Chinese state-owned investment firm Tsinghua Unigroup Ltd.'s
latest deal suggests some Chinese companies still see opportunity
despite the market rout.
Chinese education company Xueda Education Group has agreed to be
purchased by a Tsinghua Unigroup-controlled company listed on the
Shenzhen stock exchange for around $350 million, the company's
Chief Executive Jin Xin said Monday. The company will delist from
the New York Stock Exchange and plans to become a listed company in
Shenzhen by the end of the year, once the deal is completed.
With valuations soaring back home, Chinese entrepreneurs have
rushed to take their U.S.-listed companies private, with two dozen
offers of over $30 billion so far this year. That compares with
just one $660 million deal last year. Many of these nonbinding
offers were made when the Chinese market soared earlier this year
before the recent turmoil.
The stock-market collapse has left quite a few Chinese companies
in limbo, with buyouts that might not come through and initial
public offerings that could be delayed for years.
On Monday, China's stocks suffered their sharpest daily drop
since 2007, as investors worried authorities were scaling back
measures to support the market.
"A lot of Chinese companies have begun the delisting process in
the U.S. and they can't necessarily stop because of the
stock-market plunge," Gobi Partners Partner Ken Xu said. "With IPOs
halted in China, the only way they can relist in the short-term is
through a backdoor listing like Xueda's."
Chinese companies delisting from the U.S. would typically try to
launch a new IPO on China's A-share market, Mr. Xu said. But after
Chinese regulators froze IPOs due to a stock-market plunge, many of
these companies will be looking for already-listed Chinese
companies to help them carry out a backdoor listing, he said.
That was Mr. Jin's strategy. He said he believes valuations are
still higher in China despite the market tumult.
"We were looking for a public company to help us do a backdoor
listing," he said. "Such a fast delisting and relisting hasn't been
done before in China."
It is the latest in Tsinghua Unigroup's acquisition spree. The
state-owned technology investment company's proposed takeover of
Micron would be the largest Chinese overseas takeover ever if
successful, although analysts question whether such a deal could
gain U.S. government approval. Tsinghua Unigroup previously
purchased two major Chinese chip makers and a controlling stake in
Hewlett-Packard Co.'s China networking unit.
Tsinghua Unigroup bought a controlling 15.59% stake in
Shenzhen-listed Xiamen Insight Investment Co. on April 21, a day
after Insight Investment offered a nonbinding offer to buy Xueda
Education for $3.38 per American Depositary Share, Mr. Jin said.
The companies agreed Sunday to take Xueda Education private at
$5.50 in cash per ADS. Xueda's management team will participate in
a share offering by Insight Investment to help fund the
takeover.
As China's mobile-commerce industry explodes, demand among
investors for exposure to Internet stocks have caused several tech
companies listed on China's exchanges to soar to valuations at more
than 100 times earnings. Many closely-held Chinese startups have
also seen their valuations double over the past year. By
comparison, many U.S.-listed Chinese companies trade for less than
20 times earnings.
Still, it isn't clear whether all of the take-private proposals
will be successful. The rocky Chinese market could give banks pause
in providing financing for some of these deals. Few of the buyout
groups have announced financing packages as a part of their
nonbinding bids.
The nearly $350 million buyout offer for Xueda Education is
relatively small, compared with other take-private deals being
considered. The largest among those being considered is a roughly
$9 billion buyout for Chinese Internet-services provider Qihoo 360
Technology Co. Tsinghua Unigroup is also participating in a $2
billion bid for Chinese data-center firm 21Vianet Group Inc.
Mr. Jin said his company, which currently runs tutoring centers
across China for elementary and middle-school students, will add an
online-tutoring service with the help of the new funds.
"Our business is education, so Tsinghua University is a great
partner," he said. Tsinghua University is China's top science
university and is a large shareholder in Tsinghua Unigroup.
Write to Eva Dou at eva.dou@wsj.com and Rick Carew at
rick.carew@wsj.com
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