China's IKang Rises to Seven-Month High as Bidding War Heats Up

  • Competitor's parent Jiangsu Sanyou boosts offer to $25/ADS
  • IKang chairman adds Alibaba, others to rival investor group

China’s iKang Healthcare Group Inc. rose to a seven-month high after a competitor’s parent raised its offering price, fueling a bidding war between two groups that want to delist it from U.S. exchanges and sell the shares back home.

American depositary receipts of iKang rose 3.2 percent to $21.61 on Wednesday in New York, the highest since June 4, after Jiangsu Sanyou Group Co. offered $25 per ADR to take it private, a first step toward listing the shares in China. Almost 40 Chinese companies announced privatization offers worth a record $37 billion last year as investors and executives seek to shift listings to the mainland, where valuations are higher.

The new offer for iKang is 40 percent higher than an August bid of $17.80 by iKang’s chairman, Zhang Ligang, and came a day after he added new investors in his buyout group. Jiangsu Sanyou acquired iKang’s competitor Meinian Onehealth Healthcare Group Co. in August.

The latest bid followed complaints by some U.S. investors that Zhang’s offer didn’t reflect the stock’s real value and deprived them of opportunities to benefit from the company’s longer-term growth.

“The bidding war is definitely great news to a lot of shareholders,” said Ricky Zhong, a Beijing-based investment director at iMeigu Fund, which manages about $30 million of assets, including U.S.-listed Chinese companies. “It is also a wake-up call for those companies that are willing to go private. If you don’t act quickly to complete the deal, your competitors will join the bid.” The fund holds shares in iKang.

Relative Valuation

The two camps are both backed by big investors as China’s demand for health-care services is expanding with a growing middle class that’s increasingly willing to pay for better care. Beijing-based iKang, which provides medical examinations and other preventative health-care services, said Tuesday that new investors including investment arms of Alibaba Group Holdings Ltd. and China Life Insurance Co. joined its chairman’s bidding group.

The rival group said in November that its consortium includes a unit of Ping An Insurance (Group) Co., Sequoia Capital China and China Taiping Insurance Holdings Co.’s asset-management unit.

IKang has surged 54 percent since August and trades at 26 times forward earnings. The average multiple for its global peers is 50, according to data compiled by Bloomberg. Meinian last year completed a backdoor listing through an asset and share swap with Shenzhen-listed Jiangsu Sanyou.

A Bloomberg gauge of China ADRs slid 1 percent to 121.62 on Wednesday. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which tracks mainland equities, fell 0.8 percent to $25.75.

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