Abax wins board approval for Fushi Copperweld MBO
Abax Global Capital has finalized a $363.8 million buyout of US-listed Chinese wire manufacturer Fushi Copperweld in alliance with company management. The transaction has taken about 18 months to close and represents Abax’s second successful take-private deal, following Harbin Electric last year.
The Fushi board has approved an offer from Li Fu, its chairman and co-CEO, and Abax, of $9.50 per share, which represents a premium of 21% on the stock's closing price on Thursday. It is lower than the initial bid of $11.50 made in 2010, but above a revised offer of $9.25, which was submitted last November.
Based on the total number of shares outstanding as of May 4, the deal values Fushi at $363.8 million. Fu, Abax and their affiliates currently own 29.4% of these shares. According to the chairman of the special committee appointed to review the bid, Fu and Abax have secured debt financing from China Development Bank's Hong Kong branch. It is the same source of capital as used for the Harbin Electric deal.
The transaction is expected to close in the fourth quarter, pending shareholder approval. Bank of America Merrill Lynch served as financial advisor to the special committee, with Gibson Dunn providing legal support. Fu and Abax were advised by Skadden Arps and Weil, respectively, while Loeb & Loeb worked with Fushi.
The company's stock closed down 1.88% at $7.85 on Thursday, but shot up 12.10% in after-hours trading. Nevertheless, it remains significantly below the $9.50 offer price, arguably a reflection of investor uncertainty about the deal going through.
Since April 2010, 30 US-listed Chinese companies have announced take-private deals, 14 of which have now closed, two of which terminated and 14 of which are still in progress. Eight of the 30 are private equity-backed management buyouts. In addition to Abax and Harbin Electric, successful PE-backed management buyouts (MBOs) include Bain Capital and China Fire & Security, Primavera and Chemspec International, and PAG and Funtalk China.
Most of the companies targeted listed in the US via reverse mergers. After financial inconsistencies were uncovered in filings made by several firms, short-sellers and hedge funds have begun to scrutinize many more, searching for weaknesses. Stocks have fallen across the board, prompting management teams to consider privatizations with a view to relisting in Asia, although transactions are challenging to execute.
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