The last twelve months has seen a wave of management buyouts of US publicly traded companies with Chinese operations. These companies, referred to in this article generally as “Chinese companies”, were previously listed on the NYSE, the NASDAQ or other exchanges and have been taken private by the companies’ own chairmen and management, in some instances backed by private equity financing and/or debt financing.
The reasons for conducting a take-private transaction vary. A number of Chinese companies have struggled with the reporting requirements of the Securities and Exchange Commission (the “SEC”) under the US Securities Exchange Act of 1934 (the “Exchange Act”) and corporate governance standards under the Sarbanes- Oxley Act. Some companies believe that by being listed abroad, they do not benefit from brand awareness, and thus their shares suffer from low trading volume and low p/e multiples. Evidence suggests that these companies’ shares typically trade at a significant discount compared to their peer companies listed on the Chinese and Hong Kong stock exchanges. In many of these transactions, it is anticipated that once privatised, these companies will likely look for better listing opportunities closer to home in the medium term.
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