Chinese pork producer Zhongpin agrees PE-backed take-private

Two companies controlled by Zhu and his co-investors, Golden Bridge Holdings and its wholly-owned unit Golden Bridge Merger Sub, will pay $13.50 per share for the 74% of Zhongpin that they don't already own. The offer represents a 47% premium to the company's closing price on March 26, the day before the Zhu submitted his bid.

The investor group has secured $85 million in equity financing from a private equity vehicle called China Wealth Growth Fund I while China Development Bank (CDB) will provide a $320 million loan facility. Under the terms of the agreement, Zhongpin has until January 25 to solicit other bids.

Zhongpin is essentially a cold chain logistics company. It sources fresh and frozen meat and fruit and vegetables from local suppliers, processes the products, and transports them to the end distributors. Its network covers about 3,400 retail outlets in 20 provinces. Sales revenue reached $1.45 billion in 2011, up 54% year-on-year, while net income increased 10% to $64.2 million.

Low valuations among small- to mid-cap US-listed Chinese companies, in part driven by a spate of accounting scandals in the past couple of years, have prompted chairmen and owners to consider privatizations, often with a view to re-listing on an Asian bourse. Private equity investors often participate as execution partners and capital providers.

Zhongpin is incorporated in Delaware and Golden Bridge Merger Sub, the vehicle created to facilitate the merger, is registered in the same jurisdiction. However, Golden Bridge Holdings is a Cayman Islands company, which suggests that Zhu ultimately has his eye on a re-listing in Hong Kong. It is far easier for Cayman-incorporated companies to list in the territory than those from Delaware.

Prior to the Zhongpin announcement, 46 transactions have been announced since 2010, 17 of them involving private equity. However, an announcement is no guarantee of a closure: only four of these PE-backed deals have been completed as of October, data from AVCJ Research and Roth Capital Partners show.

Skadden Arps is legal advisor to the buyer and Credit Suisse is their financial advisor. O'Melveny & Myers and Akin Gump and are providing legal counsel to Zhongpin and the board-appointed special committee, respectively.

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• Topics
• Buyouts
• Greater China
• Consumer
• buyout
• USA
• China Development Bank
• China