Shares of Best Inc. (BEST 1.23%) had plunged by 18.5% as of 12:45 p.m. Friday after the supply chain specialist announced plans to sell its Chinese express delivery business to rival J&T Express for $1.1 billion. However, the company, which is backed by e-commerce powerhouse Alibaba (BABA -0.37%) -- its largest shareholder -- will receive only $600 million in cash on the deal.
Does that make sense?
On the one hand, selling off its express delivery business seems likely to crimp the supply chain company's growth. According to data from S&P Global Market Intelligence, Best's express business is basically its crown jewel, accounting for $3 billion of the company's $4.6 billion in revenue over the past 12 months.
On top of that, the fact that out of the $1.1 billion sales price, Best expects to receive only $600 million -- a haircut of more than 45% -- is certainly disappointing.
It doesn't help, either, that Best didn't elaborate on where the other half a billion dollars is going, referring vaguely only to "certain adjustments and conditions under the terms of a definitive agreement entered into by the parties."
On the other hand, though, the company says it will keep its "other businesses, namely, Supply Chain Management, Freight, Ucargo and Global." And given that Best Inc.'s market capitalization today stands at less than $670 million, you might think that a $600 million payment would mean that Best stock would be backed up nearly entirely by cash after this sale.
Except that it isn't. Best, you see, has more than $1.2 billion in net debt on its books today. That $600 million -- even if applied fully to paying down that debt load -- would only cut it by half.
Add in the fact that Best has never earned a profit and that its sales slid 12% last quarter, and it becomes clear why investors aren't at all thrilled to hear about this deal.