Momo Jumps as Alibaba's Tsai Joins Board, Reviving Buyout Wagers

  • Announcement fuels speculation Alibaba may help stalled offer
  • Momo trades at biggest discount to offering price among peers

Momo Inc. surged after naming Alibaba Holdings Group Holding Ltd.’s vice chairman to its board, stoking speculation that the Chinese maker of a dating app may be able to complete a management-led buyout with help from the country’s biggest online retailer.

The American depositary receipts of Momo rose 20 percent to $12 in New York on Tuesday, the most since May 2015 as Momo said that Alibaba co-founder Joseph Tsai has joined its board as a director. The e-commerce company invested in Momo before the company went public in December 2014.

Momo received a proposal from a group led by its chief executive officer to go private at $18.90 per ADR in June last year, just six months after raising $248 million in an initial public offering. The shares tumbled more than 40 percent since then through Monday as the buyout group, which also includes Sequoia Capital China Investment Management, hasn’t completed the deal. The addition of a senior Alibaba executive to the board may be a sign that the investors are still pursuing the delisting, according to Henry Guo, of Summit Research Partners.

‘Positive Sign’

“Bringing Tsai on board is a positive sign that Momo may get capital from Alibaba,” said Guo, a San Francisco-based analyst at Summit Research. “Investors are dubious on such buyout bids these days, because the market conditions have changed.”

Bob Christie, a spokesman for Alibaba, said the company declined to comment about whether it intends to help Momo with the proposed buyout.

Only six out of a record 41 U.S.-listed Chinese companies have completed the process to delist in the U.S. since the start of 2015 as a volatile stock market and the economic slowdown in China have reduced the attractiveness of a local listing. Momo trades at 58 percent below the offer price, the biggest discount among its peers, indicating that investors are concerned about the company’s ability to raise enough money to complete the buyout.

“People definitely like its affiliation with Alibaba,” said Brendan Ahern, a New York-based managing director at Krane Fund Advisors. “You’ve got someone with very deep pockets on your board. It could be interesting where that relationship goes.”

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