Update: QXM Gets Much Awaited Catalyst, Jumps 40%

A month ago, we wrote an article highlighting Qiao Xing Mobile Communication (QXM), a small Chinese company which traded below its net cash value (QXM was the last stock added to the ValueHuntr Portfolio) At the time, we indicated our willingness to wait for a catalyst to unlock this value, as the company’s cash was worth between $4 and $5 per share, but the company was mysteriously trading at the depressing level of $2.6 per share. We referred to this as “an opportunity with asymmetric payoff with the odds of a positive return extremely tilted towards shareholders”. A month later, the much waited catalyst seems to have arrived in the form a private takeover proposal.

The company recently announced that it has received a proposal from its parent company, Qiao Xing Universal Resources, Inc. (Nasdaq: XING) regarding the acquisition of all outstanding ordinary shares of QXM that XING does not currently own. The proposed transaction, if completed, would result in QXM becoming a privately-held company. XING has proposed to offer 1.9 shares of its common stock plus US$0.80 in cash for each QXM share held by persons other than XING. XING filed its letter of intent with the Securities and Exchange Commission on Form 6-K on September 8, 2010. The letter of intent is available on the SEC’s website at: http://tinyurl.com/LOA-XING .

Strategically, this deal is headed for failure. Previously, XING was engaged in telecommunication terminal products business and changed its focus to the resources industry in 2007. The idea of a miner buying out a mobile handset business is a big warning sign to me. Therefore, taking profits at this level seems reasonable.

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2 Responses to Update: QXM Gets Much Awaited Catalyst, Jumps 40%

  1. Hi VH,

    Nice find, I’ve had this one as well for a few months. However, don’t you think the offer is ridiculously low? How can a company be taken out for so much less than its cash value?

    • I definitely think it is low, but I would still take profits and move on, especially because the offer price depends on the performance of XING stock, which I’m not particularly excited about.

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