BUYOUTS: Sohu’s Cryptic Offer, Yingli’s Reverse Split

Bottom line: Sohu is likely to announce receipt of a formal buyout offer in the next few days, while the government in Yingli’s hometown of Baoding should seriously consider a similar buyout bid for the company.

Sohu gives mixed signals on buyout intentions

Amid the current privatization wave that is seeing dozens of Chinese companies launch plans to de-list their shares from New York, Internet industry stalwart Sohu (Nasdaq: SOHU) has announced its own offer that is leaving many people scratching their heads. After a day of looking for answers following Sohu’ss issue of its original announcement of plans for a $600 million investment, Chinese media are now reporting that the company has indeed received a privatization offer.

Meantime, fading solar panel maker Yingli (NYSE: YGE) is probably wishing it would receive its own privatization offer, as it piles up massive losses and its stock rapidly loses value. The company’s shares have been trading below the $1 level in New York since May, prompting the New York Stock Exchange to threaten de-listing for failing to meet its minimum price requirement. Now the company has just announced a reverse share split to bring its stock back above the $1 mark, sparking another sell-off in its shares.

The only real common element between these 2 stories is that both are stock-related. The Sohu story would mark a major development if the company really does announce a privatization plan, as it’s one of China’s oldest US-listed Internet companies following an IPO in 2000 at the height of the dot-com bubble. Despite its early-arrival status to China’s Internet, the company has become a permanent second-tier online player, with solid but unimpressive positions in the online search, game and video spaces.

I blame the uninspired and very authoritarian leadership of company founder Charles Zhang for Sohu’s failure to do better, and Zhang himself was the main player in the initial proposal the company received earlier this week that left many people puzzled. The proposal itself used some of the same wording seen in many of the other recent privatization plans, but was labeled simply as a proposal for investment in the company’s common stock. (company announcement)

According to that announcement, Zhang and an unnamed third-party private equity investor would purchase up to $600 million worth of the company’s shares and convertible notes. Shareholders were apparently just as confused as I was by the original announcement, which suggested a buyout price of $50 and helped Sohu’s shares rise slightly above that level.

But now the latest reports in Chinese media are quoting the company’s board confirming it has received a non-binding privatization offer. (Chinese article) That news sparked a rally in the company’s shares, which rose 9 percent to $56.20 in the latest session. This kind of conflicting signal is actually quite typical for Sohu and Zhang, and we’ll have to wait and see if the company ever does announce a formal buyout offer. The earlier announcement does seem like perhaps it was testing the waters, and such an offer could come soon.

Avoiding De-Listing

Next there’s Yingli, whose prospects have been dimming steadily since it announced earlier this year that it was in danger of insolvency. The company managed to pay off most of a debt obligation that came due in the fall, but investors have continued to punish its stock due to its uncertain outlook.

Now Yingli has just announced the equivalent of a 10-for-1 reverse stock split. (company announcement) That would bring the stock price back up above $5, based on a 10 percent drop in the company’s shares to $0.55 after it announced the reverse split.

The company’s market value now stands at just $100 million, which could actually make it an attractive buyout target for a buyer backed by its hometown government in the industrial city of Baoding. Such a move probably wouldn’t be too financially savvy from a traditional investor’s perspective, but would be a relatively cheap way for the Baoding government to de-list and reorganize the company out of the public spotlight.

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