BITA - Bitauto

[writser]

Ok, here I am with another shitty Chinese merger. Though I think this one might be slightly less shitty than previous deals. First of all, credits are due: 'punchcardtrader' on VIC wrote a nice write-up a few weeks ago. Check it out here if you have an account. I don't have much to add, expect for the fact that I think today is an opportune day to enter a position. And that it's something to keep an eye on given the market's obsession with the Corona virus.

 

Executive summary: Bitauto is an online car market place (like cars.com or whatever they have in the US). They also own a 43% stake in Yixin, listed in Hong Kong. Yixin is an online 'automobile finance transaction platform'. Tencent owns a ~8% stake in BITA and a ~20% stake in Yixin. Tencent made a preliminary offer to buy Bitauto for $16 / share, presumably to take control of Yixin and add it to their offerings (maybe they are interested in the Bitauto platform too). When they succeed in taking over Bitauto Tencent will own >50% of Yixin and has to make a mandatory offer to Yixin shareholders as well.

 

Anyway, the idea is very simple. Chinese 'preliminary merger proposals' often trade at a large discount because they get cancelled, adjusted downward, delayed, etc, etc. On top of that you now have the Corona virus panic. This resulted in BITA trading, this morning, at a 10% discount to the offered price. I thought that was attractive because:

 

- I think we are at peak Corona panic and I think it is super unlikely that a mega pandemic will derail this deal.

- Tencent is a big company, trading in the US, that presumably cares a little bit about its reputation and wants to make a strategic acquisition. I think it is far more unlikely that they will, for example, pull their offer or lower the price than the average Chinese chairman who wants to take his company private to relist in Hong Kong or whatever.

- The buyer is Tencent. Financing is absolutely not a problem, chump change for them.

- Tencent already has voting agreements with multiple other shareholders, owning ~55% together. This basically seems a done deal.

- The preliminary offer was timed opportunistically, at a small premium to where Bitauto was trading (and it was trading around a five-year low). Downside if the deal breaks seems limited. Also, a small price bump doesn't seem completely off the table to me.

 

CYOU (Changyou.com limited) is a somewhat similar deal that is currently in progress. There is already a definitive proposal there. Note that the buyer was SOHU, another large, US-listed Chinese company. CYOU also traded at a relatively large discount for a while after an initial proposal was filed. In the end the final deal price was even a tiny bit higher than the initial proposal.

 

Anyway, to get back to BITA: ~10% upside, downside seems limited, deal should be able to close in 6 months or something. Of course it is a bit risky: no final deal yet so you could get fucked. I bought a few shares this morning. It's currently trading at a ~8% discount, slightly less attractive but still not too bad. Again, read the VIC writeup if you are interested, it's good. Finally, note that Yixin (2858:HK) itself might also be an interesting opportunity. If the BITA deal succeeds there will be a mandatory tender offer at an, as of now, undisclosed price.

[DW1234]

About the Yixin mandatory offer:

 

IMO Tencent is clearly meaning to buy a majority stake in Yixin through BITA, it doesn't look like this is a coincedental side-effect of buying BITA. They already own a 24.3% stake in Yixin, so I'd say they are really interested in Yixin. So Tencent knows they'll have to make a mandatory offer for Yixin. It seems unlikely they wouldn't have discussed this entire roadmap with JD before their preliminary proposal for BITA. This would make the scenario of Tencent bidding < $2 for Yixin more unlikely.

 

What I also like about Yixin is that the current price roughly equals the price before the BITA deal was announced. So downside risk seems limited.

[Tuxedostyle]

Nice timing here. I've also bought some shares on the recent spread widening. Quite interesting that even before this Corona virus effect, BITA used to trade at 4-5% discount, which seems wide given the credibility of the buyer and a strong shareholder support (founder & chairman too).

 

Also JD.com said that they won't accept the mandatory offer for Yixin unless if it is price at less than HKD$2/share, which currently would imply over 20% upside.

[writser]

Quite interesting that even before this Corona virus effect, BITA used to trade at 4-5% discount, which seems wide given the credibility of the buyer and a strong shareholder support (founder & chairman too).

Well, there is the issue of the timeline. If it takes 6-9 months and there is a little bit of uncertainty I wouldn't say a 4% discount is very attractive.

 

I agree with both of you that JD.com having a large stake in Yixin and not accepting a <$2 HKD offer is probably a good thing for other Yixin shareholders. Should reduce the chance of any shenanigans happening. BITA is up ~3% since my buy and is now trading at a ~6% discount. In the same timeframe Yixin is down ~7% and is trading below the pre-announcement price. That seems very strange to me. Maybe I am missing some fundamental news on either company. But as far as I can see there are no news releases / filings by either company and given that I'd say they should more or less trade in lockstep.

 

So after some deliberation I bought Yixin and trimmed my BITA position. It's more uncertain what will happen here and it will probably take more time to play out but the downside seems limited and the upside seems far more compelling (23% if we assume a HK$2 offer!). I will probably make a complete switch.

[Tuxedostyle]

Maso Capital has bought a 5% stake in BITA. A positive sign. I like how they've recently played with CYOU deal.

[Foreign Tuffett]

The recent Yixin filings in HK make me skeptical this deal gets done at the $16 price

 

Early February filing:

 

"The Board wishes to update the Shareholders, other securities holders and potential investors of

the Company that, as informed by the Consortium, the Consortium’s due diligence review through

its professional advisers on (i) Bitauto for the purposes of the Proposed Transaction and (ii) the

Company and its subsidiaries for the purposes of the Possible Offer, is still ongoing, and no

decisions have yet been made with respect to Bitauto’s response to the Proposed Transaction."

 

https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0206/2020020600498.pdf

 

As compared to the language from the filing earlier this month:

 

"the Consortium’s due diligence review through its professional advisers on (i) Bitauto for

the purposes of the Proposed Transaction and (ii) the Company and its subsidiaries for the

purposes of the Possible Offer, is still ongoing, and in light of the recent outbreak of the

novel coronavirus (COVID-19), more time is required to conduct the due diligence review

including, among other things, reviewing the more recent financial statements of each of

Bitauto and the Company when they can be made available to the Consortium; and

 

the Consortium has been negotiating the terms and conditions of the Proposed Transaction

with the Special Committee, and no decisions have yet been made with respect to Bitauto’s

response to the Proposed Transaction."

 

https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0306/2020030600407.pdf

[writser]

Well, it was an extremely bumpy ride but a definitive deal is now on the table: http://ir.bitauto.com/news-releases/news-release-details/bitauto-enters-definitive-agreement-going-private-transaction . $16 / ADR. Closing in H2 expected. Not immediately clear to me what they will subsequently pay for Yixin but I doubt it will be much more than HK$2.

[Jurgis]

Well, it was an extremely bumpy ride but a definitive deal is now on the table: http://ir.bitauto.com/news-releases/news-release-details/bitauto-enters-definitive-agreement-going-private-transaction . $16 / ADR. Closing in H2 expected. Not immediately clear to me what they will subsequently pay for Yixin but I doubt it will be much more than HK$2.

 

Congrats Writser if you held. I sold somewhere on the way. Probably while drunk on the shoulder of the road.

[writser]

I held .. Can't give myself too much credit - if I had any conviction I should have bought more in March / April.