Is China’s Qihoo 360 Closing In On Go-Private Deal?

Qihoo 360 Technology (QIHU) stock rose Tuesday amid reports that an investor group will soon complete its purchase of China’s largest Internet security company in what would be the largest take-private deal for a U.S.-listed Chinese firm.

Qihoo announced on June 17 that it had received a proposal from an investor group led by the company’s CEO to pay about $77 a share for the company in a transaction worth $9 billion.

The proposed buyout is expected to be completed in the coming weeks with financing from a mostly domestic investor group, according to a report in Tuesday’s Wall Street Journal.

Qihoo has enlisted Chinese wealth management firms to help raise funds for the buyout and plans to relist shares on a Chinese domestic stock exchange, likely via a reverse merger, according to the Wall Street Journal report. The idea is that the company would fetch a higher valuation in its home market.

Qihoo’s U.S. stock is now 9% below the nonbinding $77-a-share go-private offer made in June by Qihoo Chairman and China Internet billionaire Zhou Hongyi and other investors, including venture capital firm Sequoia Capital China and Chinese securities firm Citic Securities Co.

Qihoo was up almost 4% in early-afternoon trading in the stock market today, above 70.

But Qihoo stock has declined 3% from its year-to-date high of 72.65 set when the buyout offer was announced in mid-June.

Since the start of the year, Qihoo 360 stock has risen 23%.

Qihoo, which is expected to issue its Q3 earnings report within the next several days, did not give Q3 guidance. Analysts polled by Thomson Reuters are expecting revenue of $502.4 million, up 33% year over year, and EPS ex items of 94 cents, up 49% year over year.

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Qihoo provides Internet search, online games and mobile security products, putting it in competition with China search leader Baidu (BIDU) and others. The company also provides search advertising and mobile services in the region.

With an estimated 20% of the desktop search market, No. 2 search engine Qihoo has struggled to make headway in mobile search.

In addition to Baidu, Qihoo’s search rivals include No. 3 search engine Sogou, owned by Sohu (SOHU).

Web giant Tencent Holdings (TCEHY) — the third leg of the Baidu/Alibaba Group (BABA) /Tencent Chinese Internet monolith — owns a major stake in Sogou. And Alibaba has its own mobile search engine, called Shenma.

The Qihoo deal is part of a larger trend. In the first half of the year, 19 Chinese-owned companies that traded on the U.S. stock market reported plans to go private, according to research group Dealogic.

That compares with just one in the first half of 2014, and 11 in all of 2013. Several of those stocks had been doing poorly on the U.S. markets, so the plan was to delist and come out again on the Chinese stock markets, despite the on-and-off upheaval on China’s exchanges.

While stock prices of Qihoo and many other U.S.-listed take-private targets dipped significantly from their offer prices earlier this year, Qihoo stock has rebounded in recent weeks, as have other U.S.-listed Chinese Internet companies.

The closely watched relisting of Chinese outdoor advertising display firm Focus Media Holding, which was taken private off the Nasdaq in 2013, also boosted optimism about the buyouts of Qihoo and other China stocks.

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That deal was the first major successful relisting domestically, the Journal said, and values Focus Media at more than twice its $2.6 billion valuation when it was taken private by a group of private-equity funds.

Connect with Michele Chandler on Twitter @IBD_MChandler and Facebook .

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