Dangdang Rallies After Receiving Competing Bid in Buyout Process

  • iMeigu made non-binding offer of $8.80 per ADR for Dangdang
  • `Dangdang is cheap,' the Beijing-based investment firms says

E-Commerce China Dangdang Inc., a Beijing-based online retailer, surged to a two-month high after receiving a competing bid to go private.

The American depositary receipts advanced 7.9 percent to $7.13 at 2:44 p.m. in New York after iMeigu Capital Management said in a statement it will pay $8.80 in cash per Dangdang ADR. That’s 13 percent higher than an offer made by Chairman Peggy Yu Yu and Chief Executive Officer Guoqing Li in July. They own about 36 percent of the shares and have 83.5 percent of the voting power.

A $39 billion buyout spree among Chinese companies has spurred anger as smaller shareholders say lowball offers from management teams prevent them from benefiting from the companies’ longer-term growth. The buyout proposal from Dangdang’s management is now 16 percent below the shares’ average trading price during the past 90 days, making it lowest among 42 proposed going-private deals, according to data compiled by Bloomberg. It’s followed by Jumei International Holding Ltd., which trades at an 11 percent discount to the offer price.

Cheap Company

“Dangdang is cheap,” iMeigu’s press office said in an e-mailed reply to questions about why it’s seeking to buy Dangdang.

The Beijing-based investment company will fund the acquisition through shareholders, investors, partners and banks. iMeigu hasn’t communicated with Dangdang’s management before making its offer, the firm said. It declined to disclose its assets under management and the size of its holdings in Dangdang.

Imeigu said in its statement that the firm is “open-minded and flexible” about alternative ways to take the company private, indicating that it’s willing to team up with Dangdang’s management to form a new buyer group.

Dangdang declined 23 percent in New York last year as the retailer’s investments in mobile offerings crimped profitability. In September, it reported an adjusted loss of 4 cents per share for the second quarter, compared with an average estimate for a deficit of 3 cents. Its market value has fallen to $570 million from a peak of $769 million in 2013. 

The new offer “is hard evidence that the bids by managements, such as Dangdang, are far too low, and they are just seeking to exploit U.S. and Chinese investors to get away with whatever they can, and daring investors to resist,” said Peter Halesworth, the founder of Heng Ren Investments, whose firm invests in Chinese stocks. “Thankfully someone is calling Dangdang’s bluff.”

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