Shares of Chinese data center services provider 21Vianet Group (NASDAQ:VNET) slumped on Wednesday after the company announced that it had divested two business units. The drop in the stock price mostly erases Tuesday's surge. At 11:30 a.m. EDT, 21Vianet stock was down about 15%.
The business units divested by 21Vianet were within the company's managed network services business. 66.67% of the equity interest in each of six wholly owned companies engaged in content delivery network services, hosting area network services, and route optimization was sold to Beijing TUS Yuanchuang Technology Development Co. for a token RMB 1. The company still owns a 33.33% stake in each business.
21Vianet also sold two shares of Sichuan Aipu Network Co., part of its last-mile broadband business, to Jian Li, Co-CEO of Aipu, for a token RMB 1. This leaves 21Vianet with a 50% stake minus 1 share in Aipu, and it's in the process of identifying potential investors to acquire that remaining stake.
Why is 21Vianet giving these businesses away? All of the businesses within the managed network services segment are currently loss-making thanks to increased competition. Duff and Phelps LLC, an independent financial advisor to 21Vianet's audit committee, concluded that the token payments received for the businesses are fair from a financial perspective.
A company giving away businesses because they're losing money is never good news. 21Vianet plans to take a material one-time non-cash impartment charge in the third quarter, involving goodwill, intangibles, and long-term investments. But it expects its core internet data center business to grow going forward. "With the completion of this divestiture, 21Vianet will be able to focus more on expanding our core IDC business and capturing the growing demand in this market," said CEO Steve Zhang.
Shares of 21Vianet are down a whopping 81% since peaking in mid-2014. While the stock has surged in September, this news has the potential to completely derail that rally.