Why AutoNavi (AMAP) is Soaring on Monday

NEW YORK (TheStreet) -- A proposal from China's e-commerce giant Alibaba Group sent shares of AutoNavi Holdings (AMAP) into the stratosphere on Monday morning.

By midmorning, shares of the digital navigation firm had soared 24.9% to $20.65.

In a letter to the Beijing-based company, Alibaba director Joseph C. Tsai wrote, "The market for navigation and map applications and services has become increasingly challenging, as several larger, well-capitalized Internet players in China have become major competitors to the company.

"We believe that Alibaba is uniquely positioned to offer superior value to AutoNavi's shareholders based on our complementary, rather than competitive, business strategies and the potential synergies we can achieve from a full combination."

Alibaba proposed to acquire all American depositary shares and ordinary shares it does not already own for US$21 in cash per American Depositary share, or $5.25 per ordinary share. Alibaba currently owns 28% of the company's issued and outstanding shares.

The offer values AutoNavi at approximately $1.45 billion and represents a 27% premium to Friday's close of $16.54.

AutoNavi's board will form a committee of independent directors, such as a financial advisor and legal counsel, to review the transaction.

Much like Google (GOOG), Alibaba has been diversifying its brand portfolio. It currently owns online marketplaces Taobao and Alibaba.com and e-payment platform Alipay. In April last year, the company purchased a stake in Sina Corp's (SINA) Weibo, a Twitter-like microblogging site.

Must Read: AutoNavi Announces Receipt of "Going Private" Proposal

TheStreet Ratings team rates AUTONAVI HLDG LTD as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate AUTONAVI HLDG LTD (AMAP) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AMAP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 9.97, which clearly demonstrates the ability to cover short-term cash needs.
  • AMAP, with its decline in revenue, underperformed when compared the industry average of 10.9%. Since the same quarter one year prior, revenues slightly dropped by 6.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 166.1% when compared to the same quarter one year ago, falling from $10.08 million to -$6.66 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, AUTONAVI HLDG LTD's return on equity significantly trails that of both the industry average and the S&P 500.

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