China Stock Market Rout Jeopardizes $25 Billion in U.S. Buyout Deals

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U.S. Equities Fall After a Rout in Chinese Stocks

The stock-market rout in Shanghai and Shenzhen is threatening to derail a record $25 billion in buyouts that Chinese companies have been pursuing to abandon U.S. exchanges in search of higher valuations at home.

Shares of at least 23 U.S.-listed Chinese targets, including Qihoo 360 Technology Co., have tumbled this week through Tuesday to the point that they’re trading at an average of 22 percent below their buyout offers, indicating investors are becoming more skeptical the deals will go through. The discount has increased from an average 8.1 percent when the proposals were announced.

Back in the mainland, the rout continues. The Shanghai Stock Exchange Composite Index slumped as much as 8.2 percent on Wednesday, extending a three-week decline that’s wiped out more than $3 trillion in market value and prompted China to suspend initial public offerings and stock sales by major shareholders. Less than a month ago, the index had surged 151 percent over a one-year period to its highest since 2008, ushering in a stampede of companies seeking to return to Chinese exchanges in search of higher valuations.

“Timing and valuations are no longer favorable for companies to go private,” said Henry Guo, an analyst at Summit Research Partners. “The correction reflects the concern that some of the deals won’t go through.”

Qihoo’s American depository receipts slumped 7.1 percent Tuesday to $58.63, compared with the $77-a-share offer that a management-led buyout group said they’d pay in a non-bidding $8.4 billion bid that was the biggest this year. Qihoo Chief Financial Officer Alex Xu declined to comment on the prospects of the buyout getting scrapped or revised.

Table

Company Name Offer Price($) Closing Price($) Discount(%) CHINA INFORMATION 4.43 2.67 39.73 VIMICRO 13.5 8.99 33.41 AIRMEDIA 6.0 4.0 33.33 IDREAMSKY 14 9.88 29.43 21VIANET 23 16.39 28.74 KONGZHONG 8.56 6.14 28.27 JA SOLAR 9.69 7.02 27.55 E-HOUSE 7.38 5.41 26.69 CHINA NEPSTA 2.6 1.91 26.54 MOMO INC 18.9 13.96 26.14 BONA FILM 13.7 10.31 24.74 QIHOO 360 77 58.63 23.86 TAOMEE 3.59 2.91 18.94 RENREN 4.2 3.45 17.86 JIAYUAN.COM 7.2 5.95 17.36 WUXI PHARM 46 38.59 16.11 SUNGY MOBILE 4.9 4.1399 15.51 CHINA MOBILE 22 18.65 15.23 MINDRAY 30 25.45 15.17 SHANDA GAMES 7.1 6.07 14.51 XUEDA 3.38 2.93 13.31 HOMEINNS 32.81 29.36 10.52 PERFECT WORLD 20.2 19.24 4.75

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