Heng Ren: China Automotive (NASDAQ: CAAS) Bid 47% Below Book Value

Published on October 10, 2017 2:10 PM

(SI Newswire) BOSTON, Massachusetts -- A Chairman’s proposal to buy out shareholders of China Automotive Systems (NASDAQ: CAAS) at a price 47% below its book value – virtually unprecedented in a management buyout – needs to be at least doubled to fairly compensate patient shareholders.

"CAAS Chairman Hanlin Chen’s buyout offer is woefully inadequate, unrealistically pessimistic about CAAS' outlook, and defies logic," stated Peter Halesworth, Managing Partner of Heng Ren Partners LLC and a CAAS shareholder, who wrote a letter to CAAS' Special Committee challenging the bid price. "Paying half of what patient shareholders deserve - after years of sacrificing cash returns so CAAS could invest and expand into a market leader - is the ultimate betrayal. It gives Chinese companies a bad name with U.S. investors."

CAAS is China’s leading domestic producer of power steering components, the world’s largest automobile market by sales. CAAS achieved this by investing more than $259 million of shareholder cash during its 13 years as a public company in U.S. stock markets, which now has a market capitalization of $167 million.

Patient shareholders who have sacrificed short-term cash returns for a long-term payoff of growth, dividends and stock value appreciation are now being abruptly squeezed out – fed a lowball bid by the Chairman less than half of CAAS’ fair value.

"The value of CAAS is plain to see," Halesworth stated. "If the Special Committee appointed by the Board to evaluate the bid, and their legal (Kirkland & Ellis) and financial advisors (Houlihan Lokey) are rubber-stamping "yes men," they are willfully blind and risking their professional reputations for this flawed proposed transaction."

To justify Chairman Chen's lowball $5.45 per share offer, CAAS' revenue growth would need to sharply decelerate by 2/3s, its net margins collapse by nearly half, and it would lose money in the rest of 2017.

In fact in the first half of 2017, CAAS' revenue growth rate accelerated, margins expanded, and profitability significantly improved.

"The proposed lowball bid bizarrely forecasts a calamity," Halesworth said. "This is unrealistically pessimistic. It defies logic. CAAS also warned of tragedy in 2016 with a recall that ended up being a relatively minor, and short-lived, loss."

Halesworth predicted Chairman Chen’s lowball bid would be challenged by litigants seeking fair value in the Chancery Court of Delaware.

"If the Special Committee, aided by Kirkland and Houlihan, close their eyes to the facts and rubber stamp this transaction, rational shareholders won’t stand by and allow this to proceed unhindered," Halesworth stated. "The real calamity is the lowball bid denying shareholders hundreds of millions of dollars in value they deserve to be compensated fairly and approve this buyout."

Please see the links to the October 10 letter to CAAS’ Special Committee in English and Chinese:



***** END *****


Peter Halesworth
Managing Partner
Heng Ren Partners LLC