I bought my first UTSI shares in the beginning of 2013 only to exit a year ago when they started to trade higher for no apparent reason. This proved to be a lucky move since the shares are down almost 40% since I sold, and that is after a small recovery the past two months. But the past is the past, what is more interesting, is what is currently happening with the stock.
More than a month ago the largest shareholder of UTStarcom filed with the SEC an amended form 13D in which they disclosed that they would sell their entire stake for $6.081/share to a strategic investor in China. This represented a premium of more than 200% compared to the previous market price. Today a Chinese news article notes that the transaction has closed, and more importantly: that the buyer intends to take the whole company private. The Chinese buyer bought a 31.6% stake for ~$72 million and the news article notes that the buyer expects to spend another $150 million to buy the whole company. This implies that they are going to offer the same $6.081/share deal to remaining shareholders (translation by Google Translate):
“Said is also more clever, UT headquarters in the United States just in our headquarters in the United States near future to integrate more convenient. Brand and personnel completely belong to us, there will be no changes, the only change is the CEO, it will initially expected by me served. “Gu Guoping said.
Gu Guoping absolute control of UT Starcom also being planned, it is expected to Fiji News about $ 150 million to that end expenditures.
Why the market has barely reacted to these events is mind-boggling. If there is a going private transaction in the near future UTStarcom shareholders stand to make a return of roughly 170%! Like I said, mind-boggling. Sure, we have the usual China risk, but UTStarcom isn’t some shady company with a fraud story. It’s not a great business, but they do have a solid balance sheet with a large amount of cash and tons of tax assets (thanks to a history of losing money…). For a strategic investor, that is active in the same industry, this is certainly a deal that could make sense. And even if no deal materializes the downside is most likely limited given UTStarcom’s cash balance. It could be a bit of a melting ice cube though…
For some more background on the latest developments, I would recommend these two articles by the GeoTeam on Seeking Alpha:
- UTStarcom – Mysterious 13D With Huge Premium Could Foreshadow Strategic Involvement Or Buyout
- China Media Reports Support Our Bull Case On UTStarcom
Author is long UTSI