China's Tencent bids to buy up travel site eLong as mobile bookings boom
Chinese internet titan Tencent Holdings has proposed acquiring any remaining shares in mobile and online travel services provider eLong that it does not yet own, a development that could fan another round of speculation over the potential delisting of more Chinese companies in the United States.
The bid to take Nasdaq-listed eLong private was made on Monday through TCH Sapphire, a wholly owned subsidiary of Tencent, and certain members of eLong's senior management.
"We expect potential new acquisitions to be made by large internet companies, like Tencent, on smaller players in the market," Ricky Lai, a research analyst at Guotai Junan International, told the South China Morning Post on Tuesday.
"Initial public offerings have been halted in China because of the stock market crisis, so the situation has created an opportunity for these major internet companies to look at possible new investments," he added.
Tencent offered a purchase price of US$18 cash per American depositary share of eLong, each of which represents two ordinary shares in the company.
That price represents a 24.1 per cent premium on the closing price of eLong on Friday, when it stood as US$14.50.
"Our proposal is conditioned upon the major shareholders in the company accounting for at least 70 per cent in voting power of the company agreeing to support, and to roll their existing equity in the company, into the transaction," Tencent’s chief strategy officer James Mitchell said in the proposal letter Monday.
Tencent, through TCH, currently controls 11.07 million shares of eLong, representing about 15 per cent of the aggregate voting power in the company.
The other large shareholders include Chinese online travel agency Ctrip as well as hotel chain operators Keystone Lodging Holdings and the Plateno Group.
According to the proposal letter, Tencent intends to finance the proposed transaction with a combination of new and rollover equity capital funded by the company, certain members of eLong's senior management, and the majority stockholders.
"We do not anticipate requiring debt financing to consummate the transaction," Mitchell wrote.
The eLong board said it will form a special committee composed entirely of independent directors to consider Tencent's buyout proposal. The committee will retail legal and financial advisors to help evaluate the deal.
Beijing-based eLong announced Tencent's proposal to go private on Monday on the Nasdaq stock market after reporting its financial results in the quarter ended June 30.
The mobile and online travel services provider posted a net loss of 356.4 million yuan (US$57.3 million) in the second quarter, compared with a net income of 31.5 million yuan in the same period last year, due to higher operating costs.
Total operating expenses in the second quarter rose 85 per cent to 461.4 million yuan, up from 249.6 million yuan a year ago. That was mainly due to a 324 per cent increase in general and administrative costs to 155.5 million yuan, compared with 36.6 million yuan the previous year.
Net revenue for the second quarter decreased 25 per cent to 218.5 million yuan, down from 312.4 million yuan a year earlier.
"We are facing stiff competition in China," eLong chief executive Jiang Hao said.
He said the company will focus and invest more on its mobile product offerings.
Tencent's offer to take eLong private has come after an apparent pause in privatisation proposals for US-listed Chinese companies amid the stock market crisis in China.
Prior to that, "valuations [in China] are at their highest in years", Lai said.
Internet security services provider Qihoo 360 Technology, social network operator Renren and internet data centre provider 21Vianet Group -- all US-traded companies -- received proposals to go private before the recent stock market crash in China.
Online game developers Perfect World and Shanda Games both agreed to delist from the US earlier this year.