BUYOUTS: Qihoo Advances, Jiayuan Hits Headwinds, Phoenix Next?

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Bottom line: Qihoo is likely to complete its $9 billion privatization in the next few months at its original bid price, while Jiayuan’s buyer may have to raise its price again to placate unhappy shareholders.

Qihoo buyout advances, Jiayuan hits resistance

The year of the buyout for US-listed Chinese firms is ending on a loud note, with announcement of a formal privatization offer for security software specialist Qihoo 360 (NYSE: QIHU), the largest of the deals among the 3 dozen announced in 2015. But while Qihoo’s plan moves ahead, another older deal to buy out online dating site Jiayuan (Nasdaq: DATE) is running into trouble due to complaints about its low valuation. In the latest development on that front, a major third-party advisory service has recommended that shareholders reject the offer because it’s too low.

Last but not least, I’ll end this buy-out round-up with some whimsical speculation that Phoenix New Media (NYSE: FENG) may be next to receive a privatization offer. My speculation isn’t based on any insider information, but rather the simple fact that the company’s stock jumped 14 percent on Friday for no apparent reason. The company also looks similar to many of the others that have already received similar offers.

2015 will go down as the year of the reverse IPO for US-listed Chinese companies, which have suffered for the last 2 years due to lack of investor interest in their stories. It’s somewhat ironic that the wave of privatization offers came this year, since 2014 saw a huge wave of new US listings by Chinese firms that raised nearly $30 billion. That wave was capped by Alibaba’s (NYSE: BABA) record $25 billion IPO in September 2014, which now seems like a very distant memory.

We’ll begin with Qihoo, which is by far the most valuable Chinese company to de-list so far with a current market value of $9 billion. While that may seem high, it was as much as 65 percent higher early last year when sentiment was much stronger towards Chinese companies. The fall in its value was probably deserved, since Qihoo’s stock became overinflated on unrealistic hopes for its 2-year-old Haosou search service, which was challenging incumbent Baidu (Nasdaq: BIDU) but has failed to earn much money so far.

According to its final buyout announcement, the management-led buyer group will pay $77 for each of Qihoo’s American Depositary Shares (ADSs). The amount is unchanged from the original proposal Qihoo received back in June, unlike some recent offers for other companies that have risen from original proposed bids. Still, Qihoo’s offer reportedly ran into trouble during the summer due to its huge size, and its ability to complete the process in such a relatively short time should be considered quite an accomplishment.

Investors Resistance

Next there’s Jiayuan, whose privatization process has been even bumpier than Qihoo’s. The company received an original buyout offer earlier this year of $5.37 per ADS, only to see investors complain the figure was too low. The buyout group, now led by rival dating site Baihe, has raised the price twice since then to its current level of $7.56. (previous post) But apparently that’s still not high enough for owners of Jiayuan stock.

The independent Institutional Shareholder Services has just issued its own assessment of the latest bid, and concluded the $7.56 price is too low. (English article) ISS has formally recommended that shareholders reject the current offer, and is citing a figure of $11.74 calculated by Heng Ren Investments, one of the company’s current shareholders, as a more accurate valuation. It’s unclear if ISS’ recommendation could kill the deal, but perhaps we’ll see the buyout group raise its offer one more time to quiet the dissent.

Finally there’s Phoenix New Media, whose stock has been a chronic underperformer despite its relatively good position as a well-known web portal operator. There hasn’t been any news on the company these last few days, which makes the 14 percent jump in its stock on Friday look like it could presage a buyout offer. If such an offer is indeed in the works, its arrival would be a nice Christmas present for shareholders who have been disappointed by the stock over the years.

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