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A Premium Of 289% Ignored By The Market 1 comment

Summary: CNIT has a "going private" offer at $4.43. Market is selling it at $1.14. Isn't it worth looking? If the market is wrong, you'll make a profit of 289%.

A Seemingly Doubtful "Going Private" Offer

In the boom of China stock market, a slew of US-listed Chinese companies announced reception of a "going private" proposal. China Information Technology, Inc. (NASDAQ:CNIT) was one of them. Strangely enough, the company didn't promptly announce the engagement of financial advisor and legal counsel like all the others did. Why? From the 20-F, it seems that the company's debt was a bit high at the end of 2014. It could be that the financing was uncertain.

In the proposal letter, the buyer group stated:

We intend to finance the Acquisition with a combination of debt and equity capital.

a. Debt Financing. We have held preliminary discussions with a Chinese bank which is experienced in financing going-private transactions and expect to receive a letter of intent from them in due course. We expect commitments for the debt financing, subject to the terms and conditions set forth therein, to be in place when the Definitive Agreements (as defined below) are executed.

b. Equity Financing. Equity financing would be provided from our existing holdings of ordinary shares. We have also held preliminary discussions with certain potential sources of equity financing, and may make agreements with them relating to possible investments in the Acquisition.

Delayed Announcement Conveys Important Information

49 days after the formation of the special committee, the company finally announced the engagement of the advisors. Now, don't overlook. This delayed engagement conveys very important information.

It was in fact a reaffirmation of the "going private". While most of the companies haven't said anything yet since the collapse of the China stock market, CNIT showed up and...