Qihoo 360 (QIHU) Privatization Deal In Regulatory Trouble?

Citing sources familiar with the matter, Bloomberg recently reported that the Qihoo 360 Technology Co. Ltd. (NYSE:QIHU) privatization deal has run into trouble with China’s State Administration of Foreign Exchange (SAFE).

As per sources, SAFE disapproves the transfer of entire acquisition funds overseas in a “single batch” and expects the movement to be in several “smaller batches”. However, the consortium led by Qihoo’s CEO Zhou Hongyi is still discussing it with SAFE.

In June last year, Qihoo received a buyout proposal worth $9.3 billion from a consortium of buyers headed by Qihoo’s CEO Hongyi. Hongyi alone owns around 16% of the company. In December, Qihoo accepted the offer without any alterations.

The thought back then was to delist from the U.S. and dismantle the VCE structure to make it eligible for a listing in China. The Chinese government was relaxing its grip on the financial markets, making it more conducive for local players wishing to raise funds. Also, the Chinese stock market was on a huge bull run and listing in China would have fetched much higher valuations. Reportedly, there are 47 private deals worth $42.6 billion inked since start of 2015.

However, the estimated $5 trillion crash of the Chinese equity markets last summer left investors skepticalof these “go private” deals. Spreads on these non binding private offers had increased as stock prices fell. Some stocks including Qihoo had lost half their market price during the Chinese market rout. However, with the intervention of the Chinese government, markets have started to stabilize somewhat (despite a tumultuous beginning to the year) and the reopening of the IPO market last November has given a fresh boost to these deals.

Bloomberg observed that amid a deluge of go private deals, the Chinese government is trying to control “domestic backdoor listings” so as to prevent depreciation of the yuan.

Stocks to Consider

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