Solid foundation

Wanda's $4.4 bln buyout bid is just good enough

Wang Jianlin's $4.4 billion buyout bid may be just good enough. The Chinese cinema-to-theme parks tycoon has made an offer to take Dalian Wanda Commercial Properties private barely 17 months after the flagship real estate arm of his Wanda empire listed in Hong Kong. Though independent investors could hold out for more, doing so would risky.

Wang is offering to pay HK$52.80 per share in cash for the Hong Kong shares, which account for almost 15 per cent of the total outstanding. That is a stingy 10 per cent more than the price at which the company went public in December 2014, though it still beats the performance of the local Hang Seng Index, which has fallen 11.4 per cent over the same period. What's more, Wanda's shares have traded below their IPO price for roughly half the time since their debut.

There are two ways Wang could pocket a big return from buying out the group that has ambitions to roll out another 50 shopping malls in China this year. Take the group private at the offer price, assume 47.16 billion yuan of operating profit in 2018 - based on Eikon estimates - and a 26 per cent tax rate, and the annual post-tax return would be almost 11 per cent.

If Wang manages to follow through with a listing on the mainland, which he is eyeing within two years, then he could do even better. Property developers listed in Shanghai or Shenzhen currently enjoy a massive premium to their Hong Kong peers: China Vanke and Greenland Holdings trade at over twice Wanda's earnings multiple.

Wang says the offer is final. Under local rules, that prevents him from immediately making another bid if independent shareholders vote this one down. They can block the deal with just 10 per cent of the Hong Kong stock - a threshold within reach of activist investors. But before doing so they must consider the risks of ending up as minority owners of a business where the majority shareholder has little incentive to unlock any value. It looks like Wang may have offered just enough.