Buy KANG at $20/share

Reasons to Buy:
Meinian Consortium offered $25 per ADR to take China’s iKang Healthcare Group (KANG) private. iKang is currently trading at $20 per ADS.

Risks:
The Board of Directors of iKang Healthcare adopted a Rights Agreement to fend off Meinian’s takeover attempt. This could dilute any potential bidder’s interest in iKang and increase the cost of a bid substantially.

Background Information:

iKang Healthcare Group, Inc. provides preventive healthcare solutions including a wide range of medical examinations services and value-added services including disease screening, dental services and other services in China. (SEC filing, FORM 20-F)

Bidding History:

1/6/2016: $25 per ADS, from Meinian Consortium
11/30/2015: $22 per ADS, from Meinian Consortium
8/31/2015: $17.80 per ADS, from CEO Ligang Zhang and his consortium

Meinian consortium includes:
Meinian Onehealth Healthcare (Group) Co., Ltd (formerly Jiangsu Sanyou Group)
Cathay Capital Private Equity SAS
Shenzhen Ping An Decheng Investment Co., Ltd.
Taiping Guofa (Suzhou) Capital Management Co., Ltd.
Sequoia China Investment Management LLP
Huatai Ruilian Fund Management Co., Ltd.
Shanghai YuanXing YinShi Equity Investment Limited Partnership
Shanghai Sailing Capital Management Co., Ltd.
Haitong Auspicate Capital Management Co., Ltd.

CEO Ligang Zhang’s consortium includes:
Alibaba Group Holdings Ltd.
China Life Insurance Co.

Interesting Facts:

• iKang Healthcare is one of a few dozen Chinese companies listed in the U.S that announced privatization offers over the past year as investors and executives seek to shift listings to China, where valuations are higher despite the recent market decline.
• In iKang’s case, the stock closed at $16.77 (PE around 30) on Friday November 27, 2015 before Meinian Consortium made its first offer of $22 per ADS on November 29, 2015. Meinian traded at a PE of over 300 before trading was temporarily suspended pending its acquisition of Ciming, the third largest preventative healthcare service provider in China. This PE differential is perhaps the biggest reason that both consortiums are keen on taking iKang private and re-listing it in China.
• Top preventive healthcare service providers in China: Meinian, iKang, Ciming

News Articles

China’s IKang Rises to Seven-Month High as Bidding War Heats Up, Bloomberg (Jan 6, 2016)

Expanded Meinian Consortium Reiterates Its Commitment to Acquiring iKang, PRNewswire (Jan 6, 2016)

Meinian Responds to iKang’s “Poison Pill” Rights Plan, PRNewswire (Dec 3, 2015)

iKang Healthcare Group, Inc. Adopts Rights Agreement, GLOBE NEWSWIRE (Dec 2, 2015)

iKang: The Chinese Find Value Where Westerners Cannot, Forbes (Nov 30, 2015)

Consortium Submits Preliminary Non-binding Proposal to Acquire Nasdaq-listed iKang, PRNewswire (Nov 29, 2015)

China’s iKang seeks to delist from U.S. in latest healthcare exit, FiercePharmaAsia (Sept 1, 2015)

 

Categories: Trading Ideas