INTERNET: Sina, An Attractive Takeover Target?

Bottom line: Sina stands a 50-50 chance of getting a takeover bid within the next year, as suitors eye it for its low valuation, well-respected name and controlling stake of Weibo.

Sina anticipating suitor?

Leading web portal Sina (Nasdaq: SINA) has become one of China’s perennial Internet underperformers, leading to occasional talk that it might become a takeover target for a larger, better-run peer. Now Sina has just announced its renewal of a “poison pill” plan designed to prevent such a hostile takeover. This particular move looks like a formality rather than indicator of a looming takeover bid, since Sina launched the original plan 10 years ago and perhaps it is now is now set to expire. But the fact that Sina is not only renewing the plan, but doing so in a very public way, indicates it may feel it could become a takeover target in the current hot climate for Chinese Internet M&A.

There’s not much more to say about Sina’s late action, which saw the company simply say it was extending a previous shareholder rights plan that it originally launched back in 2005. (company announcement) Such plans are often referred to as “poison pills” and are designed to flood the market with new shares if an unwanted suitor makes a hostile takeover bid.

Sina launched the original plan in response to a hostile bid at that time by online game operator Shanda, which had secretly purchased nearly 20 percent of Sina’s shares on the open market. The 2 sides reportedly entered some discussions on a merger but never reached a deal, and it later became clear that Sina never really wanted to be acquired and preferred to remain independent.

Sina’s latest announcement that it would renew the plan originally led me to think that perhaps some potential suitors had approached it about a takeover. But Sina’s stock failed to post a strong reaction after the announcement, rising just 0.5 percent in the latest trading on Wall Street. That would indicate there are no rumored takeover plans at the moment, since such rumors would have probably caused Sina’s shares to rise sharply.

Still, the fact that Sina is renewing the plan shows that its managers may still be concerned about a takeover bid in the current climate. That’s certainly easy to understand, since Sina is a relatively attractive asset and also quite inexpensive due to its status as a regular underperformer. The company was one of China’s earliest web portals and still enjoys high status as a leading independent news provider and controlling stakeholder of the popular Twitter-like Weibo (Nasdaq: WB) social networking service (SNS).

Yet the company has failed to capitalize on all those advantages, and now has a market value of just $2.7 billion — even less than the current $3.5 billion for the separately listed Weibo. Thus even with a 20-30 percent premium above its current price, Sina would still cost just $3.5 billion — an easily affordable figure for any of China’s top 3 Internet companies and probably even manageable for a strong second-tier player like NetEase (Nasdaq: NTES) or Ctrip (Nasdaq: CTRP).

All that said, the next big questions would be: What is the likelihood of a takeover bid and who would be the likely suitors? The current climate that has seen billions of dollars in Chinese Internet M&A over the last 2 years certainly makes a bid for Sina look like a strong possibility, and I would put the chances of such a bid at 50-50 over the next 12 months.

As to suitors, the most likely would almost certainly be the cash-rich Alibaba (NYSE: BABA). The e-commerce giant already has an equity relationship with Sina through its ownership of about a fifth of Weibo, which it bought 2 years ago. What’s more, Alibaba wants desperately to boost its SNS presence, which it could do by gaining control of Weibo through a Sina acquisition. Only time will tell if such a bid emerges, but Sina certainly seems to be anticipating such a development  by this new extension of its poison pill plan.

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