This post was written in collaboration with Jens Ørding Hansen from University of Agder with whom I’m writing an academic paper on Chinese companies going private from the US exchanges.
Last week saw the announcement of the largest ever going private (GP) proposal for a Chinese company on the US exchanges. Focus Media had a market cap over 3 billion USD, pushing the record for largest market cap for a Chinese GP from a previous high of 1.8 billion.
This deal can be seen either as a continuation or a new beginning, depending on your perspective. On the one hand the deal fits the trend of Chinese companies going private from the US that many people expect to continue; on the other hand the deal sticks out from the recent trend in some respects.
The sheer size of the deal is the first, and most eye-catching, way that it sticks out. 75% of GP proposals for Chinese firms fall within a range of USD 50-390 million for market cap, with an average of 288 million. So with a deal over 10 times the average historical value we really are talking about an anomaly.
It could be argued that what we’re seeing here is the start of an exodus trend for the larger Chinese companies that are listed in the US. However, the other big GPs we have seen have not resulted in a discernible trend of large companies heading back to China. What we have seen is that one or two larger deals seem to come before more GP proposals among the smaller firms.
Another interesting aspect of this deal is that it does not include China Development Bank (CDB) funding, something that many thought was going to be the driving force behind the next wave of GP transactions. This was especially true after the CDB agreed to provide funding to help close the Fushi Copperweld deal.
This is not entirely out of character for the CDB as a policy bank, however, as they may be allowing market forces to play out before they decide on stepping in to help close deals. Because there was enough financial backing for the Focus Media deal the bank didn’t actually need to step in, at least not yet.
It might be that the bank is more likely to step in and help conclude some of the old GP deals that have been languishing, seemingly unable to close. There are still 6-8 older GP proposals that are seemingly stuck and not going anywhere. If these proposals are genuine then this might be the best use of the bank’s funds, rather than stepping in and helping deals that would likely close anyway.