Weibo Corporation (WB) stock surged 18% on July 6 and many investors had no clue behind the reason for this mysterious price action. More than 7.7 million shares changed hands as well, in contrast to an average volume of just over a million shares in the last few months. This price action, as Beat Billions learned, came on the back of a rumor that suggests the company could soon go private in light of the expected regulatory changes in the United States.
What regulatory changes are we talking about?
In May, the Senate passed a bill to implement changes to listing requirements of foreign companies on U.S. stock exchanges. As part of these changes, foreign entities would be bound to open their books to The Public Accounting Oversight Board in the U.S. or face the risk of being delisted from American markets. This bill was introduced to save investors from betting their money on shady companies such as Luckin Coffee (LK) in the future. The escalating trade tensions between the U.S. and China are not favorable for Chinese companies listed in the U.S. and the government might expedite the process of enacting this bill. You can read more about this bill here.
In response to the expected changes, a few Chinese companies including 58.com (WUBA) and Bitauto Holdings (BITA) have already agreed to private takeovers, and the rumor has it that Weibo and its parent company Sina Corporation (SINA) will eventually agree to go private.
Sina has already received a deal
Sina, the parent of Weibo, has received a deal to go private, which was announced on July 6. As reported by the company, New Wave MMXV Limited has proposed to acquire all the outstanding shares of Sina at a price of $41 per share in cash to take the company private. Sina stock was trading around $37 per share last Thursday and the stock jumped by over 10% to settle at $40.54 on July 6 as the market absorbed the private takeover effort by New Wave.
Here’s a snapshot from the Proposal.
What awaits Weibo, at this time, is uncertain.
Takeaway
Weibo Corporation has an attractive growth profile as the company has become the go-to solution for Chinese residents to voice their opinion about everything that matters from entertainment to politics. The platform is identical to Twitter in how it operates and has given rise to many influencers over the years who are capitalizing on their brand value to earn ad dollars and promote third-party products and services. With the expectation for higher internet penetration in China in the coming years, Weibo should continue to excel. Shares are down 9% YTD and have missed the rally in tech stocks altogether, which is surprising considering its strong footprint in the country with the highest number of internet users in the world.
Investors, however, should ideally wait for more clarity as to the going-private-efforts of Chinese companies to determine whether Weibo stock is an attractive investment at these prices.
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