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Why Stock Skyrocketed 65.5% in September

By Steve Symington – Oct 5, 2019 at 5:13PM

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Sohu is trying to acquire the Chinese video game developer.

What happened

Shares of (CYOU) soared 65.5% in September, according to data from S&P Global Market Intelligence, after its former parent company and largest stakeholder, (SOHU -1.96%), made a non-binding offer to acquire the Chinese video game developer for $10 per American depositary share (ADS). When announced the proposal on Sept. 9, that price marked a whopping 69% premium from the previous day's close.

Woman drawing large image on a wall of a big yellow fish eating a smaller yellow fish. Acquisitions concept.


So what

To be fair, the timing of Sohu's offer is no coincidence. Shares of Changyou had plunged more than 65% year to date leading up to the announcement, including a more-than 50% single-day drop in June (as fellow Fool Keith Noonan pointed out at the time) after the company paid a special dividend of $9.40 per share in an apparent effort to return cash to Sohu and pave the way for such a transaction.

Now what

While there are no guarantees the transaction will move forward, Changyou has formed a special committee of its board to consider Sohu's proposal. But if Changyou and Sohu come to terms, upon closing the former business would no longer be publicly traded but rather become a privately held, wholly owned subsidiary of Sohu.

Depending on the state of its underlying business, it's unclear at this point whether Changyou will pursue an even more attractive acquisition premium. So investors today are left with a decision: Keeping in mind the potential tax repercussions of selling, you can take last month's profits and put your cash to work in another promising stock. Alternatively, you can hold with the hope that Changyou will be able to either negotiate a higher price, or -- perhaps less likely, and less amiable to current shareholders -- spurn Sohu's advances and attempt to turn its business around as a standalone, publicly traded entity.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends The Motley Fool has a disclosure policy.

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