Jack Ma's health-care buyout is hard to stomach

Jack Ma, CEO of Alibaba
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Jack Ma, CEO of Alibaba

Jack Ma's healthcare buyout is a bitter pill for shareholders to swallow. The Alibaba boss's buyout firm is bidding at least $1.4 billion for U.S-listed iKang Healthcare Group. That's cheaper than an unfriendly approach from a rival, now dropped, which iKang's chief executive countered with a poison pill.

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The tussle over iKang, which runs medical examination centres, is turning into one of the messiest of the many "take-privates" of U.S.-traded Chinese companies. Last year Chief Executive Ligang Zhang offered $17.80 a share for the company. Then Shenzhen-listed rival Meinian gatecrashed that with a higher counter-proposal.

Zhang, who holds over a third of the company's votes, responded with a "rights plan" — a poison pill that would kick in if anyone bought between 10 and 50 percent of the company's shares. He later brought in Alibaba, the e-commerce giant Ma leads, as a consortium partner. And iKang fought back in other ways too, accusing Meinian of breaking antimonopoly laws and suing its larger rival for infringing intellectual property rights.

Now Yunfeng Capital, a private equity firm that Ma co-founded, has made its own non-binding proposal, worth $20 to $25 a share. Within two days, both Zhang and Meinian withdrew their own offers.

At the minimum multiple of 18.5 times expected EBITDA, Yunfeng's proposal sounds fairly generous. But iKang is a leader in China's fast-growing market for preventative healthcare services — and the bidding war attests to the business's attractiveness.

What's more, Meinian was prepared to pay a sweetened $25 a share. At worst, Yunfeng's offer at 20 percent below that would be a big disappointment. And given Alibaba's previous alliance with Zhang, Yunfeng also looks awkwardly like a white knight brought in to see off an unwelcome suitor, but not necessarily to deliver the best value to outside shareholders.

Commentary by Robyn Mak, a columnist for Reuters BreakingViews.

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