The top provider of integrated employment services in China, 51job, Inc., announced a buyout discount for a merger deal for the second time since its original offer last year. This situation teaches investors the pitfalls of pinning deal hopes to regulatory arbitrage.

The U.S.–listed Chinese employment site said on March 1 that it had agreed to be taken private at $61 per share by a group of investors—”the Consortium.” The Consortium consists of its founder Rick Yan, private equity firms DCP Capital Partners and Ocean Link Partners Limited, and Japan’s Recruit Holdings, its largest shareholder.

The new price offer represents a 23% discount on the original offer made by the same group in June last year.

In January, the buyers said they wanted to lower the price due to weaker macroeconomic and market conditions and wide-ranging changes in Chinese business regulations since it first made its offer.

Since Washington initially announced steps to kick out firms whose auditors could not be scrutinized by its watchdogs in 2019, $19 billion worth of U.S.-listed Chinese corporations have been taken private. Forced delistings will be feasible in 2024, thanks to legislation passed last year.

That sounded like a big paycheck. But, according to Bank of America analysts in November, there are still approximately 150 U.S.–traded Chinese businesses worth roughly $40 billion that will need buyouts before they can file for another listing overseas.

The bidders for 51job have demonstrated a risky stance to pursue by lowering their offer to $4.3 billion. The fact that 51job’s purchasers increased their offer by 7% from the sum they recommended in January will be a little comfort.

The buyers cited a 40% drop in the U.S.–listed Chinese stocks in the second half of 2021, a weaker outlook, and tighter regulations as factors affecting recruitment demand.

However, that isn’t all. There’s also the more significant storm of mainland regulations that have battered Chinese businesses in the last six months. For example, Nasdaq-listed competitor Kanzhun’s popular app, Boss Zhipin, has been undergoing a cybersecurity assessment since July, and new registrations have been suspended. In addition, companies must now get additional regulatory clearances to list, and it is unclear how these will work in practice. This regulatory strain will make it more difficult to quickly transfer U.S. buyouts to Chinese exchanges.

According to Reuters, this doesn’t mean that all such going-private transactions are off the table. They will, however, need more effort, arrive at a lesser price, and have a higher likelihood of needing to be altered down the road, as well as a lower certainty of completion. Investors, like job hunters, will have to put in a lot of effort to discover the best deals.

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