SINA‘s (NASDAQ:SINA) stock recently rallied after the Chinese tech company agreed to be taken private by New Wave Holdings, a company controlled by SINA’s CEO Charles Chao, in a $2.59 billion deal. SINA’s investors will receive $43.30 in cash per share after the deal closes, representing a higher offer than New Wave’s initial bid of $41 per share in early July, and the stock will be delisted from the Nasdaq.
SINA’s go-private deal might seem reasonable given the escalating trade tensions and the passage of a U.S. Senate bill that could delist U.S.-listed Chinese companies unless they comply with new regulations. But it will likely hurt SINA’s American investors since it significantly undervalues the company and casts a dark cloud over other U.S.-listed Chinese companies with similar ownership structures.
Why does New Wave’s offer undervalue SINA?
New Wave’s $2.59 billion offer values SINA at just 14 times forward earnings and just 1.2 times this year’s sales. SINA also held $2.6 billion in cash, cash equivalents, and short-term investments at the end of the second quarter — which is slightly higher than New Wave’s bid.
Moreover, New Wave’s bid doesn’t properly value SINA’s stake in Weibo (NASDAQ:WB), the social network it spun off in 2014. SINA currently owns about 45% of Weibo, which has an enterprise value of $7.6 billion, and a majority voting stake in