China Distance Rises 14% on Buyout Proposal

Executives from the online education provider have proposed to purchase the company for $9.08 per share.

Author: Anthony Russo   

China Distance Education Holdings Ltd. (NYSE: DL) soared 14% to $8.26 per American depositary share by midday Monday on news of receiving a buyout proposal from the company's executives.

In a statement today, the Beijing-based company said that Zhengdong Zhu, the co-founder, chairman of the Board and chief executive officer of the of China Distance along with Baohong Yin, the co-founder, and deputy chairman has proposed to acquire all outstanding shares in the company for $9.08 per share. 

Under the proposal, the buyers plan on funding the purchase in a combination of debt and equity capital. Debt financing is expected to occur in the form of loans from "third party financial institutions".

"The Board will consider the Proposed Transaction. The Board cautions the Company's shareholders and others considering trading the Company's securities that the Board has just received the Proposal Letter and has not had an opportunity to carefully review and evaluate the proposal or make any decision with respect to the Company's response to the proposal," China Distance said in a statement today.

The company added, "There can be no assurance that any definitive offer will be made, that any definitive agreement will be executed relating to the Proposed Transaction or that this or any other transaction will be approved or consummated."

Established in 2000, China Distance offers courses in accounting, healthcare, engineering & construction, law, and other industries. According to the company, it operates 20 core websites covering 13 subject areas. In the fiscal year 2019, China Distance had 3.79 million total enrollments. In the second quarter of fiscal 2020, China Distance's net revenues rose 8% to $41.9 million and turned profitable on a net income of $4.3 million.

Luckily, since it primarily offers online education, it hasn't been hit too hard in the market; shares of the company are down just 2% year-to-date. Today's gain has brought the company closer to where it traded at the start of the year.  

Going forward, investors may want to shift to a cautiously optimistic approach, as China Distance is expecting revenues to fall in the range of 18% and 13% year-over-year in the third quarter of fiscal 2020.