Yahoo Finance Qihoo 360 Privatization Bid Receives Shareholder Approval
One of the largest Internet companies in China, Qihoo 360 Technology Co. Ltd. QIHU has received shareholder approval for its merger agreement. The transaction is still subject to “satisfaction or waiver of the conditions set forth in the Merger Agreement”.
In June, Qihoo received a buyout proposal worth $9.3 billion from a consortium of buyers headed by Qihoo’s CEO Zhou Hongyi. CEO Hongyi alone owns around 16% of the company. In December, Qihoo accepted the offer without any alterations.
Per the deal, shareholders will be offered $77 per ADS (2 ADS equals to three Class A or Class B shares) while Class A & B shares will each be entitled to receive $51.33 in cash without interest. This represents 16.6% premium to the company’s closing price of $66.05 per share as of Jun 16, 2015 when the offer was made. At yesterday’s closing price, the buyout price offers a 2.0% premium.
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 have fetched much higher valuations.
However, the estimated $5 trillion crash of the Chinese equity markets this summer left investors skeptical of these “go private” deals. Spreads on these non binding private offers had increased as stock prices fell. Some stocks including Qihoo had lost half their market price during the Chinese market rout. However, with the intervention of the Chinese government, markets have started to stabilize somewhat (despite a tumultuous beginning of the year) and the reopening of the IPO market last November has given a fresh boost to these deals.
The China Securities Regulatory Commission (CSRC) was forced to stop IPOs in mid-June last year in order to stabilize the market, after registering a loss of 40% over a few weeks.
In Dec 2015, Reuters citing official Chinese news agency Xinhua, reported that National People’s Congress approved the State Council’s proposal to shift to a more U.S. style IPO registration system from the existing one. Regulators intend to use the new system to restore confidence among investors in the wake of a sluggish market, weak export data and yuan devaluation.
Nevertheless, the transition will help in removing corruption that has been distorting the IPO market. An analyst observed that the new IPO system in which investors will not be “paying upfront”, “is a good thing” that “won’t cause wild swings in liquidity”.
At present, Qihoo carries a Zacks Rank #3(Hold). Better-ranked tech companies includeAccelerize Inc. ACLZ, ChannelAdvisor Corporation ECOM and Ellie Mae, Inc. ELLI. All these sport a Zacks Rank #1 (Strong Buy).
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