HONG KONG (Reuters) – A group led by North Asia-focused private equity firm MBK Partners is in talks to take Car Inc (0699.HK) private, according to four people with knowledge of plans to buy the no. 1. China auto rental firm, worth $700 million by market value.
The consortium plans to offer more than HK$3.10 per share to take Car Inc private, two of the people told Reuters, representing a premium of at least 28% to the HK$2.43 average of the company’s share price over the past month.
While full take-up at that price would value Car Inc at about $850 million, as the talks proceed, some existing shareholders might opt to retain stakes, said one of the people.
The talks come after Car Inc shares tumbled more than 50% this year, hit by fallout from an accounting scandal at the fast-growing Luckin Coffee (LC0Ay.MU) chain with which it shares a co-founder, Charles Lu Zhengyao.
The plan is also among the latest to emerge as global private equity investors seek take-private opportunities, hoping to snap up bargains with share prices around the world squeezed lower amid recessions triggered by the coronavirus pandemic.
According to bourse filings, Lu, also Car Inc’s chairman, owns 21% of the auto rental firm, whose market value has dropped to around $700 million, and investors have been circling the shares held by the entrepreneur, sources said. Earlier this year a company controlled by Lu’s family defaulted on a margin loan of more than $500 million.
The MBK consortium, which also includes Chinese PE firm Boyu Capital, has been in talks mainly with state-owned automaker Beijing Automotive Group Co (BAIC Group), which became Car Inc’s biggest shareholder with a 29% interest last month, two of the people told Reuters.
All four sources declined to be identified as the deal talks were confidential.
Interest in Car Inc, number one in a Chinese car rental market that’s seen as lucrative but still fragmented, has rocketed since the woes at Luckin Coffee. The once-hot coffee start-up saw its shares plunge to an all-time low in April after it disclosed the accounting scandal.
BAIC acquired its stake just last month from ride-hailing services provider UCar – also founded by Lu – and private equity firm Warburg Pincus at the same HK$3.10 per share price.
Car Inc, MBK and BAIC did not immediately respond to requests for comment. Boyu declined to comment.
The move also comes as the consortium looks to consolidate the rapidly growing auto rental market, where it sees strong growth because of low penetration and increasing mobility needs, said two of the sources. MBK already controls no.2 player in the market, eHi Car Services, together with its chairman.
While the market was forecast to grow 60% to nearly 150 billion yuan ($22 billion) in 2023 from 92 billion yuan last year, the top three players’ combined market share is below 30%, as per domestic consulting firm Zhiyan and rating agency S&P.
If the deal is completed, the consortium would count on eHi Car Services, to run Car Inc, according to two sources, pushing out a management team close to Lu as well as buying his stake.
eHi said it had “no knowledge about the consortium nor plans to participate in any possible post-transaction operation”.
Lu did not immediately respond to a request for comment.
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