New Oriental comments fuel privatisation talk
Recent remarks by New Oriental's CEO and rumours of buyout talks mean the company could launch a privatisation bid by the end of this year
Such a bid would follow similar recent privatisation plans by IT services firms Camelot Information Systems (NYSE: CIS) and Pactera (Nasdaq: PACT), and by drugmaker Simcere Pharmaceutical (NYSE: SCR). All of these companies have one thing in common: their stocks now trade at a fraction of their levels from two years ago when the confidence crisis against US-listed Chinese stocks began. Many of the companies complain that they are being unfairly punished for the misdeeds of other Chinese firms, and that their shares remain undervalued despite their relatively strong earnings and good growth prospects.
New Oriental certainly fits that description. The company's stock moved as low as US$15 earlier this year, compared with highs above the US$30 level as recently as 2011. Its shares have risen a bit in the last two months and now trade at about US$22, perhaps at least partly on speculation that the company may soon announce a privatisation bid.
Since then, the company's shares have rebounded somewhat but are still well below their previous highs. At the same time, New Oriental is starting to post some solid results again after a period of retrenchment to close underperforming schools. Still, the attacks last year and broader investor skepticism towards Chinese companies clearly continue to haunt Yu, which is probably what led him to make his remarks about regretting taking his company public.
In this case we do know that there are some cash-rich private equity companies looking to help finance these kinds of privatisations, with the names Sequoia Capital and Carlyle coming up frequently in such discussions. Accordingly, I wouldn't be surprised if New Oriental is indeed in discussions to help fund such a privatisation, which would be relatively pricey since New Oriental now has a high market value of US$3.4 billion. Carlyle helped to fund a similar-sized buy-out recently for outdoor advertising specialist Focus Media (Nasdaq: FMCN), and I would be surprised to see a privatisation plan announced for New Oriental before the end of this year.
Bottom line: Recent remarks by New Oriental's CEO and rumours of buyout talks mean the company could launch a privatisation bid by the end of this year.
To read more commentaries from Doug Young, visit youngchinabiz.com