Why Renren Shares Rocketed Higher

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese social networking specialist Renren (NYSE: RENN  ) advanced more than 10% Friday morning after it was announced that it agreed to sell a 59% stake of its group-buying Nuomi subsidiary to search engine giant Baidu.com (NASDAQ: BIDU  ) for approximately $160 million.

So what: The deal is expected to close sometime in the fourth quarter, and confirms last week's report from the tech news outlet section of Sohu.com that Baidu was interested in acquiring the unprofitable daily deals site, and that negotiations between the two companies had been in progress for at least two months. At the time, the news drove shares of Renren up more than 12%.

Now what: On one hand, this is great for Renren, helping remove at least some of the burden of running the cash-burning Nuomi business. Shares of Baidu, on the other hand, fell slightly during Friday's trading as investors worried whether the company had paid too much for its stake, with the sale price valuing Nuomi at a premium of around 10 times sales.

However, if Baidu can use its deep pockets to ultimately turn Nuomi profitable, this could end up being a big win for both companies.

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