3-S Bio ( Nasdaq - SSRX ) -- Receives Buy-Out Offer

3-S Bio (SSRX $13.50) appears on track to produce excellent Q3 results.  The long term outlook remains favorable, as well.  Finances are robust, moreover.  The company holds approximately $7.00 a share in cash.  3-S Bio's chief executive in combination with a local private equity firm recently submitted an offer to purchase the entire company for $15.00 a share in cash.  Several other U.S. listed Chinese companies recently have made plans to go private, as well.  Numerous China based companies have blown up during the past three years due to accounting fraud and other irregularities.  That's caused the value of Chinese shares in general to trade at reduced valuations. 

The American short selling community has investigated 3-S Bio on several occasions.  Nothing out of the ordinary has ever been discovered.  The company is run by U.S. trained scientists.  It's products compete on the world stage.  A major American dialysis company, Davita, recently formed a joint venture with 3-S Bio to take advantage of the high potential Chinese health care market. 

The price being offered appears low.  After the company's cash is backed out the deal values the ongoing business at 8x earnings.  In light of 3-S Bio's growth potential and high likelihood of success a significantly higher multiple appears justified.  Since the company's CEO is part of the buy-out group it's unlikely competing offers will emerge.  Existing shareholders might insist on a higher price.  It's uncertain if the buyers will agree to that, however. 

Financing appears to be in place.  The transaction looks like it has a high probably of going through.  Current holders might want to wait and see if a better price emerges.  The stock still has 10% to go to reach the stated buy-out price.  Investors realistically can hold off to earn that arbitrage income, as well.  More aggressive investors can sell the shares now and reinvest in another Special Situation.

( Click on Table to Enlarge )