Bottom line: Qihoo’s reorganization is part of its hurried bid to re-list in China to pay off backers of its privatization, while shareholders of Trina and Dangdang are likely to approve final management-led buyout offers for the 2 companies.
The homeward migration of US-listed Chinese companies is in a trio of new headlines, showing that financiers are still willing to back de-listings for stronger companies. The largest of the headlines has security software specialist Qihoo 360 undergoing a major overhaul as it seeks to re-list in China, following its record-breaking privatization from New York last month. Meantime, solar panel maker Trina (NYSE: TSL) and e-commerce site Dangdang (NYSE: DANG) have also announced major advances in their own plans to privatize.
The privatization frenzy for US-listed Chinese firms that began last year appears to have entered a new phase, with the number of new deals dropping sharply in recent months. At the same time, many of the previously announced deals have yet to close due to difficulty obtaining funding and the broader complexity of such transactions. But a significant number of deals are also getting completed, mostly for larger, well-known companies.
Qihoo defied the odds and last month completed the biggest privatization among the 40-odd companies to announce de-listing plans since the start of last year. Now it’s moving aggressively to prepare for a re-listing in China. According to the latest reports, the company is undergoing a major overhaul that will see it spin off most of its minor businesses as part of a plan that will leave just its core security and search businesses in the company. (English article; Chinese article)
Businesses being spun off include Qihoo’s finance arm, as well as its young smartphone business that includes a major manufacturing operation. The reports say the overhaul is part of a plan to quickly create a new company that would be attractive to local stock buyers, and then make a backdoor listing for that company.
I expect that Qihoo is moving so quickly because many of the investors who backed its $10 billion de-listing from New York were promised big returns. Accordingly, the company is under big pressure to quickly re-list in China, and is trying to boost its chances for the biggest possible valuation to pay off its investors.
Search and security software are certainly its 2 largest and most promising businesses, so this particular strategy does seem like a good one to help the company meet its goals. But recent regulatory resistance to backdoor listings means that Qihoo could still face some difficulties getting China’s securities regulator to approve its final relisting at home.
Meantime, Trina has announced its signing of a formal buyout offer, after receiving a preliminary management-led bid in December. (company announcement) The company’s stock shot up 25 percent after the initial announcement this week, indicating shareholders were previously skeptical that this particular offer would get completed.
The stock now trades at $10.50, which is still about 10 percent above the buyout price of $11.60. That means that anyone who believes the deal will ultimately close, which seems likely at this point, could still make a little money from this particular buyout.
While the departure of Trina and Qihoo will represent a loss of 2 strong companies for US investors, the same isn’t true for the imminent departure of Dangdang. The former e-commerce leader lost its relevance in China long ago to the more aggressive Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD), and has just announced it has scheduled a shareholder meeting for September 12 to vote on its previously announced definitive buyout deal. (company announcement)
Dangdang’s buyout plan will easily be approved at the meeting, since the husband and wife that own the company control a big portion of their shares. That was always the problem with Dangdang to start with, since the pair ran the company like a personal fiefdom rather than a commercial business. I do expect they will try to re-list the company in China after leaving New York, and could even get a sharply higher valuation from less sophisticated local investors who are familiar with the company’s name.
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