Qihoo 360 to relist in Shanghai via $7.6b reverse merger

SJEC Corporation, a listed domestic elevator manufacturer, will acquire Qihoo through an asset swap, worth RMB182 million, and a share issue. The company will issue 6.37 billion shares to Qihoo’s existing shareholders at RMB7.89 apiece, according to a filing.

Hongwei Zhou, Qihoo’s chairman and CEO, will become the ultimate owner of the listed company following the deal. Zhou will hold a 12.14% direct interest, while two investment vehicles under his control – which comprise the interests of the investors who backed the take-private – will own 51%.

Zhou led the consortium that privatized Qihoo in July 2016 at a valuation of $9.3 billion, including around $1.6 billion in debt. The transaction was financed through a combination of new and rollover equity plus a renminbi-denominated term loan of $3 billion and a bridge loan facility of up to $400 million.

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.

Founded in 2005, the company was the leading provider of PC internet security and mobile internet security products in China 2015, 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. The company received several rounds of VC and PE funding before going public in the US in 2011.

Qihoo generated revenues of RMB9.9 billion last year, up from RMB9.4 billion in 2015. Net income dropped from RMB1 billion to RMB744 million over the same period.

There was some uncertainty over the back-door listing as the take-private coincided with a China Securities Regulatory Commission investigation into the impact of overseas-listed Chinese companies relisting on the A-share market through IPOs, M&A, and restructurings. There were concerns about the valuation gap between domestic and overseas markets and speculators targeting shell companies.

Qihoo issued a statement dismissing as rumors several media reports of a dispute with the regulator over restrictive lock-up and capital-raising requirements once the back-door listing was completed.

Assuming Qihoo goes public in Shenzhen, all three of the largest privatizations of US-listed Chinese companies will have resulted in relistings. Focus Media and Giant Interactive Group completed reverse mergers in Shenzhen, while WuXi Biologics listed in Hong Kong. In June, two investors in Focus Media, CITIC Capital Partners and FountainVest Partners, said they would make full exits before the end of the year.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• IPO
• Technology
• China
• TMT
• Sequoia Capital
• sailing capital
• CIC