China’s Zhongpin seen as potential PE target
Chinese pork processor Zhongpin has been tipped as a potential target for private equity investors. Tim Tiberio, an analyst at Chardan Capital Markets, said that the long-term opportunity for consolidation in China’s food processing industry “is too attractive for Zhongpin not to attract either a private bid or investment from an international partner.”
Tiberio told Bloomberg that, in addition to exploring business relationships with the likes of Tyson Foods and Hormel Foods, Zhongpin's management might be considering a take-private deal. Tiberio has a "buy" rating on the stock.
Per capita pork consumption in China was 38 kilograms in 2010 compared to 32.3 kilograms in 2007, an increase of 18%, according to the US Department of Agriculture. But Zhongpin's NASDAQ-listed stock closed at $8.23 on Friday, having fallen 60% since the start of the year.
Zhongpin started out on the OTC because it listed in the US through a reverse merger, purchasing a dormant company that already traded in the US and inserting its own assets into the corporate structure. This process has proved popular with Chinese companies because it is cheaper and easier than a full IPO and involves less regulatory oversight.
However, a number of reverse merger firms have since exposed for overstating revenues, exaggerating market positions, and shifting cash off the books through related-party transactions. Short sellers and hedge funds are scouring the US exchanges for accounting weaknesses in other firms and, as a result, nearly all mid-cap US-listed Chinese stocks have taken a hit.
In several cases, company management teams are seeking to de-list from US exchanges, often with private equity backing. As of July, eight firms were considering offers from management and four have received board approval. The most recent is Harbin Electric, which is supported by Abax Global Capital.
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