China's Qihoo completes $9.3b take-private

A consortium led by Hongyi Zhou, the company's chairman and CEO, submitted a buyout offer of $77.00 per American Depository Share in June 2015 and the parties entered into a definitive agreement six months later. The consortium held 26.8% of Qihoo and 61.3% of the voting rights, so shareholder approval was always likely, but there was some disquiet over a potential domestic back-door listing.

Qihoo issued a statement dismissing as rumors several media reports of a dispute with the China Securities Regulatory Commission (CSRC) over restrictive lock-up and capital-raising requirements once the back-door listing was completed. Meanwhile, the CSRC announced that it was studying the market impact of overseas-listed Chinese companies relisting on the A-share markets through IPOs, M&A as well as restructurings.

Another statement confirming the de-listing only identifies a handful of participating parties. However, a total of 36 equity commitment letters were submitted in connection with the take-private from entities including: five domestic insurers or their asset management arms; several bank asset management units and corporates; and funds linked to private equity firms such as Sequoia Capital, Sailing Capital, and China International Capital Corp.

As part of the deal, the consortium has agreed to redeem around $1.6 billion in debt. It has also secured a renminbi-denominated term loan of $3 billion and a bridge loan facility of up to $400 million, both arranged by China Merchants Bank.

Founded in 2005, the company was the leading provider of PC internet security and mobile internet security products in China last year, with 523 million monthly active users and 868 million smart phone users. It was also the number one PC browser provider and Android mobile app store operator. Sequoia was among the company's first backers in 2006. Qihoo also received capital from a host of other VC and PE investors before going public on the New York Stock Exchange in 2011.

Qihoo generated revenues of $1.8 billion in 2015 - primarily from online advertising, value-added services and enterprise and IT systems services - compared to $1.39 billion the previous year. Net income rose from $222.8 million to $306.9 million over the same period.

This is by some distance the largest PE-backed take-private, ahead of the $3.7 billion buyout of Focus Media in 2013. That company went public in Shenzhen through a reverse merger involving an asset swap, share issue and cash payment worth around $7.37 billion.

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• Topics
• Greater China
• Buyouts
• Technology
• TMT
• China
• Sequoia Capital
• sailing capital
• CICC