Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Buyout offers for U.S.-traded Chinese companies have been a bonanza for plenty of investors. Shareholders of Autohome must feel like they bought a lemon.

Shares of China's biggest car-information website have fallen almost 9 percent this week after the company replaced most of its board following Ping An Insurance's $1.6 billion purchase of a 47 percent stake.

Driving Lower
Autohome shares have underperformed the Nasdaq since Ping An announced its takeover
Source: Bloomberg

The stock closed at $20.95 in New York on Tuesday, almost 30 percent below the $29.55 per-share price that Ping An is paying Australia's Telstra for its holding. It's a third below the $31.50 counter-offer put forward by a management team led by Autohome's now-ousted chief executive officer, James Qin.

There are plenty of reasons for investors to view Ping An's victory with disfavor. Besides the higher price that the management group was offering, Autohome has dislodged a CEO who has been with the company for almost a decade and oversaw a several hundred-fold increase in revenue. (Qin, while replaced as CEO, remains on the board.)

Funding appeared to be no concern: Qin's group was backed by private-equity firms Boyu Capital Advisory, Hillhouse TBC and Sequoia China Investment Management. The Harvard-educated former McKinsey consultant promised a vision and long-term strategy rather than a "short-term focus on the company’s profits and losses."

Unsurprisingly, the successors to Qin and his team hail from the insurance industry. Incoming CEO Lu Min is a 20-year veteran of Ping An and chief of its strategy center. His background includes stints in health and life insurance. Between 2010 and 2012, he was chairman of Yihaodian, an online retailer formerly owned by Ping An.

A further four directors work at Ping An group companies. Internet experience doesn't figure prominently for any of them in Autohome's announcement, though new Chief Financial Officer Wang Jun Lang (who wasn't named to the board) is a former country manager for eBay in Taiwan.

Given all this, Telstra's preference for a lower offer may seem puzzling . The Australian company retains a 6.5 percent stake in Autohome so it has an interest in the site's future success.

Certainly, Autohome is gaining a powerful backer in Ping An, which had $84 billion of cash on its balance sheet as of March 31. The insurer's plan is to use its network of relationships with car manufacturers and distributors to transform Autohome into a full-service platform encompassing auto finance and insurance as well as advertising.

Ping An isn't a stranger to e-commerce, being also the largest shareholder in Lufax, China's biggest peer-to-peer lender. Lufax's growth at a time when thousands of similar sites have sprouted up (and many been shut down) is testament to the heft of its parent. Ping An says it has 300 million online customers and more than 50 million auto insurance clients that can be used to leverage Autohome's business.

Against that undoubted potential must be weighed the inevitable disruption of the management reshuffle. Yet this may already be priced in. Autohome trades at less than 9 times its enterprise value to estimated Ebitda,  according to data compiled by Bloomberg. That compares with an average of 18 for Chinese Internet companies -- cheap for a business that boosted revenue by 63 percent last year and is estimated to post 80 percent growth in 2016.

Fast Lane
Autohome's revenue grew 76 percent in the first quarter from a year earlier

Investors will be watching Autohome's quarterly releases keenly to see if the company meets those forecasts under its new managers. If it does, the stock's 40 percent decline this year may start to look overdone. Sometimes, the advertising listings contain bargains as well as old bangers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The deal is still subject to litigation in the Cayman Islands by the management consortium.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net