AsiaInfo-Linkage buyout: a lawsuit magnet

A flood of threatened lawsuits against AsiaInfo related to its pending buyout offer mean the bidding could be reopened, resulting in a higher offer price

PUBLISHED : Thursday, 16 May, 2013, 12:28pm
UPDATED : Thursday, 16 May, 2013, 12:28pm

I've been following China company news for quite a while, so I'm quite accustomed to seeing law firms file the occasional shareholder lawsuit when a company's stock price falls on unexpected bad news. But a flood of announcements these last few days threatening lawsuits related to the new buyout offer for telecoms software maker AsiaInfo-Linkage (Nasdaq: ASIA) has surprised even me, potentially derailing the deal as suspicion grows of insider activity.

At the end of the day, all of the law firms that have suddenly taken an interest in this case may simply be hoping to get a higher price for the company, which received a buyout offer earlier this week from a group led by the private equity arm of Chinese financial conglomerate Citic Group. Citic had first expressed an interest in buying out AsiaInfo more than a year ago, but took quite a while to finally reach a deal. When that finally happened, the offer price offered little or no premium to AsiaInfo's latest share price, even though that price was well above levels from when reports first emerged about a potential buyout.

No actual lawsuits have been filed yet, but at least six law firms have publicly stated they are investigating the offer, which would see the Citic Capital group purchase AsiaInfo shares for US$12 each. AsiaInfo's New York-listed stock actually fell slightly to US$11.60 after the report came out, and have remained at about that level ever since.

I won't list all the various law firms that have issued statements saying they are investigating the case, since the names of most such firms will be meaningless to most people. The latest of those is typical of the group, coming from one named Harwood Feffer. The law firm says it is investigating whether AsiaInfo's board obtained the best possible offer price for the company, which is the latest in a growing number of US-listed Chinese firms to get such buyout offers.

I honestly can't comment too much on the pricing of this deal, which values AsiaInfo at about US$900 million - less than half of what it was worth just three years ago when Chinese tech firms were still a darling of US investors. But I do have to say there are some unusual signals around the deal that perhaps are making some investors suspicious.

Whereas most of the buyout offers so far for firms like Camelot Information Systems (NYSE: CIS) and Simcere Pharmaceutical (NYSE: SCR) have come from management-led groups, this AsiaInfo buyout offer comes from an unrelated outside bidder. That bidder also happens to be a major Chinese conglomerate with strong state connections. At the same time, one of AsiaInfo's major stakeholders is Edward Tian, who owns nine per cent of the company and is also a well-connected player in China's tech, media and telecoms industries.

Frankly speaking, I would have suspected that Tian may have used his connections to get an inflated offer for AsiaInfo from Citic, since such an offer would have benefited him personally through his big holdings in the company. But clearly these law firms think the Citic offer is artificially low, and it's quite possible they've been tipped off by other suitors who are unhappy after losing out in the bidding.

Shortly after the Citic bid was announced last year, AsiaInfo said it had hired a financial adviser to help it look for other bidders. Reports emerged at that time that private equity giants Silverlake and TPG were among other potential firms interested in launching counter bids. Whatever the reason for this flood of menacing law firm announcements, I suspect that this sharply negative reaction means the AsiaInfo buyout story isn't finished just yet. Accordingly, we could well see the deal reopened to other bidders who are willing to pay a bigger premium for the company.

Bottom line: A flood of threatened lawsuits against AsiaInfo related to its pending buyout offer mean the bidding could be reopened, resulting in a higher offer price.

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