iCar Asia Limited (ICQ.AX) – Merger Arbitrage – 22% Upside

Current Price: A$0.45

Offer Price: A$0.55

Upside: 22%

Expected Closing: TBD

Press release

 

ASX-listed auto classifieds company iCar Asia recently received two non-binding acquisition proposals. The first one was made by Chinese peer Autohome at A$0.50/share. However, the discussions were ended by the buyer after the Malaysian peer Carsome made a competing bid at A$0.55/share. Carsome has already entered into agreements with ICQ largest shareholder Catcha Group to acquire its 30% stake. The buyer looks serious and the proposal comes as part of its market share consolidation strategy in Southeast Asia before the upcoming listing through SPAC. ICQ operates in virtually the same markets as Carsome (Malaysia, Thailand, and Indonesia) and seems like a perfect acquisition target.

Carsome’s CEO explained one month before the bid for iCar:

We continue our focus in expanding South-East Asia’s largest integrated car e-commerce platform more deeply and widely across Malaysia, Indonesia and Thailand in 2021 while strategically maintaining our leadership position across the region. […] We are also closing a number of major M&A transactions in the near future, which we will announce in due course.

The binding offer is conditioned on confirmatory due diligence (already granted), finalization of financing agreements, and ASIC approval for the share transfer between Catcha and Carsome – a standard Australian procedure for purchases above 20% shares. Financing also unlikely to be a problem as Carsome was recently reported to be in talks to raise $200m (which would make it Malaysia’s second unicorn company). After that, the scheme will be contingent on approval by 75% of ICQ shareholders. The offer comes at a 5-year high price of ICQ and 11.8x revenue multiple on slightly depressed 2020 figures. In light of ICQ’s profitability and scale issues, shareholders might be just fine with the price. So far no opposition has been voiced shareholders.

The 22% spread most likely exists due to the non-binding nature of the offer and relatively large downside (33% to pre-announcement price). However, the buyer’s intentions look solid and it has already made a serious commitment for a third of ICQ shares. The strategic rationale seems sound as cost synergies between two businesses should be abundant.

Quick timeline:

• Sept’20 – rumors appeared that iCar is seeking buyers with the intention to sell the whole company.
• 30 Oct’20 – iCar Asia received a non-binding proposal from Autohome (a US-listed Chinese auto internet platform) to be acquired for A$0.50/share.
• 25 Feb’21 – iCar Asia stated that “advanced discussions” with Autohome were still ongoing regarding the proposal.
• 30 Apr’21 – announced that discussions with Autohome were still ongoing and that Autohome is currently undergoing its internal approvals for the acquisition.
• 13 Jul’21 – a non-binding proposal was received from another party (privately-held Malaysian-based Carsome Group) for A$0.55/share. Carsome also entered into a side agreement with iCar’s largest shareholder Catcha to acquire its 19.9% holding in exchange for Carsome’s shares + additional 9% shares from Catcha’s subsidiary ICQ holdings and some options (subject to ASIC’s approval). After the transaction, Carsome will control around 30% ICQ voting power (including options).
• 20 Jul’21 – due diligence access to Carsome was granted and management intends to seek a binding proposal from Carsome. However, the board did not grant exclusivity (which Carsome asked) yet, which might suggest that they are not writing off a chance of another potential bidder coming in. Also, in light of the new proposal, Autohome has decided to terminate its acquisition offer.

ICQ largest shareholders:

• Catcha Group – 28.46%;
• Carsales.com – 11.56%;
• PM Capital Limited Group – 8.36%.