Bidding War For Chindex Is The Best For Shareholders

The author is Nina Xiang, editor of China Money Network

If you happen to be a public stockholder of NASDAQ-listed Chindex International, Inc., enjoy it while you watch the world’s two biggest private equity firms fight for your shares.

The battle is between US$59 billion-under-management TPG Capital and the Carlyle Group, which commends US$189 billion in its war chest.

Both are hoping to acquire 100% of Chindex International, the operator of the high-end United Family hospitals in China.

The saga began on February 17, when Bethesda, Maryland-headquartered Chindex says it entered into a definitive merger agreement with TPG Capital; Shanghai Fosun Pharmaceutical (Group) Co., Ltd.; as well as Chindex’s founder and CEO, Roberta Lipson, to take the company private for US$19.50 per share in cash.

On April 14, Chindex says that another investor, which was identified as the Carlyle Group by Chinese media reports, proposed to buy out Chindex at US$23 per share. The price represents an 18% increase from TPG’s original offer.

Then on April 21, the original buyer consortium including TPG, Shanghai Fosun and Chindex CEO Roberta Lipson, raised its offer to US$24 per share. This is 23% higher than its previous bid.

Such an increase is certainly a welcome change for investors in U.S.-listed Chinese companies.

Since 2010, there have been 17 Chinese companies that completed privatization deals with deal value above US$100 million, according to data tracker Dealogic. That amounts to over US$10 billion in combined deal value.

But most of those deals were announced between 2010 to 2012, when prices of U.S.-listed Chinese companies got hammered by negative reports on their questionable accounting practices.

Halter USX China Index, an index comprised of the U.S.-listed companies that derive a majority of their revenue from China, has seen the price of an ETF (exchange trade fund) based on it hovering around US$25 between 2010 to 2012.

It dropped to a low of US$17 in the summer of 2012, before rebounding to a high of US$33 last month.

So, between 2010 and June 2013 when share prices of U.S.-listed Chinese companies were depressed, 52% of privatization deals offered premiums (offer price over pre-announcement trading price) between 21% to 40%, according to a report published by Houlihan Lokey Capital.

For Chindex’s deal, TPG’s original deal of US$19.50 per share represented only a 14% premium of the company’s pre-announcement price. Now, at its revised higher offer, it represents a 40% premium.

That is more in line to what investors should get.

Caishen.Co - Primary Data for China Secondary Investment and Stock Markets
Nina Xiang is the co-founder and managing editor overseeing editorial content and product development at CMN. Before founding CMN in 2011, Nina worked at BusinessWeek magazine in Beijing and Institutional Investor magazine in New York, writing about business and financial services. While in New York, she also served as part-time correspondent for Shanghai's financial television channel, China Business Network, as well as China Radio International, China's national English-language radio network.