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(Reuters) - Pactera Technology International Ltd PACT.O said on Monday that Blackstone Group LP (BX.N), together with the company's management, made a $680.3 million non-binding proposal to take China's largest technology outsourcing firm private.
Pactera said it expected its board of directors to form a special committee of independent directors to consider the consortium's offer of $7.50 per share. Pactera shares surged 31.1 percent to $6.90.
Suspicion over accounting standards has been a major drag on U.S.-listed Chinese companies, giving management at some companies an opportunity to team up with private equity firms and make offers that capitalize on big discounts to peers on the Hong Kong and Chinese stock markets.
Prior to Monday's announced proposal, Pactera shares were down 33.8 percent this year. By comparison, the NASDAQ .IXIC, where it is listed, is up 15.9 percent.
Pactera was trading at 3.3 times its projected 12-month earnings before interest, taxes, depreciation and amortization as of the end of trading on Friday, compared with an average 9.1 times for its peers, according to Thomson Reuters data.
In a letter on Monday, Blackstone said it had teamed up with Pactera's non-executive chairman and VanceInfo co-founder Chris Chen, Pactera Chief Executive Tiak Koon Loh, and three of the company's executive committee members.
Chen and Loh, which had respective stakes in the company of 3.9 percent and 1.7 percent as of April 15, would roll over their equity in the proposed deal, which would be financed with equity from Blackstone and bank debt, according to the letter.
Funding for buyouts of Chinese companies is usually done through offshore holding companies but many banks will not finance such deals due to the risk of non-payment. Limited financing has restricted deal sizes and has increased the amount of equity that private equity firms have to invest.
The consortium's offer was only a preliminary indication of interest and represented a 39 percent premium over Pactera's volume-weighted average closing share price during the last 30 trading days, according to Blackstone.
The offer came one month after Blackstone abandoned an effort to outbid another buyout firm that teamed up with a CEO to take a technology company private - the $24.4 billion offer from Michael Dell and Silver Lake for computer maker Dell Inc DELL.O.
Beijing-based Pactera, formed last year through a merger of HiSoft Technology International Ltd and VanceInfo Technologies Inc, offers technology outsourcing and consulting services to blue-chip companies across the world.
Blackstone is making the offer for Pactera through its latest $16.2 billion global private equity fund, one of the biggest buyout funds in the world. Leading the deal is Edward Huang, who joined Blackstone last year from Morgan Stanley's (MS.N) Asian private equity unit.
China's scale and economic growth, which was 7.7 percent in the first quarter of this year, still draws investors to private equity, yet often disappointing returns mean global funds are much more discerning about where they put their money.
When successful, however, deals in China can pay off handsomely. Carlyle Group LP (CG.O) for example made a $4.3 billion profit excluding dividends - five times what it invested - when it exited China Pacific Insurance (Group) Co Ltd (601601.SS), Reuters calculations in January showed.
But Carlyle has also demonstrated how deals in China can go sour due to accounting irregularities. It headlines in 2011 after fraud allegations were levied at China Forestry Holdings Co Ltd 0930.HK and China Agritech Inc CAGC.PK in high profile accounting-related cases, dealing a blow to the Washington D.C.-based firm's image.
The biggest leveraged buyout in China has so far been the $3.7 billion acquisition of Focus Media Holding Ltd FMCN.O by a Carlyle-led consortium, which was approved by the company's shareholders last month.
Focus Media, which operates advertising screens in offices, elevators and supermarkets across China, had faced persistent allegations from short-seller Muddy Waters that it overstated its assets and overpaid for acquisitions.
Citigroup Global Markets Inc (C.N) is advising the Blackstone consortium on its offer for Pactera. The company said it expected that its special committee would retain a financial adviser and legal counsel to assist it in its work.
Reporting by Greg Roumeliotis in New York; Editing by Jeffrey Benkoe, Bernard Orr