Qihoo offer to go private raises speculation more Chinese internet firms may delist in US
A massive US$9.6 billion offer to take private Qihoo 360 Technology, the biggest internet security service provider in China, has fanned a surge in speculation over the potential delisting of other Chinese companies in the United States.
A consortium led by Zhou Hongyi, the chairman and chief executive of Qihoo 360, on Wednesday made a preliminary non-binding proposal to take the company private for US$77 per share.
That helped its shares soar in New York to a high of US$72.65. The stock finished up 6.21 per cent at US$70.15, its highest close since reaching US$74.33 on November 28 last year.
The Beijing-based company’s board said in a regulatory filing that it will form a special committee of independent directors to consider the proposal.
Ricky Lai, a research analyst at Guotai Junan International, said interest in taking US-traded Chinese internet companies private is growing because of the potential to get better valuations by re-listing as China A-shares and because of efforts by Beijing to make the country’s stock markets more attractive.
“A-share valuations are at their highest in years, and so it would benefit these companies to explore going public in their home market,” Lai said. “The central government is pursuing listing reforms, so Chinese companies need not bother setting up a VIE to go public abroad,” he added.
The majority of overseas-listed Chinese internet companies operate under the VIE, or variable interest entity, structure. This setup allows a Chinese company — such as Alibaba Group — to form a new corporation abroad that can get listed overseas. That entity remains linked with the Chinese firm through certain agreements.
Lai saw the likes of Nasdaq-listed online media company Sina and New York-traded Jumei.com, China’s largest online cosmetics retailer, as potential candidates to be taken private.
Social network operator Renren, once touted as the “Facebook of China”, and internet data centre operator 21Vianet Group, have also received proposals to go private, while online game developers Perfect World and Shanda Games have recently decided to delist in the US.
Alicia Yap, the head of China internet research at Barclays, said in a report that not all US-listed Chinese internet companies will consider going private as the bigger, large-cap players pursue collaboration with, or acquisitions of, smaller firms.
“We see this privatization trend increasing, although we believe the larger companies are unlikely to follow,” Yap said, referring to companies such as Alibaba, Baidu, JD.com, NetEase and Vipshop.