Game Operator Changyou in Play with Buyout Offer

(Beijing) — The founder of Sohu.com Inc., one of China’s oldest internet companies, announced a plan to privatize his company's separately listed Changyou.com online gaming unit, becoming the latest in a wave of U.S.-listed Chinese companies leaving New York due to low valuations.

Sohu chief Charles Zhang offered $42.10 for each of Changyou’s American Depositary Shares (ADSs), according to the compa  announcement on Monday in the U.S.

“I believe that my proposal provides a very attractive opportunity to the company’s shareholders,” Zhang wrote in a letter with his offer. “My proposal represents a premium of 50% to the average closing price of the company’s ADS during the last 90 trading days, and a premium of 9% to the closing price of the company’s ADS on May 19, 2017, respectively.”

Changyou has struggled recently as one of many players in China’s crowded online gaming sector, posting a revenue decline of 31% last year. But the situation has begun to stabilize in a sector where individual hit games can often dictate a company’s fortunes, and in this year’s first quarter Changyou said its revenue declined by a more modest 8% to $120 million.

The company also said it expects to report $110 million to $120 million in second-quarter revenue, compared with $129 million last year, indicating further stabilization. That nascent turnaround could be prompting Zhang to launch his privatization bid at a relatively low price before the company returns to a more attractive growth story, said Ryan Roberts, an analyst at MCM Partners.

“I think the plan is to buy it now before the recovery starts to make itself evident,” Roberts said. “It is unfortunate for the shareholders who have been backing management’s efforts to turn it around because they're effectively being kicked out.”

The privatization bid is part of a much longer list of similar offers, most by management-led groups, to delist Chinese companies from New York over the last two years. Nearly all of those bids were driven by backers who believed that companies could get higher valuations by relisting in China, where investors are more familiar with their names. The largest of those was security software specialist Qihoo 360, which was worth $9 billion when it privatized and delisted last year.

Updates earlier story to show that Sohu founder Charles Zhang is making the privatization offer.

Contact reporter Yang Ge (geyang@caixin.com)