Sohu Rises On M&A Talk, Renren On Buyback

Renren launches new mega share buyback

Web portal Sohu (Nasdaq: SOHU) and social networking site Renren (NYSE: RENN) are both proving that any news can often be good news, especially during the summer months which are generally considered a slower time for news. In the case of Sohu, a steady stream of rumors that it might sell various assets have sparked a major rally for the company’s shares over the last 2 months. After a few weeks’ pause in those rumors, the news flow is resuming with the latest talk that Sohu may hold a news briefing to actually discuss its plans for its Sogou online search site. For Renren, the latest news is a large new share buyback that could be the prelude to an eventual privatization bid.

Let’s start with the Sohu news, not because I believe any of it anymore but because I’m surprised and even impressed at how this steady string of reports on the company’s plans to sell its various assets has ignited a rally for its otherwise lackluster stocks. Since late April, Sohu’s shares have jumped more than 30 percent on those various reports.

Some of the earliest reports indicated Sohu wanted to sell its Sogou search engine, and that rival search site operators Qihoo (NYSE: QIHU), Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700) were all interested. Other reports later indicated that Sohu also wanted to sell or form a tie-up for its online video site, with Baidu mentioned as a potential partner for that sale.

Now there are 2 new media reports, the first saying that Sohu could soon hold an official news briefing later this month to discuss its plans for Sogou. (English article) The reports say Sohu and Qihoo were in advanced talks for a tie-up, and that Sohu had originally scheduled a press conference for June 18 to discuss the matter. But that event was scrapped for unexplained reasons, if it was ever really set to happen at all. Not long after these latest reports came out, other reports cited Sohu denying it had signed any agreement with Qihoo or anyone else.

I’ve previously said I do think Sohu was looking to sell Sogou, mostly because Sogou’s CEO had gone on the record saying that was the case. But the more of these rumors that I read in the media, the more I’m starting to think the whole thing is an insincere effort by Sohu founder Charles Zhang to sell some of his prized assets. Instead, this is perhaps just Zhang’s way to bid up Sohu’s undervalued shares.

If that’s the case, his strategy has certainly worked based on the rally in Sohu shares over the last 2 months. Of course the big danger is that the company’s shares could ultimately give back some or all of those gains if no deals are ever announced.

From Sohu let’s move quickly to Renren which, unlike Sohu, has announced some real news in the form of a new plan that would see it buy back up to $100 million worth of its stock. (company announcement; Chinese article) This latest buyback plan comes after Renren completed a previous plan announced in 2011 to buy back another $150 million worth of its shares. (previous post)

If the company completes this second plan, it will have purchased $250 million worth of its shares over the last 2 years, equaling about 22 percent of its current market value. Some might argue this string of plans looks a bit like a prelude to an eventual privatization bid, which would certainly be consistent with a string of other similar privatizations by US-listed Chinese firms over the last year. Whatever the case, investors have also welcomed this latest news from Renren, with the company’s shares up 10 percent over the last week.

Bottom line: The latest rumors on Sohu M&A look designed to support its recent share rally, while Renren’s new buyback could presage a privatization bid.

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