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We’ve covered lots of unusual stories over the years from the world of U.S.-listed Chinese stocks, but the latest involving a management-led buyout offer for marketing services provider iClick Interactive Asia Group Ltd. (NASDAQ:ICLK) is definitely among the stranger ones.
There are quite a few pieces to this puzzle, which we’ll review shortly, giving off a range of mixed signals. The bottom line seems to be minority shareholders are doubtful they’ll get a good deal from this buyout, probably at least partly based on the fact that iClick previously rejected two earlier offers last year at much higher prices.
At the same time, iClick’s shares have sunk so low lately – currently trading 96% below their IPO price from 2017 – that the company’s $100 million in cash at the end of September is more than triple its current market value of just $31.6 million. That means the management-led group behind the new buyout offer could easily finance the entire deal simply using the company’s existing cash.
The offer, which was announced on Tuesday, comes from three entities, one controlled by iClick co-founder and Chairman Tang Jian, and another controlled by co-founder Sammy Hsieh. The consortium offered to buy all of the company’s American Depositary Shares (ADSs) for $4.0672 apiece, representing a rather piddly 2.6% premium to their closing price of $3.95 the day before the deal’s announcement.
If we look at iClick’s closing price of $5.01 just a day earlier, the offer actually represents a nearly 20% discount to that price. That suggests that word of the deal may have leaked into the market a day before the announcement, sparking a selloff as investors smelled a rat.
The selloff continued the day after the announcement, with iClick shares falling 10.6% on Tuesday and continuing to sag for the rest of the week. All told, the stock lost roughly a third of its value in the first four trading days of this week – hardly a great holiday present for investors. But the drop, which has left iClick’s shares now trading 20% below the offer price, certainly suggests investors aren’t at all confident that they will get a good deal from this buyout attempt.
To understand investor skepticism, we’ll travel back just over a year to recount the earlier two buyout offers that we mentioned.
The first came in September last year and saw Asia-focused private equity firm PAG and Oasis Management Co., a Hong Kong-based activist hedge fund, offer to privatize iClick for the equivalent of $67.50 per share, representing a 20% premium to the company’s price at the time. The second came less than a month later and saw another company called Infinity Equity Management offer to privatize the company for the equivalent of an even higher $75 per ADS.
The company issued a statement after the second offer saying a committee consisting of its four independent directors would study both bids, as well as “other potential strategic alternatives.” It also hired the respected Japanese investment bank, Nomura, as its financial advisor.
No public reply
While those two offers both looked quite promising, iClick never issued any formal reply saying its board had accepted or rejected the proposals. That means the company either rejected the proposals without saying so publicly or simply chose to ignore them.
The reason for such action was probably related to the company’s shareholding structure, which basically made any deal impossible without support from the two co-founders behind the latest offer, Tang Jian and Sammy Hsieh. That pair collectively hold about 10.7% of the company’s stock, split roughly between the two of them. But much of that stock is special shares with super-voting powers, collectively giving the two 63% of iClick’s voting rights.
Accordingly, even if the independent committee recommended that the company accept one of the original two buyout deals, Tang and Hsieh could have easily vetoed the recommendation due to their huge voting power. By the same logic, the latest deal seems almost certain to get approved since Tang and Hsieh are two of the three parties making the bid. Never mind that the pair only hold 10.7% of the company’s actual stock.
This kind of setup is one of the biggest risks that come with investing in many Chinese companies, whose founders often exercise voting control that is far larger than their actual stock holdings. As a result, they can force through the kind of buyout offer iClick’s co-founders are now proposing, even if the company has received better offers recommended by independent advisors.
Truth be told, iClick probably would be better out of the public eye these days anyhow, even if minority investors don’t get a great deal from this latest privatization bid. That’s because Chinese companies that are iClick’s main customers are slashing their marketing budgets left and right these days as the country’s economy rapidly slows.
iClick’s latest results show its revenue tumbled 53% to $41 million in the third quarter, led by a 62% decline for its core marketing solutions business which accounts for nearly two-thirds of its revenue. As a result, its net loss for the quarter widened to $19.4 million from $2.6 million a year earlier. And even on an adjusted basis, which excludes some non-cash items like share-based compensation, the company swung to a $10.2 million loss from an $827,000 profit a year earlier.
As we’ve already noted, the company had about $100 million in cash at the end of September, which was actually up from $88.7 million at the end of 2021.
Given the gloomy business environment and skepticism about the latest buyout offer, it’s not too surprising that iClick’s shares currently trade at an anemic price-to-book (P/B) ratio of just 0.17. The recently listed Many Idea Cloud (6696.HK) trades at a much healthier P/B ratio of 1.95, while search giant Baidu (BIDU; 9888.HK), which derives the bulk of its revenue from similar marketing services, also trades much higher at 1.20 times.
Disclosure: None
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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