US law firm raises questions about Chinese dating app Momo’s US$1.9 bln buyout offer

PUBLISHED : Wednesday, 24 June, 2015, 1:08pm
UPDATED : Wednesday, 24 June, 2015, 1:49pm

A US$1.9 billion buyout offer for China's mobile social networking platform Momo, famous in China for its eponymous online dating app, is being investigated by an American law firm over how fair the proposed deal is.

According to a statement by Levi & Korsinsky, the US firm is looking into whether the consortium that offered to take Momo private on Tuesday is “taking advantage of its position to purchase the company at an unfair price”, according to an information request issued to Momo’s shareholders.

Momo went public and listed on the Nasdaq in December 2014.

The consortium includes Momo CEO and co-founder Tang Yan, as well as investors such as Sequoia Capital China and Matrix Partners China. It holds nearly 48 per cent of outstanding shares, and 84 per cent of the voting power. 

The law firm also said that Momo’s shares closed at a high of US$19.11 on May 27. But in the non-binding preliminary proposal, the consortium offered to purchase each American depositary receipt (ADR) for US$18.90.

The offer represents a 20.5 per cent premium on the company’s closing price of $17.24 on June 22. 

Momo, which held its initial public offering in December, is the latest in a string of Chinese tech companies that have received buyout offers recently. If successful, the deal would be valued at US$1.9 billion.

Last week, Chinese internet security company Qihoo 360 received a US$9.6 billion offer from a consortium led by its CEO, Zhou Hongyi. If successful, it would be the largest buyout deal to date among Chinese tech companies seeking to delist.

Social networking service Renren, once dubbed the “Facebook of China”, as well as internet data centre operator 21Vianet Group, have also received proposals to go private.

On Friday, China Mobile Games and Entertainment Group (CMGE), the largest publisher of mobile games in China, moved a step closer to being delisted as it struck a US$297.96 million deal with controlling shareholder V1 Group to purchase its 42.94 per cent stake.

More Chinese internet companies are looking to delist in the United States in the belief they can receive higher valuations in the Chinese stock market. 

Many believe “they are not being fully appreciated by US investors,” Henry Guo, an analyst at Summit Research Partners, told Bloomberg.

Favourable government policies in China that make it easier for companies under a variable interest entity (VIE) structure to list in the country also encourage China companies to re-list at home.

In a recent report, Barclays predicted that while the privatisation trend among Chinese internet companies is likely to continue, large-cap players such as e-commerce giant Alibaba and China’s top search engine Baidu are unlikely to follow suit.

This is not the first time Momo has found itself involved in controversy. 

CEO Tang was was accused of graft and theft by his former company NetEase in December. 

Prior to that, the app picked up an unsavoury reputation online for facilitating one night stands in China.