Some stock analysts and investors are sharply criticizing the privatization plans of automotive compounder China XD Plastics Co, saying it undervalues the company.
In a March 16 conference call, analysts following the Harbin, China-based company said a privatization plan unveiled last month by Chairman Jie Han and one of the company's large investors was not a good deal for other shareholders.
Han and an affiliate of private equity firm Morgan Stanley in Asia, which owns 24% of the firm, proposed taking XD private for $5.21 a share, a premium of about 30% from the previous 30 days' closing stock price on New York's Nasdaq Stock Market.
But some other investors and analysts have long complained that the company's stock price is significantly undervalued compared to similarly situated competitors traded on Chinese stock markets, a point that XD management has in the past agreed with.
"I'm very disappointed and frustrated that the company has decided to go private as this point," said Jason Cooper, with Stuyvesant Capital Management, who called the privatization price "pennies on the dollar" compared with the company's value that could be realized with several large expansions underway.
"It's kind of embarrassing for me to have to take this back to my investors," he said. "I hope the company reconsiders this private transaction."
Cooper echoed several other analysts on the call, who said the company's expansion and diversification plans should start to show results.
"It seems odd at this point in time, after repeated management assurances that management was out to build long-term shareholder value, to build a global enterprise, to diversify away from automotive plastics into more exciting growth potential," he said.
XD's chief financial officer Taylor Zhang said the company, as outlined in previous statements, is moving forward with having a committee of its independent directors evaluate the privatization proposal.
He said the proposal represents a premium on both the stock value over the previous 30 and 90 days, and said the committee is in the process of hiring its own independent financial advisers to evaluate the offer.
Zhang also said it is expensive for XD to be listed on a U.S. stock market.
The company also announced a significant expansion March 16, saying it was building a 300,000 metric ton per year compounding plant for biocomposites and 3D printing materials.
The $357m (€331m) project is the result of an agreement with the government of Shunqing district, Nanchong city, in Sichuan province. It also includes 44 million pounds of masterbatch capacity.
One investor, John Sheehy, criticized the company in his investment blog for not disclosing the new biocomposites investment sooner, particularly while company management was developing the privatization plan.
XD said it reached a "strategic investment agreement" with the Nanchong government in December but that "due to the uncertainty of securing the necessary land use rights for the project," it did not publicize the news until it formalized that initial agreement in March.
On the call with analysts, Zhang said the company did not want to make a premature announcement because of uncertainty surrounding land acquisition.