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Sohu Adopts Shareholder Rights Plan to Fend off Hostile Takeover
Portal operator Sohu.com has launched an attempt to pre-empt any unfriendly takeover by adopting a stock-holder rights plan.
The move came as the Nasdaq-listed company's share price languished recently at below US$1.50 - less than 10 per cent of its initial public offering price, making it vulnerable to attacks by corporate raiders.
Sohu.com said at the weekend that the plan was "designed to deter coercive takeover tactics, including the accumulation of shares in the open market or through private transactions".
It was to "prevent an acquirer from gaining control of (it) without offering a fair and adequate price and terms to all of (its) shareholders," the company said.
Under the plan, all Sohu.com common shareholders will be granted a 10-year right to buy a unit of preferred stock at US$100, and the board has authorised granting the same right to buyers of new shares issued in future.
Should a person or company acquire 20 per cent or more of the company, the rights of the suitor will become void and Sohu.com may exchange all or part of the outstanding rights to shares, in effect doubling the right-holders' stake and diluting the suitor's stake.
Analysts said the plan showed Sohu.com's desire to maintain its independence as management sought to build the business, but the move may stifle any attempt to change the company's leaders in case of mismanagement.
"I think it's bad for shareholders because it removes market force from the equation when it comes to their right to decide who should be managing the company," said an analyst at a United States-based brokerage.
"Market force is the best way to decide who should have management right," he added.
The analyst said the move was not uncommon among US-listed companies, but was rarer among Asian firms.
He said high-profile US companies that have adopted the "poison-pill" tactic include portal-giant Yahoo! and electronic commerce software provider Commerce One.
It is estimated that about 200 US companies adopted similar plans last year, and about 160 to 170 have joined them so far this year, he said.
Other analysts were more positive about the move. Goldman Sachs analyst Rajeev Gupta said the plan was a "good move" as it would give existing management more time to build the business with the assurance that its business plan would not be tampered with by potential buyers.
Analysts said Sohu.com's anti-takeover measure and the break down of talks between Netease and potential suitors pointed to less likelihood of mergers and acquisitions of China's three large portal operators despite sustained losses calling for consolidation.
Credit Suisse First Boston analyst Matt Adams said foreigners were not keen to buy into the Chinese portals.
"On the domestic side, they all have enough cash and they all have a good shot at being number one," he said. "So there is not a compelling force to merge."
Netease is requesting a hearing to fend off the threat of being de-listed on Nasdaq, after failing to file its annual report on time.
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