PAG backing takes Funtalk China private

Among those looking into privatization options is a host of chairmen and CEOs who see their stock valuations dwindle on US exchanges while broadly comparable Hong Kong-listed firms are still flying high. One Hong Kong lawyer, who works with a number of private equity firms, tells AVCJ he is currently working on four deals and doesn't expect interest to dwindle.

Funtalk is a NASDAQ-listed company that controls Chinese subsidiaries involved in the distribution and retail of mobile phone handsets, accessories and content. It was confirmed last week that Funtalk will issue $150 million in convertible preferred securities and $100 million in convertible bonds to PAG. The private equity firm also has the option to invest an additional $80 million in convertible bonds on the same terms over the next five years.

PAG's investment comes shortly after Funtalk's board voted to approve a management buyout offer led by chairman Kuo Zhang and CEO Dongping Fei alongside Hengyang Zhou, executive president of the company's mainland subsidiary, and Francis Kwok Cheong Wan, senior vice president of corporate investor relations. They are part of a consortium that includes PAG subsidiary ARCH Digital Holdings and GM Investment.

The consortium - which has created an acquisition entity called Fortress Group - made a cash offer of $7.10 per share on March 25, a 15% premium to the previous day's closing price. About a month later it increased the offer to $7.20 per share. According to media reports, the deal values Funtalk at around $430 million. As part of the transaction, Weijian Shan, chairman and CEO of PAG, will join the Chinese firm's board.

Funtalk joined NASDAQ in December 2009, having gone public in the US through a reverse merger five months earlier. This process, whereby a dormant listed vehicle is purchased and assets are injected into it, has proved popular with Chinese firms as it is quicker and cheaper and involves less regulatory oversight than an IPO.

But a number of reverse merger firms have been caught up in accounting scandals, prompting short sellers to probe for weaknesses in all such companies, and causing a decline in share prices across the board. Management teams are left with a choice between trying to reinvigorate their stock through share buybacks and third-party PIPE deals or launching a privatization bid.

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• Topics
• Greater China
• Media
• Technology
• Buyouts
• PAG