Banking & Finance

Heading for the exit

Sina to leave Nasdaq in another sign of Chinese firms departing the US

Charles-Cao-w

Charles Cao: buyout offer

In August 1999 China.com was the first ‘Chinese internet stock’ to go public in the US. It had almost everything going for it in order to be successful in the dotcom boom. Trading under the symbol “CHINA”, the Hong Kong-based firm owned one of the most potent URLs of the time. It had even lined up a unit of news agency Xinhua alongside AOL as a shareholder.

In less than a year, China.com’s share price surged from its $20 IPO price to $220, giving it a valuation of $5 billion. The speculation was that it would take over Sina.com, one of China’s three top internet firms of the time along with NetEase.com and Sohu.com. There were even suggestions that China.com would gobble up all three.

There was one crucial thing that China.com lacked, though. The Chinese government didn’t allow the country’s “internet content providers” to be owned by foreign entities. That meant that from day one, despite its name, China.com couldn’t tap into China’s domestic internet sector. For investors, it was a rude awakening.

Sina – once a takeover target – took a different path, especially in growing Sina Weibo into one of the most popular social media apps in China. As such, tech observers generally categorise Sina as a better candidate as the first internet firm from China to have gone public in the US. So the talk this month was about the end of an era after Sina announced plans to delist.

Sina started as a news portal that aggregated articles from print-based media. It went public on Nasdaq in April 2000, when the dotcom bubble was just beginning to burst. The portal also had to brave the regulations barring direct foreign ownership of Chinese internet firms. It was the first firm to float as a so-called “variable interest entity” (or VIE: an offshore shell that controls businesses operating inside China). That paved the way for other Chinese internet firms to do the same, including NetEase, Baidu and Alibaba.

“Looking back, Sina’s Nasdaq flotation should go down as a milestone in China’s commercial history,” one blogger reminisced on Sohu. “It inspired a flurry of ‘China-concept stocks’ to go public in the US.”

Sina enjoyed most of its success from 2009 when it launched Weibo, a Twitter-like social media platform. The company spun off Weibo and listed its shares on Nasdaq in 2014 as well. Weibo still contributes the large bulk of the parent company’s earnings. But as we have reported, the rise of other online challengers has put the parent firm Sina in the shade – to the point that some of its investors have been hankering for a management buyout akin to Yahoo’s (see WiC382).

That became a reality this month after Sina announced that it is set to become one of the many China-concept stocks to leave the New York market. A consortium led by its CEO Charles Cao has offered to acquire all the shares it doesn’t already own at $41 apiece. Valuing Sina at $2.7 billion, the offer is a 20% premium to the 30-day closing price and 130% higher than the IPO price two decades ago.

That’s a meagre return compared to some of the more eye-catching Chinese internet stocks. NetEase shares have surged 160 times over the same period, for instance. But if approved, the deal is likely to be a lucrative one for Cao and his co-investors in the buyout. Sina Weibo was worth more than $8.5 billion as of this week and the parent firm’s stake in the social media crown jewel alone should be worth $3.4 billion. Moreover, 21CN Business Herald reckons that its 20% stake in another unit Inmyshow Digital (known locally as IMS Tianxiaxiu), a Shanghai-listed media and advertising firm, could be worth nearly Rmb7.5 billion ($1.1 billion).

Sina has also flaunted the possibility of relisting in Shenzhen or Shanghai. Other returnees have tried to do the same, counting on a higher valuation. And if Cao pulls it off, Sina could blaze a trail for another trend – the return to mainland bourses of internet firms owned through VIE structures.


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