Shanghai’s Deal Sweetener Sparks Montage Rally in U.S.

Montage Technology Group Ltd. (MONT) rose the most in three months in the U.S. and trading in the stock surged as the Chinese semiconductor maker agreed to an increased buyout offer made by a Shanghai government-run company.

Montage rose 8.6 percent to $21.49 in New York yesterday. Trading volume jumped to 5.7 million shares, more than 13 times the average of the past three months. The stock has gained 115 percent since its U.S. debut in September.

The chipmaker said its board of directors approved Shanghai Pudong Science and Technology Investment Co.’s buyout offer of $22.60 per share. The city government-run investment management firm had offered $21.50 in March, after Gravity Research claimed in a Feb. 6 report that Montage is overstating its revenue and probably isn’t profitable. Montage has denied the allegations and said it doesn’t expect to amend its previously reported financial results.

“Today’s raised offer reassures investors that the deal is going to close, this is a legit company and Shanghai Pudong is definitely serious about acquiring it,” Jay Srivatsa, a New York-based analyst with Chardan Capital Markets, said by phone. “I always thought the offer was too low and there would be a higher offer.”

Srivatsa cut the stock to neutral from buy after the rally because a higher offer than the current one is unlikely.

Global Growth

Montage reported first-quarter net income that more than doubled to $7.8 million from the same period last year on sales that rose 77 percent to $35.6 million, according to data compiled by Bloomberg. Gravity Research didn’t respond to an e-mail seeking comment yesterday.

Other Chinese stocks fell in U.S. trading, part of the declines across all equity markets that were triggered by the World Bank’s reduction of its global economic growth outlook. The Bloomberg China-US Equity Index (HSCEI) slid 0.2 percent to 103.73. The gauge traded at 17 times projected 12-month earnings June 10, the highest multiple since May 2012.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., fell 0.4 percent to $37.62, declining for the first time this week.

The World Bank lowered its 2014 global growth forecast to 2.8 percent from 3.2 percent in a report dated June 10. The Washington-based lender cut its forecast for China’s gross domestic product expansion to 7.6 percent from 7.7 percent.

‘Too Optimistic’

“This doesn’t help the sentiment,” Mark Williams, chief Asia economist at Capital Economics in London, said by phone. “The World Bank is expecting growth to stabilize in China around the current level. It’s still too optimistic.”

China’s economy expanded 7.7 percent last year and in 2012, the weakest pace since 1999 in the aftermath of the Asian financial crisis and down from an average 10.6 percent in the previous decade. Growth may ease to 7.3 percent this year, according to the median estimate of economists surveyed by Bloomberg News.

Xinyuan Real Estate Co., a Beijing-based property developer, fell 5 percent to $4.17, sliding the most in two months. Vipshop Holdings Ltd. (VIPS), a Guangzhou-based online fashion retailer, slipped 3.3 percent from a record to $180.25.

The Hang Seng China Enterprises Index slipped 0.1 percent from a five-month high to 10,508.40. The Shanghai Composite Index (SHCOMP) added 0.1 percent to 2,054.95, extending its gain into a third day.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Richard Richtmyer, David Papadopoulos

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