Take-private deals for China's 7 Days, Feihe near completion
Chinese budget hotel chain 7 Days Group Holdings is set to be privatized after shareholders voted in favor of a PE-backed management buyout that values the company at around $688 million. A $147 million privatization of Chinese dairy firm Feihe International by a consortium that includes Morgan Stanley Private Equity Asia (MSPEA) has also received the green light from shareholders.
In March, the 7 Days board accepted a buyout offer from its co-chairmen, Boquan He and Nanyan Zheng, and three private equity investors. Two PE firms, The Carlyle Group and Sequoia Capital, were initially backing the deal but exisitng investor Actis Capital has decided to roll over its holding into the acquisition vehicle.
The buyer consortium will pay $13.80 per American Depository Share (ADS), a 30.6% premium to the last close prior to the submission of the offer on September 25. The initial bid was $12.70 per share.
The transaction will be financed through a combination of cash contributions from Carlyle, Sequoia, Actis and He and a $120 million loan facility provided by Cathay United Bank, Chinatrust Commercial Bank, Nomura International, Ta Chong Bank and Taipei Fubon Commercial Bank.
In 2008, Actis China and Warburg Pincus Asia invested $65 million for an undisclosed stake in 7 Days. Warburg also put in $25 million in 2006 and 2007. As of March, Actis and Warburg owned 11.6% and 16% of the company, respectively, while co-chairmen He and Zheng together hold 32.7%. Shareholders participating in the roll over collectively own 50.16%.
The Feihe bid, meanwhile, was submitted by You-Bin Leng, the company's chairman, and MSPEA last October and won board approval in March. The buyers will pay $7.40 per share for all outstanding shares not currently owned by Leng - a 21.3% to premium to the last close before the bid was made.
The transaction will be funded with $36.26 million in equity - $28.1 million from MSPEA and the rest from Leng - and a $50 million term loan facility from Wing Lung Bank and Cathay United Bank.
The 7 Days and Feihe deals will take the number of successful PE-backed privatizations of US-listed Chinese companies to 10 in two years, with half of these coming in the last three months. The most recent was Focus Media, which at $3.7 billion is the largest buyout ever completed in China.
AVCJ has records of 11 more transactions involving private equity still in process. Five have already received board approval.
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