Chinese Estates ends buyout discussions over price concerns

PUBLISHED : Thursday, 02 August, 2007, 12:00am
UPDATED : Thursday, 02 August, 2007, 12:00am

Chinese Estates Holdings has halted negotiations with hedge funds and private equity groups over a possible acquisition after failing to agree on the price.

The mid-tier property developer said last night that talks with all parties were ended because 'terms of potential transaction resulting from expressions of interest were not deemed suitable for further consideration'.

Chinese Estates was asking as much as HK$17 a share, the sources said, after originally seeking HK$20 or more a share.

The HK$17 a share represents a 22 per cent premium to the HK$13.98 the company's shares closed at yesterday.

However, that was still more than the HK$14 to HK$15 a share potential buyers were willing to pay, sources said.

Hedge funds including The Children's Investment Fund Management (TCI), Chinese Estates' second-largest shareholder, Och Ziff Management, Marathon and Fortress Investment Group, were looking at ways to buy the company through a joint bid, other sources said.

The consortium could also have included United States buyout firm Texas Pacific Group, a source said.

That bid faltered when bankers declined to provide the 4.5 times leverage that the consortium was looking for and proposed a more modest two times leverage.

Chinese Estates shares hit a 13-year high of HK$13.56 in May after the Laus tried to privatise the company at about HK$15 a share, valuing the company at HK$30 billion.

That deal failed when TCI refused to agree, saying the price undervalued the company, sources said. Joseph Lau Luen-hung at the time said a shareholder had demanded HK$3 to HK$4 per share more than what was offered.

TCI boosted its stake in the company to 8.1 per cent on July 7 from 7.86 per cent. Joseph Lau owns 47.29 per cent and his brother Thomas Lau Luen-hung owns 6.64 per cent.

'What might be going on is that the Laus can go to TCI and say 'Look, we've tried to sell the company but couldn't get it done' then they sweeten the privatisation offer by a few dollars a share and take the company private that way,' said one market observer.

Deutsche Bank analyst Adrian Ngan estimates the company has a net asset value of HK$20 per share while Kim Eng Securities analyst Alvin Wong says that figure is more likely to be HK$18.90.

Chinese Estates is expanding into Macau and the mainland, two rapidly growing markets.

It bought three sites in the western city of Chengdu in the mainland last year, involving an investment of between HK$4 billion and HK$6 billion.