AsiaInfo-Linkage, Inc. (ASIA): Controversy Haunts the $890 Million Acquisition

AsiaInfo-Linkage, Inc. (NASDAQ:ASIA)’s performance over the past twelve months presents a mixed picture. Its stock value fluctuated moderately with a slightly upward trend only from around November 2012 when information regarding its proposed acquisition by CITIC Capital Partners became common knowledge.

ASIA generated revenue of $136 million and a net profit of $27 million in the first quarter of 2013. Strong demand for its products and a $7 million tax benefit ensured this larger-than-expected profit and year-on-year revenue growth of 12%.

The Company

AsiaInfo-Linkage, Inc. (NASDAQ:ASIA) is the largest provider of Business Support Systems (BSS) in Asia. It provides the following services:

High-quality, innovative software and IT services to the telecommunications industry for customer relationship management (CRM), activation, and billing through its subsidiary AsiaInfo-Linkage, Inc. (NASDAQ:ASIA) Technologies

Network security software and services for firewalls and virtual private networks through its subsidiary Lenovo-AsiaInfo

Proposed Acquisition

AsiaInfo-Linkage has confirmed its merger with CITIC Capital Partners, the private equity arm of CITIC Capital Holdings Ltd. Under this deal, the company will be acquired by a private investor consortium led by CITIC Capital Partners. AsiaInfo-Linkage will then be a privately held company, a move that several other companies have made recently.

Each shareholder of AsiaInfo-Linkage, Inc. (NASDAQ:ASIA) will receive $12 in cash for every share of common stock they possess. Based on this, the total value of the deal becomes $890 million. This price represents a 52% premium over the price on January 11, 2012 – one day before the proposal for this merger was received from CITIC Capital Partners.

CITIC Capital Holdings Ltd. is an alternative investment management and advisory company. It focuses on China and handles over 4 billion USD of investment from numerous Chinese and international investors. CITIC Capital Partners is its private equity arm that operates in China, the U.S., and Japan and invests in those companies that profit from the resources and the growth of the Chinese economy.²

Battling In the Tech Space

Amdocs Limited (NYSE:DOX) and SAP AG (ADR) (NYSE:SAP) are amongst the listed competitors of AsiaInfo-Linkage, Inc. (NASDAQ:ASIA). Unlisted competitors include Digital China Holdings Ltd. and Huawei Investment Holding Co. Ltd. These companies are larger than AsiaInfo-Linkage.

Amdocs Limited (NYSE:DOX) provides software services to telecommunication industries for automation of customer relationship management (CRM), billing, and sales. 70% of Amdocs Limited (NYSE:DOX)’ sales come from customers in North America.³