A man visits Sogou booth on day one of the 2019 China Digital Entertainment Expo & Conference (ChinaJoy) at Shanghai New International Expo Center on August 2, 2019 in Shanghai, China.
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Tencent, one of China’s biggest technology firms, already owns approximately 39.2% of the total issued and outstanding shares and 52.3% of the total voting power of Sogou. Tencent has proposed $9 in cash per American depositary share (ADS) that it does not already own. That is a premium of around 56.5% to the $5.75 closing price of Sogou’s ADSs on July 24.
Sogou’s shares rallied to close at $8.51 on Monday after the Tencent offer, valuing the firm at $3.31 billion.
Sohu, the parent company of Sogou, said its board of directors has “not yet had an opportunity to review and evaluate the Proposal in detail, or to make any determination as to how to respond to the Proposal or as to whether or not the proposed acquisition of Sogou would be in the best interests of Sohu, in its capacity as Sogou’s controlling shareholder, to approve or reject the Proposal.”
Tencent’s offer, if successful, would take Sogou private and de-list it from the New York Stock Exchange (NYSE) at a time when U.S.-China tensions are ramping up and threatening Chinese firms listed on Wall Street.
In May, the U.S. senate passed a bill that could make it harder for Chinese companies to go public in the U.S. and carries the threat of de-listing for those already present there.
Chinese chipmaker SMIC de-listed from the NYSE last year and went on to carry out a share sale in Shanghai in July. Nasdaq-listed Sina, a social media and news company, also received a privatization offer earlier this month from a company run by its chairman Charles Chao.
Other Chinese companies have also decided to carry out an initial public offering at home. Alibaba’s financial technology affiliate Ant Financial announced plans earlier this month for a dual listing in Shanghai and Hong Kong.
Tencent already has a relationship with Sogou. The search engine is integrated within Tencent’s massively popular WeChat messaging app. Analysts see the two companies as being able to work together in more areas.
“We consider there will be more synergies between Sogou and Tencent in search and smart devices in the future,” Thomas Chong, equity analyst at Jefferies, wrote in a note on Wednesday.