(Chinese Version)

1

On December 17th, 2015, Sohu’s board of directors received a privatization proposal from its chairman and CEO Zhang Zhaoyang.

Some people guessed, jokingly, that Mr. Zhang might jump to the decision after a conversation with Zhou Hongwei, CEO of Qihoo 360 (just for fun).

For sure, such decision couldn’t have been made in one night.

However, I can still remember clearly the spectacular bell ceremony when it listed on NASDAQ.

2

Nowadays, Chinese companies have two options when dealing with their capital: they could either merge with other companies or get themselves privatized.

Unlisted companies tend to choose the first often, yet some listed companies might also choose to merge with other companies. For example, when Youku merged with Tudou, it was already a listed company.

Many companies choose the second option because they want to list back in the Chinese stock market. How come? Generally, Chinese investors tend to evaluate if a company is worthy of investment based on its market value. Now that a company’s market value can increase a great deal after it get privatized, many companies will be attracted to do so.

However, I’m not saying that Chinese investors are less rational less foreign investors. After all, the market value is the most direct indicator of whether a company is promising or not.

3

Now, let me focus on Sohu’s case I mentioned at the beginning of this article.

As a matter of fact, Mr. Zhang has been complaining for several times that the Wall Street failed to recognize the value of Sohu.

I can’t say for sure if his judgments are right or not, yet the inconvenient truth is that Sohu is indeed on the Secondary Market.

However, Sohu was running into some troubles recently. Among the three portals (Sina, NetEase and Sohu), Sina did a good job according to the Q1 financial report with the support of its Weibo business, Netease also turned in a pretty good performance report through its cross-border e-retailing business, yet Sohu was gradually declining both in its American TV series streaming service and game sector. After Sougou was sold by Sohu, it’s relationship with Tencent was getting closer and closer.

From my own experience, I also find that Sohu’s employees I came to know two or three years ago have all left Sohu up till now.

It seems that it’s high time Sohu adjust itself to get better prepared for the future, yet this is no esay thing for a company in the secondary market. As long as Sohu wanted to adjust itself, it will certainly have to spend a lot of money, which might do no good to its financial report.

In this case, getting itself privatized might be a good way out: Sohu will finally have the opportunity to adjust itself without considering investors and get prepared to list on the Chinese stock market.

4

An increasing momentum towards privatization is certainly good news for the Chinese government. During the past two decades, while the Chinese Main-Board Market failed to cater to the needs of burgeoning Chinese companies, the Second-board Market also lagged far behind. Thus, many companies were forced to list on the American stock market, which annoyed the Chinese government a lot. After all, there is a fine line between seeing Chinese burgeoning companies listing on foreign stock markets and benefiting foreign economies and seeing them listing on the Chinese stock market. In this sense, Sohu didn’t make the decision on impetus, but after much discussion and thought.

5

To wrap up, if burgeoning Chinese companies that listed on foreign stock markets choose to go back to China now, they will be both economically rational and politically correct. However, you can still wait until the Chinese stock market grows mature and come back home at that time.

I’m serious.

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[This article is published and edited with authorization from the author @Wei Wuhui, please note the source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.