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Qihoo, Alibaba-Backed Momo Are Bellwethers Of China Go-Private Bids

China’s up and down stock market and scrutiny from regulators have slowed but apparently not soured China-based companies that trade on Wall Street from preparing to delist in the U.S. and head home in search of better stock valuations. The process, though, “is a bumpy road, definitely,” ITG Research analyst Henry Guo told IBD. Take the case of Qihoo 360 Technology ( QIHU ), a Beijing-based Chinese security software and Web search giant that is one of China’s biggest Internet businesses on Wall Street. Just a few years after its 2011 IPO and the stock’s nearly 800% run-up from August 2012 to March 2014, Qihoo is near the last phase of delisting from the NYSE. The company announced in March that its shareholders had approved a previously announced plan to be taken private by a consortium of investors, in a deal originally valued at $9.3 billion. China Internet billionaire and Qihoo 360 CEO Zhou Hongyi has backed the deal. And Qihoo has a lot of delisting company. Last year, 28 Chinese-owned companies that traded in the U.S. stock market reported plans to go private, according to research firm Dealogic. That group includes Trina Solar ( TSL ), which in December announced that it had received a go-private offer as its U.S.-based listing became less appealing compared with higher-value domestic markets back in China. CEO Jifan Gao and an investment group submitted a bid to buy out shareholders, in a letter filed with the U.S. Securities and Exchange Commission. The 28 proposed delistings of China-based companies is up from just one in 2014 and 11 in 2013, Dealogic found. This is so even though, after touching eight-year highs in June 2015 and April 2015, respectively, the Shanghai composite and Hong Kong composite indexes have plummeted 45% and 30%, respectively. The fact that so many companies are making the move has spurred the China Securities Regulatory Commission to review such businesses, Bloomberg reported this month, quoting a commission spokesman as saying the panel is conducting “in-depth analysis and research.” And, separately, Bloomberg reported on Thursday that the Qihu deal specifically was having trouble with China’s State Administration of Foreign Exchange on the issue of moving the acquisition funds offshore. Anonymous sources told Bloomberg that China wants to avoid encouraging too many buyouts of overseas-traded companies that could increase depreciation pressure on China’s currency. Autohome, E-House Just The Latest To Seek Delisting This year, as of early March, eight Chinese companies listed in the U.S. had announced going-private plans, Dealogic’s data shows. Then in April, Autohome ( ATHM ), which provides online content for car buyers in China, announced that it had received a nonbinding management-led buyout offer for $1.6 billion, or $31.50 a share, from a consortium including Autohome CEO James Qin, Boyu Capital, Sequoia China and Hillhouse Capital. And leading China real estate company E-House ( EJ ) announced that company management would take the Shanghai-based business private for $6.85 per share. The deal is expected to close in the second half of the year. Mobile social networking platform and dating app Momo ( MOMO ), which was originally backed by powerful China e-commerce giant Alibaba Group ( BABA ), is said by observers to have strong prospects for success with its go-private plan. But the news from the China Securities Regulatory Commission has seen its U.S. shares fall from near 16.50 to near 11.50, and U.S. shares of other pending delisters YY ( YY ) and E-Commerce China Dangdang ( DANG ) have plunged by similar percentages. Momo got a $2.6 billion offer last June — just six months after the company held its U.S. stock market IPO — from a group that includes some of its top executives. In early April, Alibaba made a regulatory filing showing it had joined the group seeking to buy out Momo, support that is expected to accelerate Momo’s privatization prospects. Momo says it is the third-most-popular social app in China, after Tencent Holdings ( TCEHY )-owned WeChat and Mobile QQ. Will the go-private movement strengthen or fizzle? Analysts are torn. “The problem is that, first of all, the China capital market is not that stable,” analyst Guo said. China’s capital markets sizzled last year, especially in the first half, making it much easier to raise money at a good valuation in China than in the U.S., Guo says. China Markets Have Settled, But Growth Slows After a frenzied stock market sell-off in January that jolted the globe, China’s markets have settled down, despite slowing economic growth. But the recent calm is not expected to last, as China’s rising debt and ineffective economic reform programs could contribute to more shake-ups, according to a Wall Street Journal report. “You can see that the capital market in China is not that stable,” Guo said. “And we see a lot of companies who announced they were going to have a privatization haven’t really proceeded as planned. “I think the reason behind that is they have had difficulty raising enough money to go private. And secondly, after the privatization, I think they see some difficulty going public again in China. I have not seen that many other companies who have made huge progress.” In the meantime, the process of relisting in China after leaving the U.S. “is not an immediate switch-over,” said Clara Gillispie, director of Trade, Economic and Energy Affairs for the National Bureau of Asian Research, a Seattle-based nonprofit research group. “There are a lot of regulations that you have to go through and approvals you must get from investors. “Even in normal times, you have this big queue lined up. When you see the successful, hot market that you did at the beginning of last year — that really put a lot more (companies) onto that train.” Gillispie said observers consider Qihoo 360 to be “a bellwether” of what lies ahead on the China go-private front. She called Qihoo “a very large, successful company. They have done well in the U.S. market. How they sustain this transition can say a lot about the (go-private) process.” China Companies Had Coveted U.S. Markets In the past, the tide for China companies has washed in the opposite direction. Chinese businesses have wanted to come to the U.S. to gain access to foreign capital and for the cachet of being publicly traded in the U.S. Think Alibaba. The China-based Internet conglomerate made the biggest-ever U.S. IPO when it raised $25 billion in its New York Stock Exchange debut in 2014. Chinese companies, though, found that being on Wall Street “was not always an easy ride,” said Daniel Roules, office managing partner of the Shanghai office of law firm Squire Patton Boggs, which has assisted China companies interested in privatizing. “A general perception grew that the U.S. was a difficult investment environment due to the regulatory hurdles and threat of litigation,” Roules told IBD via email. That apparently has helped fuel the current go-private trend, even in the face of tumultuous times back in the Chinese stock market. Though Chinese companies traded in the U.S. that have considered re-listing in China could be holding off on their plans, Roules said, “We will likely see a number of companies going private in the next few months and then deciding whether to re-list in China” later on. Guo says going back to China remains a logical move for many Chinese companies. “From the longer-term view, it really is in their best interest to go back to China because they’ve got higher valuations there and they’re closer to their consumers, who know the company’s products well,” Guo said. “For the long run, that’s the trend.” In the near term, however, the process isn’t easy, he says. Going private takes a lot of money and the process can take three to five years, he says. “For now,” said Guo, “management really needs to think about how to implement everything, to make a choice that’s in their best interest.”

Why Qihoo, YY, Going-Private Chinese Tech Stocks Are Rebounding

U.S.-listed Chinese stocks  Qihoo 360 ( QIHU ), YY ( YY ), E-Commerce China Dangdang ( DANG ),  Momo ( MOMO ) and Vianet ( VNET ) rebounded Tuesday after tumbling for days on reports that Chinese regulators might put the brakes on their plans to delist from the American market and relist in mainland China. The China Securities Regulatory Commission is mulling limits on the number of reverse mergers from previously foreign-listed companies, sources told Bloomberg. But that eased fears of an outright ban. YY YY shares gained 5% in afternoon trade on the stock market today  but have tumbled about 17% since last Wednesday alone. YY stock sliced both its 50-day and 200-day lines on Friday. Reports surfaced late last week of possible regulatory scrutiny regarding the music and entertainment social network. Qihoo 360 After losing 11.3% Monday and briefly sipping below its 200-day line, Qihoo shares rebounded more than 8%. The China-based search engine and security firm announced in December a $9.3 billion deal to go private. Qihoo is a rival to much-larger Baidu ( BIDU ). Baidu has its own problems involving sponsored posts, with the stock edging down Tuesday but tumbling 13% so far this month. Momo Momo, which said last June that it had received a going-private bid from its CEO and affiliates, rose 8% intraday but remain 21% below its close of May 4’s trading session. Momo, a Chinese mobile dating app, is currently trading below its 50-day and 200-day levels. Dangdang Dangdang shares perked up nearly 11% intraday Tuesday after tumbling for three straight trading days, including a 13.3% free fall Monday. The e-commerce firm received a going-private proposal last July. Vianet Vianet rose 15% intraday after crashing 29% over the prior three sessions to the lowest level since September 2014. The Internet data carrier got a buyout offer last June. The China Securities Regulatory Commission believes some of these companies’ valuations are too high, Bloomberg  reported, citing people familiar with the matter.

China Tech Stocks Fall As Shanghai Nears Lows On Growth, Debt Fears

U.S.-traded shares of China technology companies were mixed Monday after the Shanghai exchange had another big decline Monday, with one market technician warning that the index could re-test lows set in January-February. Ralph Acampora, analyst at Altaira Capital Partners, tweeted that the Shanghai exchange “is now expected to retest its January/February 2016 low at 2,638.” Baidu ( BIDU ) stock was down more than 3% in early trading in the stock market today . Baidu announced new measures amid a probe into sponsored advertising by health care outfits. JD.com ( JD ) stock was down nearly 10%, though the e-commerce company early Monday posted Q1 revenue that rose 47% from the year-earlier quarter. Qihoo 360 Technology ( QIHU ) stock was off 3%, shares in Sohu.com ( SOHU )  slipped 2%, while NetEase ( NTES ) stock edged down about 1%. NetEase reports earnings on Wednesday. Alibaba Group ‘s ( BABA ) stock rose fractionally Monday, while Sina ( SINA ) stock was down more than 4% and  Ctrip.com International ( CTRP ) nearly 3%. The Shanghai exchange fell 2.8% on Monday to 2832.11, after sliding last week. IBD Take: YY among the China Internets falling; IBD Stock Checkup can help you assess. The People’s Daily, the government’s official newspaper, on Monday warned that China’s economic recovery might stall. The economic trend may be “L-shaped,” meaning flat growth, rather than a stronger “U-shaped” recovery, said the People’s Daily. Even so, the article said the government will not use excessive investment or rapid credit expansion to stimulate growth. One concern among China observers is the country’s widespread debt. Bank of America/Merrill Lynch, in a research report published Monday, referred to global investor George Soros’ remarks in April that China’s situation marks an “eerie resemblance” to the U.S. in 2005 to 2008, just before the financial crisis sparked the Great Recession. But BofA sees what it calls a better comparison, looking at Japan in the 1990s. “While there may be some parallels between the precrisis situation in the U.S. and China today, there arguably are even more important differences, including the nature of the increase in credit, extent of contagion risks to the broader economy, and scope for government policy to preclude or offset,” said the report. “Indeed, if we had to identify a historical antecedent for the current situation in China, a more applicable choice might be Japan during the 1990s. “That said, China’s unique situation belies any simple comparison with past crises in either developed or emerging markets, and warrants its own more in-depth investigation.” Another concern is increased scrutiny on the number of U.S.-listed China tech companies that plan to go private or delist in the U.S. in favor of China markets, where they have expected they could see higher valuations. China has said it is “reviewing market concerns about a record wave of businesses seeking higher mainland valuations with relistings there,” Bloomberg reported Sunday . Among companies with such plans, Momo ( MOMO ) stock was down 11% early Friday, while YY ( YY ) was down 9%.