Tencent to Buy Rest Of Sogou Search Unit -- WSJ
Acquisition of affiliate would mark latest exit by a Chinese
tech firm from U.S. stock listing
By Joanne Chiu
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 29, 2020).
Tencent Holdings Ltd. proposed to buy out other investors in its
search-engine affiliate Sogou Inc. for about $2.1 billion, in what
could become the latest instance of a Chinese technology company
abandoning the U.S. stock market.
The proposal adds to a flurry of deal-making in recent months
involving New York-listed Chinese internet firms. Buyout offers
have emerged for several smaller groups, while three larger
companies, including Alibaba Group Holding Ltd., have secured
secondary listings in Hong Kong.
Analysts and investors say secondary listings or buyouts can
both offer a path to higher valuations, and might be a way to
shield companies from rising U.S.-China tensions. For companies
accepting a buyout offer, a higher valuation would come via a later
initial public offering in Hong Kong or in mainland China.
Tencent's proposal to Sogou made no mention of any plan to
Sogou, a rival to the larger Baidu Inc., went public on the New
York Stock Exchange in late 2017, in a spinoff from portal operator
Sohu Inc. However, since then Sogou's stock has mostly languished
below its debut price.
Sogou, known as "Search Dog" in Chinese, said Monday that
Tencent had offered to pay $9 in cash for each American depositary
receipt that it doesn't already own. Hong Kong-listed Tencent owns
39% of Sogou and holds 52% of its voting rights. Analysts at Nomura
said in total Tencent would pay about $2.1 billion.
Ronald Wan, chief executive at financial company Partners
Capital International, said Tencent could enjoy capital gains by
relisting Sogou at a later date.
Jialong Shi, China internet analyst at Nomura, said Sogou would
be a good purchase for Tencent, and its social app WeChat could
benefit from Sogou's search know-how. "Sogou can help Tencent make
inroads into the already competitive search-advertising market in
China," he said.
The bid is at a 57% premium to Friday's closing price, but far
below Sogou's $13-a-share IPO price. Sogou's depositary receipts
leapt 48% Monday to $8.51.
Sogou said its independent directors would review the proposal,
which it said was preliminary and nonbinding. Sohu, which still
owns a 34% stake, said its board hadn't yet been able to review the
proposal in detail. Charles Zhang, Sohu's founder, has agreed to
sell his 6.4% stake in Sogou to Tencent.
This year has brought a wave of takeover bids for U.S.-listed
Chinese tech groups, echoing an earlier surge of deals starting
five years ago.
In April, Sohu took its online gaming unit Changyou.com private.
In June, 58.com Inc., which operates China's largest marketplace
for online classified advertisements, said a consortium led by
Warburg Pincus Asia planned a $8.7 billion buyout, supported by
58.com's founder Jinbo Yao. This month, Nasdaq-listed Chinese news
and social-media company Sina Corp. received a $2.7 billion
management buyout offer.
Mr. Shi at Nomura said a secondary listing isn't viable for
smaller companies trading at low valuations. "The alternative plan
for those companies is to go private and then relist themselves in
China's A-share market or Hong Kong when time permits," he said.
The A-share market refers to mainland stock markets in Shanghai and
He said the upshot could be higher valuations. "Asian investors
are generally more appreciative of the business models of these
Chinese tech companies, as well as having a better understanding of
the unique industry environment in which these companies operate,"
Mr. Wan at Partners Capital said while Chinese companies
incorporated outside China and with unequal voting rights aren't
eligible for a domestic listing, they now have ways to raise funds
onshore or in Hong Kong.
"There is an urgency for U.S.-listed Chinese companies to
explore other viable options if the U.S.-China tensions escalate,"
Write to Joanne Chiu at email@example.com
(END) Dow Jones Newswires
July 29, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.