Chinese online media company Sina (SINA) is trading sharply higher on chatter that Alibaba (BABA) is taking a serious look at acquiring the company like it did with Youku Tudou (YOKU) two weeks ago.
At the time of the Alibaba offer to take out Youku, it had closed the prior day at $20.43 per ADS and Alibaba swooped in the next day and offered $26.50 per ADS or a premium of 30%.
If the same sort of offer is good for Sina as well, we would potentially be looking at a price of approximately $62 per ADS.
If you go back and take a look at the history between the two companies you will find that Alibaba already invested $585 million in Sina's subsidiary Weibo (WB), back in April 2013, in exchange for an $18% stake. Extrapolating the numbers gave us a value for Weibo of $3.25 billion at the time.
At $50 per ADS, which is where Sina is currently trading, its market cap is $2.9 billion, and if Alibaba sticks with a 30% premium (like it did with Youku) to yesterday's closing prices for Sina, the market capitalization for Sina would jump to $3.63 billion.
Weibo is currently valued at $3.5 billion, or less than 10% above what Alibaba invested in exchange for an 18% stake two and a half years ago.
So, I believe a potential deal could happen two ways. Alibaba could:
1) Take advantage of the huge undervaluation of Sina by investors in the ADSs by taking out Sina for $3.63 billion, which would include the Weibo stake worth $3.5 billion at present on the U.S. exchange.
2) Offer $3.63 billion for Sina and make a separate offer for the 82% of Weibo that Alibaba does not currently own.
That's an easy choice for me.
How about for you?
I have added calls on the speculation to my longstanding position in SINA