New Oriental Surges on Ambow Buyout Offer

New Oriented Education & Technology Group Inc. has experienced the biggest increase since last July as the buyout offer made to Ambow Education Holding Ltd., a Chinese tutoring firm sparked speculations that the bigger company may also be targeted, in future. On 15th March, Ambow posted a record surge of 53% as Baring Private Equity Asia Ltd. made a proposal of acquiring the stocks of this Beijing based company at a premium. Incidentally, New Oriental is the biggest private education provider in China and this decision of Baring Private helped its share prices to increase by 8.4%. 86Research Ltd., a renowned Equity Research Firm stated that New Oriental is very likely to become the next buyout candidate and this helped its share prices a lot. Incidentally, the CH55BN Index has tumbled by 3.4% on last week; it’s biggest since 8th February.

From April, 2010, 19 of the Chinese companies which are listed in US went private, mainly because of the increased scrutiny from regulators and investors over the accounting practices of the same. This depressed the valuations, as stated by the Roth Capital Partners on its report dated on 5th November. On 15th March, the companies on the China-US gauge of the most liquid Chinese stocks in the New York traded at 13 times of the estimated earnings, marking its cheapest level in this year. In 2012, New Oriental shares had tumbled by 43%, whereas, Ambow declined by 79%.

According to the Senior Analyst of Oberweis Asset Management Inc., Jeff Papp, New Oriental has a much better brand if compared with Ambow and as its share prices are weak at this moment, the risk-reward for New Oriental is attractive to the private-equity investors at this point of time. Jeff added that if a company has decided to buy Ambow, investors will definitely be thinking that others will be looking at Ambow’s peers available in the market.

New Oriental’s American Depositary Receipts have jumped up to a 3-week high value of $16.02 on 15th March, marking its steepest rally since 20th July. Ambow, on the other hand, rose to $1.55, marking the most since the IPO held in August, 2010 in US.

On 15th March, Regulatory Filing was made by Baring Private Equity Asia and according to the same; offer for each share is $1.46, 44.5% more than closing price of 14th March.