What To Do With Qihoo?

Qihoo 360 (NYSE:QIHU) is a Chinese internet security company. It offers a browser as well as anti-virus products.

Deal Terms

On June 17, 2015, QIHU's CEO Hongyi Zhou and a buyout group offered to buy the company for $77.00 in cash per ADS.

Deal Financing

Details on financing are to follow. The company is working with JP Morgan (NYSE:JPM).

Deal Conditions

The deal requires a definitive agreement and standard PRC approvals.

Deal Price

The deal price is largely within the range of historically comparable transactions.

Deal Alternatives

It is unlikely that any deal alternatives will arise.


Historically, I have harbored suspicions of QIHU in the past, starting with its browser logo, which appears to be a cheap knock-off of Microsoft (NASDAQ:MSFT) Internet Explorer.

I am glad that I did not short it in 2011-2012, despite the fact that it was on the list of Chinese ADRs that appeared questionable to me.

What to do? While I am currently neither long nor short QIHU (making this one of the very few posts not involving a company that I am currently invested in), QIHU is a Rorschach test for the broader Chinese market. The QIHU CEO is explicitly taking it private to flip it into a Chinese listing and profit from the difference in valuations. If he still sees that as a credible plan, he could go forward, but if the market weakens further, he will likely abandon the deal. Upside = $77, downside = $45, probability = 50/50, so sit on my hands so far (actually, go for a swim, but in either event: no position). However, this will be a useful tool for reacting to the Chinese equity market, as there could be a lag of days or weeks following a strong market move before Hongyi Zhou announces whether he intends to go forward.

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