Tarena International Sinks as Buyout Deal Falls Through

The trouble-ridden company may lose its privatization deal amid China's crackdown on the education sector.
Oct. 02, 2021 19:24
Tarena International Sinks as Buyout Deal Falls Through

(CapitalWatch, Oct. 2, New York) Tarena International Inc. (Nasdaq: TEDU) was the biggest loser among Chinese stocks Friday on news that its going-private deal may be terminated.

The buyout of $4 per share would be a save for the Chinese education company, considering its stock has traded at under $2 per share since late July. When the merger agreement was struck on April 30, TEDU was trading at about $3.30 a share. The buyout contract boosted the stock to $3.88 per share, but as Beijing's crackdown on the education sector pushed all related stocks in the red, TEDU shares halved and then slid even lower, wavering near $1.50 a share over the past month.

Now, Tarena says the contract has been breached. Unless cured by Oct. 30 and confirmed for closing by the year-end, the company will demand the termination fee, it said in a late Tuesday report.

The announcement tanked TEDU stock 16% to $1.16 per share on Friday. If the downfall continues, Tarena may face delisting from the Nasdaq due to non-compliance with the minimum bid requirements instead of privatization.

For Tarena, that won't be a first warning. Indeed, Tarena is a trouble-ridden Chinese company that in the matter of a few years has been terminating employees including a vice president, shifting top managers including CEOs and CFOs, and replacing auditors. And it has seen its stock drop below the required minimum – but this was not Tarena's biggest worry with the securities regulator. 

A familiar pattern, a Luckin Coffee (OTC: LKNCY) investor would say. Indeed, in November 2019, Tarena released the results of an independent investigation done by Kirkland & Ellis International LLP, Deloitte & Touche Financial Advisory Services, showing "inaccuracies" in reported revenues, student accounts, loans, and expenses, as well as conflicts of interest and related party transactions, and interference with external auditing. Tarena was found to have inflated its revenues from 2014 through 2018.

As the company took measures dealing with the incident and the ensuing investor lawsuits, the founder and chairman of Tarena, Shaoyun Han, has remained one unchanged figure – and he was the one to offer taking the company private back in December 2020 with the aid of a group of investors that included education giant New Oriental Education & Technology Group Inc. (NYSE: EDU; HKG: 9901).

But in another unfortunate turn, Beijing has cracked down on tutoring providers over the past half-year, pretty much killing the wildly competitive market it was and slashing billions in market value from even the best of education stocks. Thus, the aforementioned New Oriental lost 88% of its market value year-to-date, now trading barely above the troubled Tarena.

In this environment, Chinese educators are scrambling to stay afloat through restructuring. Tarena now positions itself as a "provider of adult professional education and childhood & adolescent quality education services in China" instead of the earlier "provider of adult professional education and K-12 education services," in attempt to leave out the suffering market segment.

However, Tarena's acquisition at more than twice the value of its stock seems dubious, not to mention that the buyer group has to ensure compliance with the new regulations and deal with the new caps on fundraisings.

Topics:
Tarena, TAL, EDU, Stocks, Kidedu, Fraud,