Strange Deal to Go Private: WSP Holdings Limited (ADR) (WH), United States Steel Corporation (X)

WSP Holdings Limited (ADR) (NYSE:WH) announced a transaction on Feb. 21, that will take the company private. The WSP OCTG Group will acquire shares of the ADR at $3.20 per share in a somewhat complicated deal. In total, the transaction is valued at $893.6 million which includes the assumption of WSP’s debt obligations. WSP Holdings is a Chinese manufacturer of oil country tubular goods (OCTG) used by the oil and natural gas industry.

Earlier in 2012, the Board of Directors used a special committee to investigate a $3.00 buyout that would take the company private. WSP Holdings is in a period of declining sales, profitability, and market share so the motivation of the buyout is somewhat unclear.  It was suggested on their 2Q12 conference call, the firm will seek a listing on the Hong Kong exchange where multiples are higher.

About WSP holdings

WSP Holdings Limited (ADR) (NYSE:WH) is the leading Chinese manufacturer of seamless casings, tubular products and drill pipes used in oil and natural gas extraction.  It constructs both API (American Petroleum Institute) and non-API products, which are used in China’s major oil fields as well as exported to other oil and natural gas producing regions.  The non-API products are custom designed high quality products used in diverse and extreme conditions.

In FY08, the company had net income of $99 million on sales of $912 million. Since then, WSP made a slight profit in 2009 and had negative net income in the following years. Sales declined to $577 million in FY09, rebounded somewhat to $686 million in FY11, but year to date in FY12 are down 15% year-over-year on lower domestic and international sales. Free cash flows at the firm were also negative in 2008 and all years since.

A soft E&P market due to global economic uncertainty, along with a trade dispute on OCTG product exports from China to the US, created the difficult operating environment for WSP Holdings Limited (ADR) (NYSE:WH). The chart at shows the significant drop in global rig counts starting in early 2009. The recovery in rig counts and a more bullish outlook for oil prices has led to some recovery in sales at WSP. The company is focused on growing sales in new, less penetrated geographies to offset some of its declines.


Price is the largest factor in competition according to management.  Key competitors for WSP Holdings Limited (ADR) (NYSE:WH) include United States Steel Corporation (NYSE:X) in the US,  Tenaris from Argentina, Vallourec (VK) & Mannesmann Tubes in Europe, TMK in Russia, Sumitomo (8053) and JFE (5411) in Japan.  US Steel manufactures various products such as flat rolled and tubular products.  Tenaris manufactures and sells steel pipes around the world.  Both of these competitors have sales the trounce WSP that help them achieve economies of scale.  US Steel has an operating margin of 2% and Tenaris has an operating margin of 21%.  This is compared to the -9% operating margin of WSP.  Both US Steel and Tenaris haven’t seen the same loss in sales in the last year as WSP has seen.

Agreement to take WSP Holdings Limited (ADR) (NYSE:WH) private

In the agreement, WSP OCTG Group, owned by HDS Investments and JM OCTG Group, will acquire the outstanding common shares for $0.32.  Each American Depositary Share represents ten common shares of WH resulting in a buyout of $3.20 per share, a significant premium to the price prior to the announcement – the ADR traded at $1.60 per share on Feb. 20. The merger agreement was approved by the company’s board of directors.  It is expected to close in the second quarter of 2013 and requires the approval of two-thirds of the shareholders.


The shares currently trade at $3.05, below the proposed take out price, but still close to double the price prior to the announcement of taking the company private. This indicates some doubt in a closing but shareholders of the ADR should probably take the opportunity to get out of firm with lots of headwinds despite improving industry fundamentals.

The article Strange Deal to Go Private originally appeared on and is written by Mike Thiessen.

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