China’s largest online marketplace for classifieds 58.com Inc., marketing and branding provider Acorn International, as well as Dalian Wanda Groups’ Wanda Sports.

58.com has been the only one out of the three to see success since making its New York trading debut, with its stock surging 229% from its IPO price.

Meanwhile, the stocks in Wanda Sports and Acorn have plummeted 51% and 85% respectively since the close of their first day of trading. In November 2015, Acorn implemented a 3 for 20 reverse split.

Now, of course, there are exceptions on this list (as well as the tech giants including Alibaba’s of the world) but for the most part, Chinese firms have failed to impress in their U.S. trading tenures. According to Matthew Kennedy, a senior IPO market strategist at Renaissance Capital, most Chinese companies since 2019 trade under their offering prices and underperform in the U.S. IPO market, as cited by CNBC in June 2020.

As a result, the American investor gets burned. Hence, Washington finally had enough and passed legislation that could boot Chinese firms off their bourses if they refuse to comply with auditing standards.

Buy or Avoid Chinese Firms?

In the meantime, what do American investors do for the next three years when it comes to Chinese companies? Should they look at opportunities to buy or avoid?

The answer is yes and no. As far as it goes with internet giants with big track records like Alibaba and NetEase (Nasdaq: NTES) go, then yes; I would consider buying those types of companies. But the game gets a bit trickier when it comes to smaller companies with high upside. For instance, Chinese solar energy companies Daqo New Energy (NYSE: DQ) and JinkoSolar (NYSE: JKS) have skyrocketed in the past year thanks to the hot demand in the industry.

It’s a tough call but unless there’s an IPO in a popular industry, I would avoid buying Chinese companies seeking to go public for the time being.

But the next three years should be interesting on how President Biden deals with China. The approach Biden will take on Chinese relations remains unclear, as his administration is conducting due diligence of possible intrusions to U.S. data privacy and security by foreign governments.

CapitalWatch Disclaimer

CapitalWatch has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.

Topics:Luckin Coffee, Biden, Trump, New Frontier Health, Secoo Holding, Hollysys Automation, TuanChe, Alibaba, 58.com, NetEase, Tarena International, Ruhnn Holding, Tencent, Gridsum Holding, Sogou, Ossen Innovation, Acorn International, Wanda Group.
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