eFuture Holding: Initiating A Stake

efuture holding

The arbitrage of the eFuture Holding transaction should reward investors jumping on while the current spread exists

As promised last week, I’m back at the trading station with a deal for arbitrage-hungry fellow readers to invest in. Without any more teasing, here is the latest opportunity I’ve just put money into.

eFuture Holding (NASDAQ: EFUT): with this transaction, I’m going back to my bread and butter of low-liquidity US listed Chinese going private deals. I keep looking, but I still have to find opportunities that present better risk reward profiles anywhere in the market.

eFuture Holding is a software company with a market cap. of ~US$32mm that listed on the NASDAQ in 2006. In November 2015, an investment company incorporated in Beijing snapped up just over half of the outstanding shares in open market purchases. After a few months spent contemplating his next move, Mr. Li (President and Chairman of the investment corp.) decided to go ahead and entertain a going-private deal discussion with the Board of eFuture.


The definitive agreement has been signed on September 23, 2016 and it’s essentially telling us that there is virtually no risk that the deal doesn’t close. Financing condition? None. Regulatory approval? None. And while there is a shareholder vote requiring 2/3 of the shares present and voting at the shareholder meeting, Mr. Li owns ~52% of all the shares outstanding. Another 17% are owned by the directors of eFuture, who all gave the green light to the transaction and are voting their shares in support of it. Those figures add up to 69%, above the 66.66% minimum required, making the vote a non-event.
The spread between the current price and the acquisition price is 4.9%, and I think that there is a good chance that the deal closes in December or earlier, almost right after the vote takes place.
And that’s all there is to know, really! I wish all transactions were as easy and attractive as this one.

 Disclosure: Long eFuture.

This article expresses an opinion and the author does not receive compensation for it and has no business relationship with any company whose stock is mentioned in this article; do your own due diligence before making investment decisions.

15 thoughts on “eFuture Holding: Initiating A Stake”

      1. I won’t be buying more because I bought shares around $6.10 and have reached my max. exposition to this deal. But there is no specific news for the larger spread (at least in the public domain). In the past, I’ve seen spreads on these deals widening and narrowing based on nothing else than illiquidity in the stock. I would not pay more attention to it for now, and if I hadn’t bought enough shares already, I would increase my holdings. I just checked their SEC filings, and based on the amendments they’ve made, I believe they’re fairly close to filing the definite proxy, meaning we’ll soon know when the shareholder vote will be held.

        1. Thanks, yes, I saw they still expect it to close in 2016, so less than 2 months to go.
          How much do of your portfolio do you allocate to individual arbitrage positions? As the risk here is quite low, I assume quite a large position.

          1. I am usually invested in 3-4 deals at once; I don’t fix myself a max %, I think in terms of how much $ I’m willing to expose and it also depends on the potential downside. Like you said, I see this one favorably. I’m hoping for a close the 2nd or 3rd week of Dec. Fingers crossed!

  1. Makes sense. Relating to these “Chinese taking privates” I also looked at TSL. The spread is highly attractive but the shareholder vote is less certain (explaining the spread, most likely). I have no position.
    Do you also trade the spread (adding or selling depending on the development) or do you take a position an leave it there?

    Thanks

    1. I haven’t looked at TSL in details for now but it’s on my radar. Why do you think the vote may be an issue?
      And to answer your question, I also trade the spread; I often add to subtract to positions based on the news and the evolution of the risk/reward profile. In other cases, I just take a position and leave there, when my view does not change over time.

      1. If I read the notice correctly, the taking private consortium has only 6% of shares already committed to vote in favor. The premium at anouncement also was not that generous (c20%). I guess that is reflected in the spread. By the way, they just announced the EGM date (16. Dec.), so you may get your money back by the end of the year.

        1. Yes it sounds like you’re right on the vote; I have skimmed through the proxy doc after your comment, and I think the main barrier will be the regulatory approvals (notably the SAFE approval, the Chinese agency dealing with the approval of capital flows, because this is a large $1bn+ deal); so you can expect the close to be quite later than the vote actually if I am correct on this.

          1. I don’t think so; I don’t know if you had access to the full article but even it, it’s mentioned that most of the scrutiny is for transactions over $10bn, or $1bn in certain cases. This transaction is ~$30m.. in the proxy, the administration that vets the currency movements (Safe) is not even mentioned. I don’t think they’d review or block anything that small. But again, never say never.

  2. Have you looked at Synutra Intl (SYUT)? It looks very similar to EFUT. They signed a merger agreement recently and wait for the EGM (no date given yet) to approve the deal. The Chairman owns 63.5%, hence voting should be no issue. I do not find other major conditions that could block the deal from closing. But maybe I overlooked something.

    1. Funny you mention because I’m long SYUT! Good one to be on. I’ve been swamped recently but I’m going to post an update soonish with the trades I’ve been making and will be making. PS I answered your com. on the CAB article, not sure if you’ve seen

  3. Thanks for your insight (also regarding CAB, which I saw indeed).
    Looking forward to your post and I am happy that may analysis of SYUT may not be that bad. 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *