Bain’s Chindata buyout saga verges on absurd

Chindata group

13/07/2023 07:47

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Antony Currie
       MELBOURNE, July 13 (Reuters Breakingviews) - What’s a
private equity firm to do when a company it took public and
still controls performs poorly on the stock market – despite
having all the makings of a rosy future? The unwritten rule book
says buy out the other shareholders for less than you listed it
for and aim to make more money from a sale later. On first
blush, that appears to be what Bain Capital  BCSF.N  is trying
to do with Chinese data centre operator Chindata  CD.O . But
it’s a saga that’s starting to verge on the absurd.
    Bain took Chindata public on the Nasdaq in September 2020.
Less than three years later, the U.S. leveraged buyout veteran
offered $8 per American Depositary receipt, valuing the company
at $2.9 billion. While that was a 33% premium to the undisturbed
price, it was 41% below Chindata’s initial public offering
price, and two-thirds below the stock’s peak at the end of 2020.
    Yet Chindata has been growing at a fast clip, with EBITDA up
67% both 2021 and 2022 and expected to rise by more than a fifth
in each of the next three years. Beijing’s regulatory crackdowns
on the technology sector, a slowing economy in the People’s
Republic and concerns U.S.-listed Chinese companies might get
booted off America’s bourses all played a role in the
disconnect. As, too, might Chindata’s heavy reliance on
TikTok-owner ByteDance, which accounted for 86% of revenue last
year.
    Chindata has been pegged as a takeover target since at least
April last year, when larger rival GDS  GDS.O , Asian private
equity shop PAG and EQT-backed EdgeConneX were all considering
making an offer, Bloomberg reported. Its ADRs then were trading
at or near their all-time low. Those mooted transactions all
came to naught, probably because Bain wouldn’t play ball: with a
42% stake in the company and 87% of the votes, why would it? 
    To wait more than a year to lob in its own bid, though,
makes it look like Bain missed the chance to buy out the other
shareholders at a lower price. To complicate matters further,
there’s now a second player: a unit owned by state-owned
conglomerate China Merchants Group on Monday revealed it offered
15% more within days of Bain’s bid last month – but the special
board committee set up to assess its controlling shareholder’s
pitch has yet to even publicly acknowledge the rival approach.
    That adds poor governance to an all-round headscratcher of a
process that ought to be trying to get the best for all
shareholders. 

    Follow @AntonyMCurrie on Twitter
         
    CONTEXT NEWS 
      A unit of state-owned China Merchants Group on July 10
said it made an all-cash bid for Chindata on June 9 that valued
the Nasdaq-listed data centre company at $3.4 billion. The offer
is 15% higher than one Bain Capital made on June 6. 
    Chindata set up a special board committee and appointed Citi
as financial adviser in response to the offer from Bain, which
owns around 42% of the company and controls 87% of the votes.
The company has yet to acknowledge the offer from China
Merchants Capital.

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Chindata's shares trade like a buyout-in-waiting    https://tmsnrt.rs/3JRsFEj
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 (Editing by Robyn Mak and Thomas Shum)
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