'Undervalued' mulls plan to quit Nasdaq

Chinese internet giant talking to investors for funds to take company private, joining list of Chinese firms to exit unfriendly US market

PUBLISHED : Wednesday, 06 March, 2013, 12:00am
UPDATED : Wednesday, 06 March, 2013, 10:44am

Chinese internet media, gaming and search giant is talking to investment banks and private equity funds about a possible financing plan to take the company private.

If the plan goes ahead, Sohu will join a growing number of Chinese firms delisting from the United States market.

Four financial industry sources told the South China Morning Post yesterday that Sohu had recently talked to several banks, including Credit Suisse, to advise the Beijing-based company on a possible privatisation plan.

Credit Suisse was also helping Sohu to seek new investors, most likely private equity firms, to finance the plan, said the sources, who declined to be identified as the talks were confidential.

Sohu mainly competes with two other mainland portals, and NetEase, which are also listed on Nasdaq.

If successful, this will be the latest delisting plan by a Chinese company, after Shanda Interactive, Focus Media and several others in the past year.

Many Chinese companies listed in the US have been increasingly unhappy with the performance of their stocks in what is perceived as an unfriendly market environment. Short sellers such as Muddy Waters have accused them of possible accounting irregularities and fraud, sinking the prices of their stocks.

"Both Charles and his bankers believe Sohu is significantly undervalued at present in terms of share price performance," said one of the sources, referring to Charles Zhang, the founder, chairman and chief executive of the company.

Sohu listed on Nasdaq in July 2000. Its share price traded below US$1 during the dotcom crash in the early 2000s but has since rebounded to about US$44 this week, giving it a market capitalisation of roughly US$1.7 billion.

Zhang's plan to privatise Sohu was inspired by a recent plan announced by Focus Media, a Shanghai-based advertising company, which is also listed on Nasdaq, the sources said.

In August last year, about seven years after Focus Media listed on Nasdaq, it surprised its shareholders with a US$3.5 billion plan, backed by the firm's senior management and several private equity funds, to go private. The deal is still pending.

If successful, it will be the largest Chinese company to delist from a US stock exchange. Some market watchers expect the company to relist in Hong Kong in a few years' time once it gets bigger and boasts a stronger balance sheet.

A number of private equity firms, including Washington-based Carlyle Group and Temasek-backed FountainVest Partners, agreed to financially support Focus Media's privatisation plan, helping the management to take the company private more easily.

Besides the Focus Media deal and the potential privatisation of Sohu, there were at least two other major Chinese companies that had sought advice on delisting in the US, a second source said.

"The involvement of private equity firms could certainly expedite the deal process, thanks to the committed capital from them," another source said.

He declined to name any potential private equity investors that had been in talks with Sohu.

"An average internal rate of return in a successful private equity fund-backed privatisation deal could reach 20 to 30 per cent, offering meaningful upside for those investors who often hold a position even after the relisting," he added.