Xueda Education to Delist From NYSE in $350 Million Deal

Chinese state-owned investment firm Tsinghua Unigroup Ltd.'s latest deal suggests some Chinese companies still see opportunity despite the market rout.

Chinese education company Xueda Education Group has agreed to be purchased by a Tsinghua Unigroup-controlled company listed on the Shenzhen stock exchange for around $350 million, the company's Chief Executive Jin Xin said Monday. The company will delist from the New York Stock Exchange and plans to become a listed company in Shenzhen by the end of the year, once the deal is completed.

With valuations soaring back home, Chinese entrepreneurs have rushed to take their U.S.-listed companies private, with two dozen offers of over $30 billion so far this year. That compares with just one $660 million deal last year. Many of these nonbinding offers were made when the Chinese market soared earlier this year before the recent turmoil.

The stock-market collapse has left quite a few Chinese companies in limbo, with buyouts that might not come through and initial public offerings that could be delayed for years.

On Monday, China's stocks suffered their sharpest daily drop since 2007, as investors worried authorities were scaling back measures to support the market.

"A lot of Chinese companies have begun the delisting process in the U.S. and they can't necessarily stop because of the stock-market plunge," Gobi Partners Partner Ken Xu said. "With IPOs halted in China, the only way they can relist in the short-term is through a backdoor listing like Xueda's."

Chinese companies delisting from the U.S. would typically try to launch a new IPO on China's A-share market, Mr. Xu said. But after Chinese regulators froze IPOs due to a stock-market plunge, many of these companies will be looking for already-listed Chinese companies to help them carry out a backdoor listing, he said.

That was Mr. Jin's strategy. He said he believes valuations are still higher in China despite the market tumult.

"We were looking for a public company to help us do a backdoor listing," he said. "Such a fast delisting and relisting hasn't been done before in China."

It is the latest in Tsinghua Unigroup's acquisition spree. The state-owned technology investment company's proposed takeover of Micron would be the largest Chinese overseas takeover ever if successful, although analysts question whether such a deal could gain U.S. government approval. Tsinghua Unigroup previously purchased two major Chinese chip makers and a controlling stake in Hewlett-Packard Co.'s China networking unit.

Tsinghua Unigroup bought a controlling 15.59% stake in Shenzhen-listed Xiamen Insight Investment Co. on April 21, a day after Insight Investment offered a nonbinding offer to buy Xueda Education for $3.38 per American Depositary Share, Mr. Jin said. The companies agreed Sunday to take Xueda Education private at $5.50 in cash per ADS. Xueda's management team will participate in a share offering by Insight Investment to help fund the takeover.

As China's mobile-commerce industry explodes, demand among investors for exposure to Internet stocks have caused several tech companies listed on China's exchanges to soar to valuations at more than 100 times earnings. Many closely-held Chinese startups have also seen their valuations double over the past year. By comparison, many U.S.-listed Chinese companies trade for less than 20 times earnings.

Still, it isn't clear whether all of the take-private proposals will be successful. The rocky Chinese market could give banks pause in providing financing for some of these deals. Few of the buyout groups have announced financing packages as a part of their nonbinding bids.

The nearly $350 million buyout offer for Xueda Education is relatively small, compared with other take-private deals being considered. The largest among those being considered is a roughly $9 billion buyout for Chinese Internet-services provider Qihoo 360 Technology Co. Tsinghua Unigroup is also participating in a $2 billion bid for Chinese data-center firm 21Vianet Group Inc.

Mr. Jin said his company, which currently runs tutoring centers across China for elementary and middle-school students, will add an online-tutoring service with the help of the new funds.

"Our business is education, so Tsinghua University is a great partner," he said. Tsinghua University is China's top science university and is a large shareholder in Tsinghua Unigroup.

Write to Eva Dou at [e-mail] and Rick Carew at [e-mail]

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