Qihoo Leads a Chinese Exodus From U.S. Markets

Editor's Pick: Originally Published Wednesday, Dec. 23

The $9.3 billion privatization of Beijing Internet group  Qihoo 360 Technology (QIHU) , has refocused attention on a group of Chinese-based companies listed in the U.S. that have received offers to leave the public markets.

Qihoo chairman and CEO Zhou Hongyi and director and president Qi Xiangdong joined with a group including Citic Guoan Information Industry, Golden Brick Silk Road Capital, Sequoia Capital China, Taikang Life Insurance, Ping An Insurance of China, Sunshine Insurance, New China Capital Management, Huatai Ruilian Fund Management and Huasheng Capital in the buyout offer, which is the largest take-private of a Chinese company from a New York market. 

"There are more coming," said one analyst, regarding the deal that Qihoo accepted on Friday.

Chinese social media groups Momo (MOMO) and YY (YY) ; IT developer China Information Technology (CNIT) and real estate technology outfit E-House (China) Holdings Limited (EJ) are part of a longer list of Chinese companies that have attracted suitors. Bona Film Group Limited (BONA) agreed to go private in a $1 billion deal announced days before Qihoo's transaction.

American Depositary Receipts of a number of Chinese companies have shot upwards since the Qihoo announcement. Higher valuation expectations by shareholders could make deals more costly, and therefore less likely. However, in a number of situations the increased prices are still below the initial offers.

Qihoo is the largest of the group, and had some advantages.

"This one had lots of cash. It's a real company. It's easily financeable," the analyst said. "Some will be tougher."

New Qihoo backers Sequoia and Huatai Ruilian are also part of the consortium that aims to take Momo private.  

The firms teamed with Momo co-founder, Chairman and CEO Yan Tang, and Matrix Partners China II Hong Kong to offer $18.90 in cash per American depositary share. The Beijing company retained J.P. Morgan Securities (Asia Pacific), Shearman & Sterling and Conyers Dill & Pearman in July, after receiving the bid.

Momo's ADRs have gained 7% since Qihoo announced its deal on Friday, Dec. 18, and traded at $16.42 on Tuesday afternoon, putting its market cap at about $3 billion.

China Information Technology has had an even bigger bounce since the Qihoo news, rising 65% from $1.11 on Friday's  open to $1.83 on Tuesday. The company's market value comes to $60 million, less than its $68 million in revenue from the last 12 months reported by Bloomberg.

A group led by Chairman and Chief Executive Officer Jianghuai Lin approached China Information Technology in June. The Shenzen company brought on Duff & Phelps and Gibson, Dunn & Crutcher in August.

ADRs of social media group YY have gained 1% since Qihoo agreed to its privatization. the company received a non-binding proposal from Chairman Jun Lei and CEO David Xueling Li in July , and hired Citigroup Global Markets and Fenwick & West in August. The Guangzhou Internet company's market valuation exceeds $3.5 billion.

E-House co-Chairman and CEO Xin Zhou and fellow board member Neil Nanpeng Shen approached the real estate technology and financing company with a privatization offer in June.  Shanghai online media company SINA (SINA) joined the group in the bid of $6.64 per share later in the month. SINA agreed to swap its shares in E-House for stock of e-commerce and advertising subsidiary Leju Holdings (LEJU) , which trades on the New York Stock Exchange.

Unlike some of its peers., E-House has dropped 3 cents to $6.17 since Qihoo announced its deal. The company's market equity value stands at $880 million.

Qihoo, pending the completion of its sale, won't be the first of the Chinese companies to bid New York adieu. Bona Film announced its sale to Sequoia, Fosun International, the film and TV unit of Alibaba (BABA) , Tencent Holdings (TCEHY) and others a few days earlier, and other U.S.-listed Chinese companies have previously gone private.

Given the number of offers and deals to take companies off the market, Qihoo and Bona won't likely be the last.

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