Qihoo's privatisation bid back in focus
As Chinese equity markets were riding high in May and June, a wave of US-listed Chinese firms announced buyout bids, with the intention of relisting in China to take advantage of the high valuations.
After the 30% decline in Chinese equities, the government began implementing measures to stabilise the markets, at the expense of its credibility. It has also gone back on its margin trading crackdown, and subsequently domestic markets have rallied as margin lending has increased. This is a key point, because a lot of the doubts over the buyout bids were based on fundraising in China.
At the time of the buyout bid, I made a case for buying Qihoo, because there was a $7 premium to be made. Since that report, the decline in domestic equities has seen US-listed Chinese firms suffer, as Qihoo closed last night at $62.77, which still represents a decline of 10.5% since after the deal was proposed, and a buyout premium of 22.7%.
Qihoo's share price since its IPO
Management and risk description
The reality is that it is unknown when Qihoo will make an announcement on its buyout bid, as other firms have released very little public commentary about their respective bids. It is likely that firms are waiting for stability to remain in domestic equity markets before we see decisions being made, which is the correct course of action, given the market volatility over the past month in China.
The firm is also likely to release its second-quarter earnings at the end of August, when management will most likely comment on the ongoing privatisation bid. The earnings release is likely to cause higher volatility than usual for Qihoo, so investors should be prepared for this, particularly given that the buyout bid will amplify this volatility.
Time Horizon: Three months
— Edited by Gayle Bryant