China's Qihoo Rises on Report Buyout Deal May Be Near Completion

  • Investor group said to be near definitive buyout bid: WSJ
  • A record $32 billion delisting deals have been announced

Qihoo 360 Technology Co. rose to the highest since June after the Wall Street Journal reported that the company is close to completing a buyout that was announced in June, assuaging concerns that it was facing difficulties finalizing the deal.

Qihoo, which develops security software and owns China’s second-largest search engine, jumped 3 percent to $69.96 in New York. The going-private transaction is expected to be completed in the coming weeks, the paper reported on Tuesday, citing sources it didn’t name. The deal, originally valued at about $8.4 billion, would entail re-listing the shares on a Chinese exchange, it said. The offer of $77 per American depositary receipt that Qihoo received in June would be a 13 percent premium to Monday’s closing price of $67.90.

A record 34 Chinese companies on U.S. exchanges have announced privatization deals this year totaling $32 billion. The buybacks, which stalled after a $5 trillion mainland stock market rout in June and a freeze on initial public offerings, are resuming as investors and executives seek to shift stock listings to China to unlock valuations that may not be appreciated by foreign investors.

Enthusiastic Investors

“It shows that Chinese capital is still very enthusiastic about taking those ADRs home,” Henry Guo, an analyst at Summit Research Partners who covers Chinese companies, said by phone from San Francisco. “Investors earlier were worried that these companies would have a difficult time raising money in China. More Chinese companies may follow suit if Qihoo can go home successfully.”

Regulators lifted the hold on IPOs as equities bounced back and 28 offerings, including 10 this week, will tie up 3.4 trillion yuan ($531.3 billion) of funds by the end of the year, according to a Bloomberg survey. The buyouts primarily target ADRs of Chinese technology companies because they’re cheap compared with their A-share peers on the mainland. Qihoo, which is listed on the New York Stock Exchange, is trading at 16 times projected 12-month earnings, compared with an average multiple of 58 among global peers, according to data compiled by Bloomberg. 

Qihoo’s press office in California declined to comment on the Wall Street Journal report, which estimated a final deal could be priced at as much as $9 billion. Such a transaction would be the biggest buyout on record for a U.S.-traded Chinese Internet company. The investor group is led by Hongyi Zhou, Qihoo’s chairman and chief executive officer.

Trading volume of 4.7 million shares in Qihoo was more than 2.5 times the daily average of the past three months. Momo Inc., a Tinder-like Chinese social media company that last month announced a similar privatization deal, rose 5.2 percent to $13.96, the highest since Nov. 6. The Bloomberg China-U.S. Index added 0.5 percent to 126.26.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the biggest U.S. exchange-traded fund investing in mainland shares, fell 0.3 percent to $35.83.

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