The wave of Chinese companies going private continues this week with Momo (MOMO), which has received an offer at a 20% premium to its prior close. Yet again, it was an offer from part of the management team supported by venture capital firms that were part of the company prior to listing on our shores.
I would do the same as well -- take a company public and cash in big time. Once the market begins to undervalue the assets, take it private again and relist on the Chinese and/or Hong Kong markets at several times the valuation the companies are currently afforded on our exchanges. Cash in big the first time and cash in again even bigger the second time around. Why not? Wouldn't you?
Another Chinese company that should soon see a similar "go private" offer is SINA Corporation (SINA). SINA is one of China's largest online media companies and owns Weibo (WB), a hugely popular social media and micro blogging platform also based in China. Weibo happens to own WeChat, a messaging service that currently boasts 500 million users in Asia, from zero three years ago. The current market capitalization of SINA is $3.4 billion, while WB alone is currently valued at $4.05 billion.
The company's revenues are at a billion per year run rate, with the Street estimating revenues of $1.01 billion and earnings per share of $1.46 for 2016, up 20% and 132% respectively year on year. Not too shabby.
In April 2013, Alibaba (BABA) also took an 18% stake in SINA's Weibo for $586 million, giving WB alone a value of $3.3 billion at the time.
SINA is also part of the investor group that just made a bid last week to take E-House (EJ) private at $7.38 per share, a premium of 25% to the average closing trading price for the 15 days prior to the offer.
In addition and most significant, a few weeks prior, SINA announced that the company had sold 11 million shares to Charles Chao, the company's CEO and Chairman, at a price of $41.49/share for a total of $456 million. It was announced that Chen was subject to a six-month lock-up of those shares. Show of faith by Chen? Sure. That, and a lot more.
We would all like to believe that Chen was investing that massive amount of money in the company solely due to the fact that he believes in it. I am sure that is true.
However, I also believe, the company is getting ready for a "go private" offer of its own soon, and Chen was making sure that he and his group would have enough skin in the game to be able to do so when the time comes.
I think the shares are worth at least 2x where they are right now, and who knows what they will be worth if they do go private and then immediately turn around and relist on the Chinese/Kong Kong exchanges. Several times that, maybe?
At least, it's something to think about.