August 14, 2023 - Chindata Group Holdings announced Friday that it is set to go private after the company’s board agreed to a sweetened $3.16 billion from Bain Capital, ending a bidding war between the US private equity titan and state-backed China Merchants Capital.
Bain, which is the Beijing-based data centre operator’s largest shareholder, entered into a definitive agreement with the NASDAQ-listed company to acquire the shares it does not already own in the firm for $4.30 per ordinary share or $8.60 per American depositary share (ADS) in cash, according to a regulatory filing on Friday.
The deal, which values the company at $3.16 billion, represents a 7.5 percent increase from Bain’s initial June offer of $8 per ADS or $2.9 billion, but falls short of China Merchants Capital’s $9.20 per ADS bid.
Bain’s revised offer remains “unattractive” for shareholders, according to Arun George, analyst and co-founder of Global Equity Research in London. However, with Bain already owning 44.55 percent of the outstanding shares and 92.34 percent of the voting rights in Chindata, the conditions for completion of the deal are likely to be met.
China Data Centres Suffer on US Exchanges
“Chindata Group exemplifies Bain Capital’s unique ability to identify attractive investment opportunities across the Asia-Pacific region,” said Jonathan Zhu, partner and co-head of Asia private equity at Bain. “We believe taking Chindata Group private is the best way to provide attractive returns to existing public shareholders and secure the long-term success of the company.”
The firm said its latest offer represents a 42.6 percent premium to the closing price on the last trading day before Bain laid out its preliminary offer on June 6, and around 48.7 percent higher than the 30-day volume-weighted average trading price of the ADSs.
The take-private deal comes nearly three years after Bain led Chindata’s $540 million IPO in October 2020, with backing from institutional investors APG, BlackRock and the Canada Pension Plan Investment Board.
Chindata’s stock had been on a nearly uninterrupted decline since March 2021 with shares soon falling to under $5 each after the company announced in December that year that its founder and CEO Alex Ju Jing was leaving immediately. That departure was announced one month after Yiming Zhang, the founder of the data centre operator’s primary customer, ByteDance, stepped down from his chairman role and left the board of the parent company of TikTok.
Even before Chindata’s CEO departure investors had been dumping US listed shares of Chinese data centre operators following a Beijing crackdown on the country’s tech sector.
ADS for VNET, a Blackstone-backed Chindata competitor, have fallen from nearly $42 each in February 2021 to $2.93 cents on Monday, while NASDAQ-listed ADS for GDS Holdings, China’s most established data centre operator, slid from over $115 in February 2021 to $11.13 each on Monday.
Under the agreement approved by Chindata’s board, the operator will be delisted from the NASDAQ and become a wholly owned subsidiary of Bain once the deal is closed towards the end of the year or in the first quarter of 2024.
Bain plans to fund its Chindata buyback through a mix of cash contribution from sponsors, debt and equity rollover by existing shareholders.
“Our deep partnership with Bain Capital has been an essential element of our success, and we look forward to building on this track record together and continuing to provide best-in-class services to our customers in the future,” said ChinData Group CEO Huapeng Wu.
Offer Underwhelms
Bain is likely to meet the conditions need to complete the deal as the stake held by the company, as including its own shareholding, the company has now won approval from owners of 65.67 percent of Chindata’s outstanding shares and 95.26 percent of the company’s voting rights, which is enough to ensure shareholder approval, according to a note by George, published on Smartkarma.
CMC’s July proposal, while higher in value, cannot be declared a superior offer since a tenderer has to own at least half of any class of shares in the company, and Bain stood firm that it would not sell shares to any third party, he said.
Bain’s latest deal is still “underwhelming” according to George since the revised offer of $8.60 per ADS is still a 16 percent discount to the average share price since the IPO, or 36 percent less than Chindata’s IPO price of $13.50 per share.
Chindata’s revenues jumped 56.8 percent year on year to RMB 1.44 billion ($200 million) in the first quarter of the year, resulting in a 167.5 percent surge in net income during the same period.
The pan-Asian hyperscale data centre platform has a total capacity of 898 megawatts across China, India and Malaysia by the end of March, up by 27MW from a year ago.
