China Buyout Wave Fuels Bets on Who’s Next to Seek U.S. Exit

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The record number of offers to take U.S.- listed Chinese companies private is stoking speculation on which stocks may be targeted next.

The list of candidates to abandon their American trading through buyouts include real-estate website SouFun Holdings Ltd. and online cosmetics retailer Jumei International Holding Ltd., according to analysts at China International Capital Corp. and JL Warren Capital.

Fourteen Chinese companies trading in the U.S. have received offers to buy out shareholders since the start of April, the most ever in a single quarter, according to data compiled by Bloomberg. Surging valuations on China’s domestic equity market amid a world-beating rally and a pledge from authorities to facilitate fund raising for high-tech firms have made overseas listings less appealing. Chief executive officers of Baidu Inc. and Jumei said they are interested in returning to the local stock market.

“When a company’s management feels the stock is neglected in the U.S. and believes it’ll surely get a much higher multiple in the local market, it’s likely to go private and seek a relisting in China,” Henry Guo, an analyst at Summit Research Partners, said by phone from San Francisco Friday. “It’s also easier for companies with large stakes owned by leading shareholders to go through the privatization process.”

Zhaopin, SouFun

Recruitment website Zhaopin Ltd. and Internet news outlet Phoenix New Media Ltd. are also among potential buyout targets, according to a June 10 Credit Suisse Group AG note.

Investor speculation about buyouts has boosted some companies’ U.S.-traded shares. Beijing-based SouFun has soared 34 percent in the past two weeks to a seven-month high.

Leju Holdings Ltd., SouFun’s smaller peer, surged 24 percent last week for the biggest rally since August. Credit Suisse and JL Warren analysts both mentioned Leju can seek privatization, after controlling shareholder E-House China Holdings Ltd. received a buyout bid on June 9 from its CEO and a board member, who own a combined 26 percent of the company.

Phoenix New Media has surged 34 percent in the past 10 trading days to the highest level since November. E-Commerce China Dangdang Inc., which is on the candidate list of Beijing-based investment bank China International Capital, jumped 27 percent last week, the steepest gain in 15 months.

Six Offers

A Bloomberg index of the most-traded Chinese stocks in the U.S. posted a two-week gain to a record on Friday amid a flurry of buyout announcements, including six in the last week alone. A $1.4 billion offer to buy 21Vianet Group Inc., an Internet data-center operator, and a $1 billion bid for Homeinns Hotel Group, China’s largest operator of budget hotel chain, were the biggest by deal value.

The Shanghai Composite Index dropped 2 percent to 5,062.99 at the close on Monday, the most since May 28

Different from the wave three years ago for Chinese companies to leave the U.S., which was triggered by short sellers’ scrutiny of overseas traded firms including Sino-Forest Corp., the current one consists “larger market cap names doing dual-listings,” 86Research Ltd. analysts led by Ming Zhao wrote in a note June 12.

Baidu, China’s largest search engine, would sell shares on the Chinese market if allowed by regulators, CEO Robin Li said in a March interview. Jumei’s stock, which debuted in the U.S. in May 2014, is “seriously undervalued” and the company is actively studying the possibility of a home-market listing, the Southern Metropolis Daily reported May 7, citing CEO Leo Chen.

Chinese Premier Li Keqiang encouraged firms with certain types of equity structures, referring to companies with overseas listings, to do initial public offerings in China, the Xinhua News Agency reported June 4, citing a government statement.

“Anything that is somewhat depressed, from a share price or business fundamentals perspective,” may drive companies to return to China for relistings, Jeff Papp, a senior analyst at Oberweis Asset Management Inc, which oversees about $1.9 billion, said by e-mail on Friday.

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