Idreamsky Sinks as Latest China ADR Buyout Offer Seen as Too Low

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IDreamsky Technology Ltd. fell the most in three months after the mobile game publisher’s chairman offered to buy out shareholders at a price below its initial public offering, joining a growing number of U.S.-traded Chinese companies seeking to go private.

The American depositary receipts slumped 9.8 percent to $13.13 in New York on Monday. The stock dropped after the company said in a statement that Michael Xiangyu Chen, who is also its chief executive officer, is leading an investor group that proposed to pay $14 cash per ADR to buy all the outstanding equity. The bid was below last week’s closing level as well as its $15 IPO price.

The ADRs, which had been trading below $15 since January, jumped 34 percent last week. A record 15 Chinese companies trading in the U.S. have received buyout offers since the start of April as surging valuations in China’s domestic stock markets lure overseas-traded firms to the local market. China Mobile Games & Entertainment Group Ltd. last week accepted a buyout proposal.

“Online game companies tend to become buyout targets as most of them are profitable, which will get them good valuations in China’s domestic market,” Jun Zhang, who oversees China research at Rosenblatt Securities Inc., said by phone from San Francisco Monday. “Speculation on potential going-private deals has boosted U.S.-traded China names, so the offer for IDreamsky seemed to be low to investors after the stock’s surge last week.”

ADRs Drop

Chen’s group owns about 22 percent of IDreamsky’s ordinary shares, representing 41 percent of the voting power, according to the statement. The offer price marked a premium of about 25 percent to the volume-weighted average closing price of the ADRs over the past 30 days, it said.

The board has formed a special committee consisting of independent directors to evaluate the offer. Kirkland & Ellis International represents the buyout group as legal counsel.

IDreamsky’s trading volume of 2.4 million ADRs Monday was almost 4 times the three-month daily average, according to data compiled by Bloomberg. The company raised $133 million in its U.S. IPO last year.

The Bloomberg China-US index slid 1.8 percent to 138.22 on Monday, retreating from a record high. The gauge has rallied 27 percent in 2015.

Six companies said last week they received bids to take them private, including 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.

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