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Monday, May 30, 2016

Wanda's $4.4 bln buyout bid is just good enough

Wanda's $4.4 bln buyout bid is just good enough Wang Jianlin, chairman of Dalian Wanda Group, poses for a photo during an interview at his office in the company's headquarters in Beijing December 3, 2012

Dalian Wanda Commercial Properties, the property arm of Dalian Wanda Group, made an offer to buy out its Hong Kong listed shares valuing the company at HK$34.45 billion ($4.4 billion).

The cash offer of HK$52.80 per share represents a 44.5 percent premium to the unit’s closing price on March 29, the day before Wanda Group first announced its intention to make an offer.

The deal, if completed, would result in the privatisation and delisting of China’s largest commercial property developer.

In March, DWCP said its parent would not offer less than HK$48 in cash per share, the same price at which it went public in December 2014.

Privately-held Dalian Wanda Group, led by Wang Jianlin, currently holds a 43.7 percent equity stake in the property unit.

Shares of Wanda Commercial Properties were trading down 2.4 percent at HK$48.75 by early afternoon Hong Kong time on May 30.

DWCP said last July that it planned to raise up to $1.9 billion through an issue of A-shares on the mainland. The company at the time said it planned to retain its Hong Kong listing of H-shares.

Wang Jianlin is offering his property firm’s Hong Kong investors a stingy 10 pct premium to the IPO price 17 months ago. The Chinese tycoon will pocket better returns if it relists on the mainland. Yet while minority investors have reason to hold out, doing so would be risky. Wang Jianlin’s $4.4 billion buyout bid may be just good enough. The Chinese cinema-to-theme parks tycoon has made an offer to take Dalian Wanda Commercial Properties private barely 17 months after the flagship real estate arm of his Wanda empire listed in Hong Kong. Though independent investors could hold out for more, doing so would risky.

Wang is offering to pay HK$52.80 per share in cash for the Hong Kong shares, which account for almost 15 percent of the total outstanding. That is a stingy 10 percent more than the price at which the company went public in December 2014, though it still beats the performance of the local Hang Seng Index, which has fallen 11.4 percent over the same period. What’s more, Wanda’s shares have traded below their IPO price for roughly half the time since their debut.

There are two ways Wang could pocket a big return from buying out the group that has ambitions to roll out another 50 shopping malls in China this year. Take the group private at the offer price, assume 47.16 billion yuan of operating profit in 2018 - based on Eikon estimates - and a 26 percent tax rate, and the annual post-tax return would be almost 11 percent.

If Wang manages to follow through with a listing on the mainland, which he is eyeing within two years, then he could do even better. Property developers listed in Shanghai or Shenzhen currently enjoy a massive premium to their Hong Kong peers: China Vanke and Greenland Holdings trade at over twice Wanda’s earnings multiple.

Wang says the offer is final. Under local rules, that prevents him from immediately making another bid if independent shareholders vote this one down. They can block the deal with just 10 percent of the Hong Kong stock - a threshold within reach of activist investors. But before doing so they must consider the risks of ending up as minority owners of a business where the majority shareholder has little incentive to unlock any value. It looks like Wang may have offered just enough.

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