Per media reports, Qihoo 360 Technology Co. Ltd. QIHU is finally being taken private by the investor group headed by Chairman and CEO Zhou Hongyi without altering any terms of the offer made in June. Shares were up 3% yesterday at the close of trading.
In June, the company had received a buyout proposal from Hongyi along with other investors for $77 per share, valuing the company at $9 billion. CEO Hongyi alone owns around 16% of the company.
The idea back then was to delist from the U.S. and dismantle the VCE structure to make it eligible for a listing in China. The Chinese government was relaxing its grip on the financial markets, making it more conducive for local players wishing to raise funds. Also, the Chinese stock market was on a huge bull run and listing in China would fetch much higher valuations.
However, The Wall Street Journal observes that the crash of “mainland Chinese stock markets this summer sparked doubt among investors that the deals would go through. Spreads on announced take-private offers, which were nonbinding, widened dramatically with some stocks, including Qihoo 360, trading at almost half of the offer prices.”
The Wall Street Journal added that the Chinese government’s timely action, “halted the decline and regulators reopened the domestic initial public offering market after a freeze on new listings in July”, and thereby providing ample respite to frayed Chinese investors. However, the slowdown caused the valuations for takeover deals to come down considerably and as a result only a handful buyout deals materialized. Notably, privatization deals for E-House China Holdings Limited and Mindray Medical International Ltd were reduced from their original proposed offers.
In that respect Qihoo seems to be lucky. Shares of Qihoo, which tanked to the range of $42-$48 in September, have bounced back to $67.96 as of Dec 1, 2015. At yesterday’s closing price, the $77 offer gives shareholders a 13.3% premium.
The transaction is expected to be concluded in the next few weeks. Qihoo has sought help from Chinese wealth management funds to raise money for the buyout. The company is likely to relist in China through a "reverse merger".
Qihoo, one of the largest Internet security companies in China, carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader tech space include Actua Corporation ACTA, Ellie Mae, Inc. ELLI and VeriSign, Inc. VRSN. All carry a Zacks Rank #2 (Buy).
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