SOHU stock exploded higher on July 31, 2020, after the company was upgraded by Morgan Stanley.

Morgan Stanley upgraded to Equal Weight from Underweight.

On July 28, 2020, Tencent (TCEHY) offered to buy out Sogou in a $2.1B deal and take the search engine private, Bloomberg’s Michael Tobin and Zheping Huang report. The WeChat operator is bidding $9 per ADS for Sohu’s (SOHU) unit. Tencent already owns about 39.2% of Sogou but controls a majority of voting power. SOurce: Limited (NASDAQ: SOHU), China’s leading online media, video, search and gaming business group, announced that today the board of directors of its subsidiary Sogou Inc. (NYSE: SOGO) (“Sogou”) received a letter (the “Proposal Letter”) containing a preliminary non-binding proposal (the “Proposal”) from Tencent Holdings Limited (“Tencent”) for Tencent to acquire all of the outstanding ordinary shares, including ordinary shares represented American depositary shares (“ADSs”), of Sogou that are not already owned by Tencent or its affiliates for US$9.00 in cash per ordinary shareholder or ADS (the “Proposed Transaction”). The Proposed Transaction, if completed, would result in Sogou becoming a privately-held, indirect wholly-owned subsidiary of Tencent; Sogou’s ADSs would be delisted from the New York Stock Exchange; and Sohu would no longer have an interest in Sogou. A copy of the Proposal Letter is attached hereto as Exhibit A.

The Proposal Letter states that it is Tencent’s preliminary indication of interest; is incomplete and is not a binding offer or agreement, or agreement to make a binding offer or agreement at any point in the future; and does not create any binding rights or obligations of any person.

The Proposal Letter indicates that Tencent intends to finance the proposed acquisition with cash on hand.

Sohu’s board of directors has not yet had an opportunity to review and evaluate the Proposal in detail, or to make any determination as to how to respond to the Proposal or as to whether or not the proposed acquisition of Sogou would be in the best interests of Sohu, in its capacity as Sogou’s controlling shareholder, to approve or reject the Proposal.

The foregoing summary of the Proposal is not intended to be complete and is qualified in its entirety by reference to the full text of the attached Proposal Letter. The Company does not undertake any obligation to provide any updates with respect to this or any other transaction, except as required under applicable law.

When last reported earnings on May 18, 2020, they reported Q1 EPS of (47c) versus the consensus estimate of (72c). The company reported Q1 revenue of $436M versus the consensus estimate of $427.85M.

Dr. Charles Zhang, Chairman and CEO of Limited, commented, “During the first quarter of 2020, the COVID-19 outbreak inevitably impacted the overall economy and the advertising industry as well. Facing these challenges, we continued to explore new opportunities and differentiated development strategies. For Sohu Media Portal, as a mainstream media platform, we continued to refine the product to generate and distribute a large amount of timely and accurate information, especially regarding the pandemic and its prevention. For Sohu Video, we proactively explored new opportunities in the live broadcasting of medical and health-related content, and provided unique content and valuable information to our audiences. We will continue to explore diversified revenue sources and ways to further narrow losses. For Changyou, online games performed well during the first quarter, mainly driven by the solid performance of both TLBB PC and Legacy TLBB Mobile. The privatization of Changyou was completed on April 17th, after which Changyou’s profit will be wholly attributable to Limited. Going forward, we plan to increase the integration of resources and combine Changyou onto Sohu’s platforms. For Sogou, despite the challenging environment during COVID-19, Sogou’s core Search business continued to outperform the industry. The Search and Mobile Keyboard recorded new highs in terms of traffic and user base, respectively.”

The company is expected to report next quarter earnings on August 10, 2020.

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