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Why the iCar Asia Ltd share price soared 29% today

Shares of iCar Asia Ltd (ASX: ICQ) are soaring higher today, rising almost 29% to a high of 24.5 cents. The rebound came after its part-owner Carsales.Com Ltd (ASX: CAR) put an end to some concerning speculation from the media.

iCar Asia’s shares were dumped on Wednesday this week when two of its directors resigned from the board. While that is often a concern in and of itself, it was made even worse by the fact both directors, being Mr Cameron McIntyre and Mr Ajay Bhatia, were also representatives from Carsales.

A filing with the ASX in September showed that Carsales owned 16.5% of iCar Asia which owns a portfolio of automotive websites in Malaysia, Indonesia and Thailand. Given Carsales’ own portfolio of websites in Australia, the significant ownership of iCar Asia was thought to be highly complementary and a potential takeover opportunity at some point in the future.

However, iCar Asia has struggled in recent times, which prompted rumours that Carsales may have been looking to sell its stake. In a short but market-sensitive update today, Carsales responded to those rumours, saying (my emphasis):

“An article in today’s media suggests carsales.com Ltd (ASX: CAR) is actively considering a takeover of iCar Asia Ltd (ASX: ICQ) or a selldown of its investment in iCar Asia Ltd.

The Company wishes to confirm that it is not currently considering either a takeover bid or a selldown of its shares in iCar Asia Ltd.

While some shareholders may have hoped a takeover offer would be announced, almost all will breathe a sigh of relief knowing Carsales isn’t backing out of its ownership just yet.

Foolish takeaway

iCar Asia’s performance in recent times hasn’t been altogether inspiring. Although the shares are soaring today on the back of Carsales’s announcement, I wouldn’t rush to buy anytime soon.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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