Current Price: $19
Offer Price: $20
Expected Closing: Q2 2020
Jumei International, Chinese online cosmetics retailer has signed a definitive privatization agreement with its parent – Jumei Investment (owns 45% of commons shares and has 89% voting control). The price is set at $20 per ADS share, while total consideration stands at about $230m. The offer is conditioned on 90% acceptance rate and after satisfying it the “squeeze out” procedure will follow. Acceptance period will last until the 25th of March.
- The transaction will be financed by cash on hand + debt financing. Tiga Investments (very little information on the web) has agreed to fund the debt part.
- The non binding proposal was delivered on the 11th of January. It is interesting that in early February’20 the special committee of the target company has decided that the price is too low and requested the raise. However, the claim was rejected by the buyer “citing the significant decrease of the Company’s trading price since the announcement of the Proposal, and the negative impact on the Company’s business as a result of recent outbreak of coronavirus disease (COVID-19)”. The fact that JMEI tried to bump the price is unusual and seems to be a rare case when then Chinese (US listed) company actually cares for its shareholders.
- The acceptance threshold is high, however the offer document indicates that JMEI is currently challenged by the decreasing market share of e-Commerce business and increasing competition. So, in this light (taking into account the coronavirus outbreak as well) it seems that shareholders might be fine with the all cash offer.
- Moreover, recent stats suggest that majority of similar transactions with definitive agreements have successfully closed. Quote from the SORL (similar privatization transaction) write-up: “Overview on the US listed Chinese companies’ privatization transactions (2019, 2018 summer and 2018 spring reports, compiled by Duff & Phelps) indicates that almost every case with a signed definitive agreement gets closed”.
- Termination fee is rather low compared to the size of the transaction – $5m from the parent side and $2.5m from the target company’s side.
- Downside to pre-announcement is 16%.
JMEI is a fashion and lifestyle solutions provider with a diversified portfolio of products in China. Jumei sells branded beauty, baby, children and maternity products, light luxury products, as well as health supplements through its e-commerce platform.