Portals: Sohu Stays Public, Weibo Unwanted 搜狐否认私有化传言 淘宝试水微信搜索
A couple of interesting news bits are coming from the Internet portal space, where a perennially underappreciated Sohu (Nasdaq: SOHU) is denying reports of a plan to go private, as other separate reports indicate that Sina’s (Nasdaq: SINA) stalled talks for a tie-up with e-commerce leader Alibaba may be dead. Both developments underscore how difficult it is to do deals in the current climate, where many top company executives can’t agree on valuations and owners often believe their assets are worth much more than others in the market might agree with.
Let’s start with a look at Sohu, a largely ignored company which shot into the headlines for 24 hours after some media reported it was weighing a privatization bid. (English article) The reports cited unnamed sources, and were quickly accepted by investors who believed that Sohu was looking to follow in the footsteps of other overseas-listed Chinese companies that have recently launched similar privatization bids, including advertising firm Focus Media (Nasdaq: FMCN) and hotel operator 7 Days (NYSE: SVN).
Sohu responded by saying the rumors were groundless, and there were no discussions on any privatization. (company statement) The fast-evolving story sent Sohu shares on a roller coaster ride, rising 12 percent on Tuesday only to give back all the gains on Wednesday after the official company denial.
Some initial reports indicated Sohu founder Charles Zhang was exploring the privatization because he believed his company was undervalued by investors. That lead media to speculate that Zhang was the source of the rumors, as he looked to boost his company’s share price. (Chinese article) While that may be partly true, I think that private equity investors and others hoping to finance such a deal may have also helped to fuel the rumors, hoping to pressure the company into exploring a privatization bid.
Regardless of the reasons, any potential deal appears to be dead for now. But this case does show that there’s plenty of private equity in the market looking for good privatization opportunities, meaning we could still see 1 or 2 more privatization bids launched this year.
Meantime, let’s take a quick look at the Sina development, which actually comes with news of a new tie-up between Alibaba’s Taobao online marketplace and Internet giant Tencent’s (HKEx: 700) fast-rising WeChat social networking service. (English article) The reports say only that Taobao has quietly launched an e-commerce search service on WeChat, known in Chinese as Weixin.
This tie-up doesn’t look like a huge deal by itself. But its bigger significance lies in the fact that WeChat is quickly emerging as a rival of Sina’s popular Weibo microblogging service. Thus the fact that Alibaba has formed this new tie-up with an archrival of Sina Weibo could mean that Alibaba has given up hope of forming any tie-up with Weibo, which had been reported previously.
Media had said late last year that Sina and Alibaba were in talks for a deal that would see Alibaba invest in Weibo, aiming to use Weibo’s huge base of more than 500 million registered users as potential customers for its e-commerce services. (previous post) Later reports said the talks had broken down due to disagreement over valuation, and this latest Taobao-WeChat tie-up could well indicate that such talks are permanently dead.
Bottom line: Sohu’s denial of a privatization bid means the company is likely to stay public for now, while an unrelated new deal could mean Sina’s previous talks for a tie-up with Alibaba are dead.
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