E-Commerce China Dangdang Inc. (NYSE: DANG) may be the next “go private” transaction in China, wherein management buys the company on the cheap. The business-to-consumer e-commerce company announced that its board of directors has received a non-binding proposal letter to go private.
As a reminder, Chinese stocks have been getting “go private” offers from management, and of course there has been that 30% market tank in China to consider.
The consideration payable for each American depositary share (ADS) will be $7.812 in cash, which compares to Wednesday’s closing price of $6.51 and is against a 52-week range of $6.02 to $16.42.
The company said that the letter was dated July 9, 2015, and from Peggy Yu Yu, chair of the company’s board, and Guoqing Li, chief executive officer of the company and a director. The acquiring group currently owns about 35.9% of all the issued and outstanding common shares, which was shown to represent roughly 83.5% of the aggregate voting power of the company.
What stands out is that E-Commerce China Dangdang shares would have potentially opened up this much anyhow. The Shanghai market recovered massively after China installed selling restrictions and bans on malicious short selling. The proposed purchase price is roughly a 20% premium to the prior day’s closing price. Still, it is less than half of the 52-week high and is barely above the 52-week low seen this week.
Another consideration is the financing. The management acquisition appendix said:
We intend to finance the Acquisition with a combination of debt and equity capital. Debt financing is expected to be provided by third-party loans. Equity financing will be provided from the Buyer Group and any additional members we accept into the Buyer Group in the form of cash and rollover equity in the Company. We are confident that we can timely secure adequate financing to consummate the Acquisition.
A last consideration is due diligence. The letter said:
We believe that we will be in a position to complete customary due diligence for the acquisition in a timely manner and in parallel with discussions on the definitive agreements.
Here is the question to ask: How long would it take a chair and a CEO to do due diligence on ANY company if they have been in place for some time?
E-Commerce China Dangdang ADSs were up 12% at $7.30 shortly after the opening bell on Thursday. The market cap was close to $575 million on last look.
This sounds like another bottom fishing expedition by management in China. Whether or not it is a good deal for investors will be up to those investors to decide. Unfortunately, those shareholders may have little or no say in the matter.