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Why Chindex International Inc. Shares Soared

By Sean Williams – Feb 18, 2014 at 2:01PM

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Chindex shares soar after the company agrees to be taken private. Will a competing bid emerge or should investors count their blessings and hit the exits?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chindex International (NASDAQ: CHDX), a provider of primary care and ambulatory health services in China, vaulted higher by as much as 15% after the company agreed to be taken private by the consortium of TPG Capital, Fosun Pharmaceutical, and Chindex CEO Roberta Lipson.

So what: Under the terms of the deal, which was announced yesterday when U.S. markets were closed in observance of Presidents Day, Chindex will be taken private for $369 million, or $19.50 per share, in cash. The deal values Chindex at 13.7% above its closing price on Friday. The terms also state that Chindex is afforded a "go-shop" period through April 3 in which it can actively solicit competing bids, although it does not plan to comment on any further bidding activity until after that date. According to Lipson, who will remain CEO after this transition, "We believe that new partners and committed financing are needed to achieve the next phases of these [expansion] plans, including new facilities in our current service locations as well as significant geographic expansion."

Now what: Given that Chindex has actually lost $4 million through the first nine months of fiscal 2013, I'd say today's deal is a blessing in disguise for existing shareholders. Top-line growth of 20% has been impressive, but key project delays and uncooperative weather have dealt the company a blow to profitability. Without this consortium offer it's quite possible that Chindex's sales growth would dip into the low teens or high single-digits by 2015, making it unlikely to support its current valuation moving forward. I'm not too confident a better bid will emerge, given the company's shaky recent performance, so if I were a shareholder here I'd definitely consider taking my profit and hitting the exit.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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