Why 51job Stock Tanked 19% on Monday
What happened
Shares of 51job (NASDAQ: JOBS) were down 19% around noon EST on Monday. The Chinese human resources company put out a press release saying that its plans to go private at a valuation of $5.7 billion are seeing a roadblock from Chinese regulators.
So what
Back in early summer, 51job announced it had plans to go private through a group of buyers called Garnet Faith Limited at a transaction price of $5.7 billion. This caused 51job's stock to jump on the news, as the transaction value was substantially higher from where the stock was trading at. However, over the last few months, it looks like investor confidence in the deal has wavered, bringing the stock back down to a market cap of $3.6 billion.
Image source: Getty Images.
Specifically, in the press release put out on Nov. 8, 51job said that with new regulatory rules in China, it is unclear whether this transaction can go through, and that the company has no timetable on when and if the transaction will be finished. Investors who bought into 51job thinking this going-private transaction would be closed likely sold off the stock after hearing this news.
Now what
51job stock is now trading at a significant discount to the proposed transaction price of $5.7 billion. Seeing as 51job is a Chinese company that operates in a regulatory environment that changes at the whim of the Chinese Communist Party, investing in 51job stock strictly for short-term returns from this potential takeover deal seems very risky. Unless you know the company well (if you don't live in China, you likely don't), it is probably smart to stay away from 51job stock right now.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
