Momo Inc. rose the most in five weeks after the Chinese mobile social networking platform said a group led by its chief executive officer offered to take the company private.
The American depositary receipts rose 9.9 percent to $17.24 in New York, leading gains in a Bloomberg index of the most-traded Chinese stocks in the U.S. Co-founder and CEO Yan Tang and investors including Sequoia Capital China Investment Management offered to buy all of Momo’s outstanding ADRs for $18.90 each in cash, a premium of about 20 percent to the June 22 closing price.
The $3.3 billion company joins a record 23 other China-based firms with American listings that have received buyout offers this year as growing valuations in China’s domestic stock markets lure firms trading overseas back home. The companies that seek to leave U.S. exchanges believe that “they are not being fully appreciated by U.S. investors,” Henry Guo, an analyst at Summit Research Partners, said.
They expect to have “better dialog and communication” with Chinese investors, Guo said by phone on Tuesday. “Momo’s business model is really unique and it’s difficult for U.S. investors to understand it, so it makes sense for them to go back to China.”
This year’s go-private deals, which have a total value of $25 billion, are offering investors a 23 percent premium over the companies’ average trading prices prior to their announcements, the lowest since 2010, according to data compiled by Bloomberg. Almost 60 percent of the bids were below the targeted firms’ initial public offerings. Momo sold shares at $13.50 each in an IPO on the Nasdaq Stock Exchange in December 2014.
The offers follow a 126 percent advance in the Shanghai Composite Index over the past year as the authorities widened market access to foreign investors and eased monetary policy. While the buyouts may cause the stocks to surge, some U.S. investors have said the deals don’t provide fair value and deprive them of opportunities to benefit from the companies’ long-term potential.
The Bloomberg China-US Equity index rose 1.2 percent on Tuesday, extending its gain over the past 12 months to 31 percent. The Shanghai Composite Index rose 2.5 percent Tuesday.
It makes sense for fast-growing companies like Momo to entertain an offer to delist because “when they are private, they can focus on long-term growth, freeing up the time and effort they would otherwise spend dealing with public investors,” said Brad Gastwirth, chief executive officer of San Francisco-based ABR Investment Strategy. He expects more companies with a similar growth profile receive buyout offers.